Budget Bulletin

Mini Budget, massive changes.  Chancellor Kwasi Kwarteng today announced his Growth Plan for the UK, introducing some of the most significant tax changes in a generation and going much further than the pledges the Prime Minister made during her leadership campaign.  The main tax announcements include: 

Business Tax changes
The planned rise of corporation tax to 25% from April 2023 will not go ahead. The corporation tax rate will remain at 19% with the aim of encouraging investment and stimulating growth in the UK. The scheduled change to the rate of the Bank Corporation Tax Surcharge will also be cancelled and remain at 8%, keeping the combined rate of tax on profits paid by banks and building societies at 27%. The planned increase in Diverted Profits Tax to 31% will also be cancelled. This will remain at 25% to retain the current 6% differential with the main Corporation Tax Rate. 

To further encourage growth, the government will make the current level of Annual Investment Allowance of £1,000,000 per annum permanent. The temporary level was due to expire after 31 March 2023 when it would have reduced to £200,000. The permanent increase means that businesses will be able to deduct 100% of the costs of qualifying plant and machinery up to £1,000,000 in the first year.

Income Tax cuts
The government will bring forward the 1% cut to the basic rate of income tax to April 2023, 12 months earlier than suggested by the previous government. This brings the basic rate of income tax down to 19%. 

The Chancellor has announced that he will abolish the 45% additional rate of income tax in England, Wales, and Northern Ireland from 6 April 2023, so that the 40% higher rate tax will apply to all non-dividend income above £50,270 for UK taxpayers other than those in Scotland.

From next April the 1.25% additional income tax on dividends will also be cancelled. The increased dividend tax was introduced in April 2022 to ensure those who earned income from dividends also contributed the same amount to help fund health and social care as those earning from employment.

National Insurance Contribution rate reduction
Yesterday, ahead of the Budget it was announced that the 1.25% National Insurance Contribution (NIC) rise for employers, employees and the self-employed will be reversed with effect from 6 November. The Health and Social Care Levy which would have replaced the 1.25% NIC rise from 6 April 2023 will also be cancelled. The changes will be legislated for in the Health and Social Care Levy (Repeal) Bill which has been introduced into Parliament. 

IR35 reform
With the aim of taking complexity out of the tax system, the government has announced plans to repeal the 2017 and 2021 IR35 legislation with effect from 6 April 2023 at a projected cost of £6.2bn over the next four tax years. In practice, this will mean that the compliance obligation to assess employment status and operate PAYE and National Insurance will move from current end client engagers/fee payers, back to individuals operating via personal service companies (PSC). Settlement processes and liabilities identified under the current regime for tax years 2017/18 to 2022/23 are unlikely to be affected.    

Stamp Duty
From today, the threshold above which Stamp Duty Land Tax (SDLT) must be paid on the purchase of residential properties in England and Northern Ireland will be doubled to £250,000, saving up to £2,500. This change effectively abolishes the 2% rate which previously applied on values between £125,000 and £250,000. The thresholds and rates on which SDLT is payable above £250,000 remain the same. The threshold at which first-time buyers begin to pay SDLT will increase from £300,000 to £425,000, and the maximum value of a property on which first-time buyers’ relief can be claimed will also increase from £500,000 to £625,000, saving up to £11,250. As the reduction in the rates applies to land transactions which complete on or after today, this change will benefit those who have already exchanged contracts but not yet completed.

Investment Zones 
Investment Zones will be created in regions across the UK, extending the principles of Freeports much further.  The new Investment Zones will benefit from extra tax incentives, including relief from NIC for employers for up to £50,270 of pay, 100% relief from business rates on newly occupied business premises Enhanced Capital Allowances with a 100% first year allowance for companies’ qualifying expenditure on plant and machinery assets, and Enhanced Structures and Buildings Allowances via accelerated relief to allow businesses to reduce their taxable profits by 20% of the cost of qualifying non-residential investment per year.  A full relief from SDLT is under consideration to be introduced for both commercial and residential land and buildings bought within these new Investment Zones.

Alcohol Duty and VAT free shopping 
Alcohol Duty will be frozen for all categories from 1 February 2023. The government also published a policy paper and draft legislation following the Alcohol Duty Review consultation launched at Autumn Budget 2021. The policies include amendments to draught relief, further detail on Small Producer Relief and details of a transitional easement for the wine industry. Reforms are expected to apply from 1 August 2023. 

VAT-free shopping for non-UK visitors to Great Britain has been announced, allowing visitors to obtain a refund on goods bought in the high street and at airports, and exported from the UK in their personal baggage. The scheme that currently operates in Northern Ireland (which continues to allow VAT-free shopping for visitors from outside the EU) will be modernised. A new digital scheme will be introduced for Great Britain “as soon as possible”, following a consultation on its design. 

Impact in Scotland
Several changes announced today will not automatically apply to Scotland, but Scottish Government Deputy First Minister John Swinney committed to publishing the outcome of an Emergency Budget Review within two weeks of the Budget event today. Income tax is devolved to the Scottish Government, so the proposed changes do not apply to Scottish taxpayers. 

National Insurance is not devolved and will apply across the UK so that, with effect from 6 November 2022, the 1.25% increase in NIC introduced on 6 April 2022 will be reversed bringing rates back to their pre 6 April levels.  Corporation Tax is not a devolved tax so the rate reduction and the more generous Annual Investment Allowance measures will have direct effect for Scottish companies.  SDLT does not apply in Scotland and the equivalent devolved tax (Land and Buildings Transaction Tax – LBTT) is unaffected by the Chancellor’s announcement.  We will see in due course whether Scottish Government policy is influenced by change in the rest of the UK and whether the Scottish Parliament will make any changes to LBTT. 

Register here to attend our Mini-Budget Dbriefs webcast on Monday 26th September.