The Mini-Budget 2022; not so mini as big changes made in bid to drive growth

Posted: 23 / 09 / 2022

Image: UK Government, OGL 3, via Wikimedia Commons

Big changes announced to corporation tax, income tax and stamp duty in a bid to drive growth in the UK economy.

This morning the new Chancellor, three weeks into his post, Kwasi Kwarteng delivered a “Mini-Budget”. Following the appointment of Liz Truss as PM, the Government have decided not to wait until the usual Autumn Budget (normally November) to announce changes to policies and the taxation system.

The main difference between this mini-budget and a normal Autumn budget is that the Chancellor’s statement was not accompanied with an update from the OBR on the impact of the announcements on the economy.

Despite it being a so-called mini-budget, there were a number of tax-related announcements. The Government have officially titled this their “Growth Plan 2022” and during his speech, the Chancellor stated that “This Government are on the side of the British People” and that there are “too many barriers to enterprise” with “high taxes reducing incentives to work”.

The summary of updates, and how they affect you, is…

ENERGY

Confirmation of support amidst energy crisis.

• Energy Price Guarantee (EPG) will cap the unit price that consumers pay for gas & electricity. The Government have said that this will mean the average household will pay no more than £2,500 pa for the next two years (from October 2022). This is in addition to the £400 support that all households are due to receive over the coming months.
• The Energy Bill Relief Scheme is a temporary 6-month scheme for businesses and charities which will provide a discount on wholesale gas & electric prices. More information on this will be provided in due course. We understand it will be similar to the Energy Price Guarantee for individuals.
• The will also be a finance scheme for energy providers where the Government will guarantee banks that provide emergency lending to energy firms.

Sedulo Tax Partner, David Evans, says…

“Clients will be keen to hear more information about the Energy Bill Relief Scheme, particularly those in energy-intensive industries. We’ll keep an eye out for more detail on this.”

CORPORATION TAX

A major u-turn from Rishi Sunak’s 2021 Budget.

• Scrapped proposed rise to 25% from April 2023. The rate therefore stays at 19% regardless of profit levels.
• According to the Government, “Competitive business taxes are important to growing the economy as they can incentivise investment and business. The Government wants to grow the economy by creating the conditions for businesses to thrive, which will create jobs and increase investment in the UK.”
• Annual Investment Allowance will remain at £1 million (it was due to reduce to £200k in April 2023)
• No changes have been announced to the 130% Super Deduction which is due to end 31 March 2023. Clients should continue to consider bringing forward capital expenditure to make use of this before it finishes.

Sedulo Tax Partner, David Evans, says…

“I think all of our clients running their businesses through limited companies will be relieved at this news. The 19% rate means that the UK remains the lowest CT rate in the G7:”

INVESTMENT ZONES

Generous support for key areas of the UK.

The Government is working with 38 Local Authorities to establish investment zones. The following Local Authorities are on the list which might be interesting for some of our clients:

• Cheshire West & Chester
• East Riding of Yorkshire
• Greater London
• Greater Manchester Combined
• Lancashire County Council
• Liverpool City Region
• North Yorkshire County Council
• South Yorkshire Combined
• West Yorkshire Combined

Areas hosting investment zones will benefit from:

• 100% business rates relief on newly occupied and expanded premises
• Businesses will receive full SDLT relief on land bought for commercial or residential development
• Businesses will receive a 0% employer NIC rate on new employees earning up to £50,270 pa
• 100% capital allowances for plant & machinery
• 20% structures & buildings allowance (compared to 3% elsewhere)

Sedulo Tax Partner, David Evans, says…

“We don’t know when this will come into force. The Government have said they’ll set out further detail in due course.”

STAMP DUTY LAND TAX

Good news for anyone buying a property (particularly if you’re a first-time buyer).

• Threshold at which start to pay SDLT increased to £250,000 from £125,000 from today (23 Sep)
• First time buyer exemption threshold increased to £425,000 from £300,000 from today (23 Sep)
• First time buyer property value limit increased to £625,000 from £500,000 from today (23 Sep)
• No mention of changes to the additional 3% for people with second homes

The rates for SDLT will therefore be (for someone with a single property):

PERSONAL TAX

The u-turns continue as personal tax rates are cut.

• Scrapped the 1.25% increase in National Insurance. This will be effective from 6 November 2022 and be effective for the remainder of the 22/23 tax year. This means employees will take home more net pay from November and businesses will pay less employer NIC from November.
• Cancelled the 1.25% Health and Social Care Levy that was due to come into force in April 2023 (which was to replace the 1.25% NI increase)
  The 1.25% increase in dividend tax rates is being reversed from April 2023. This means that we still have the increased rates for the current tax year (22/23).
• The income tax basic rate of 20% will be reduced to 19% from April 2023. According to the Government, people will be on average £170 better off.
• The basic rate for dividends will revert to 7.5%.
• The income tax additional rate of 45% for those earning over £150k pa will be scrapped from April 2023 meaning the top rate of tax will be 40%.
• The additional rate for dividends will also be scrapped from April 2023 meaning the top rate of tax on dividend income will be 32.5%.
• There were no changes to the thresholds announced. Personal allowance stays at £12,570, higher rate threshold stays at £50,270, and £100k threshold for loss of personal allowance stays.

UPDATE: 3RD OCTOBER 2022

Following pushback from Conservative MP’s, the opposition and general market instability since the mini Budget, the Chancellor Kwasi Kwarteng has decided not to abolish the 45% additional rate of income tax. Although not specifically mentioned by the Chancellor, we understand that the additional rate for dividends will also not be abolished as previously announced.

Despite the U-turn, clients should still consider delaying income until after 6 April 2023 to benefit from the reduced basic rate of income tax and the 1.25% reduction in dividend rates.

Sedulo Tax Partner, David Evans, says…

“As a result of these announcements clients will therefore need to consider delaying the timing of income (and in particular dividends) and pushing them into the 23/24 tax year. According to the Government, this is “designed to support entrepreneurs and investors as we seek to raise living standards through economic growth”.”

OTHER

The Not-So-Mini-Budget also featured…

• The Government are going to expand the SEIS scheme. More details to be announced in due course.
• EIS and VCT schemes will be extended in the future.
• Continued review of R&D scheme (no details on this).
• The cap on Bankers bonuses will be scrapped.
• Bring forward reforms to childcare support (no details on this).
• VAT free shopping for tourists via a new digital system to implemented “ASAP”.
• Unions will be required to put pay offers to members before being allowed to strike.
• Planned increases in duty rates for beer, cider, wine and spirits cancelled.
• 2017 & 2021 IR35 reforms will be repealed from April 2023. This means workers themselves will be responsible for deciding whether IR35 applies.
• The Office for Tax Simplification will be wound up and incorporated into other existing departments.

For reference, these were the economic promises made by Liz Truss during her leadership race with Rishi Sunak;

• To reverse the National Insurance rise.
• To suspend green levies on energy bills.
• To create “investment zones” – hubs for innovation and enterprise.
• To change taxes to make it easier for people to stay at home to care for relatives.
• Not to bring in any new taxes and to scrap a planned rise in corporation tax.
• To bring a target of spending 2.5% of GDP on defence forward to 2026 and introduce a new 3% target by 2030.
• To scrap or replace by the end of 2023 EU laws considered to be holding back the economy.
• To divert a greater share of healthcare spending towards helping with social care.

WEALTH

Reaction from the Sedulo Wealth team

Chartered Financial Planner at Sedulo, Jose Vilchez, said:

“Many of the announcements in today’s budget statement will be welcomed by individuals feeling the strain of rising living costs. Our new Prime Minister has brought forward a package of personal tax cuts larger than many had forecast, and in the short term, most taxpayers will benefit as a result. Whether such a strategy is sensible for our economy in the long-term is still very much open to debate.

Although pensions did not feature in today’s budget, one could argue that the extent of today’s cuts make future changes to pension legislation more likely. For those in a position to capitalise on the generous reliefs applicable to pension contributions, it may prove sensible to maximise contributions under the current regime. However, there are already several points to consider before increasing contributions and I would advise anybody interested in doing so to seek advice first.

I am keen to see more detail on the proposed changes to Enterprise Investment Scheme and Venture Capital Trust rules, as both regimes have proved successful in encouraging investment into emerging sectors of the economy by offering investors attractive tax benefits. Hopefully, the rule changes will encourage even more investors to consider such investments within their overall financial plan.”