What the Mini-Budget Means For Your Business
On Friday, September 23rd the new Chancellor Kwasi Kwarteng, revealed details of a significant package of tax reforms and cuts for England. With a combined value of £45 billion the measures go against a great deal of recent monetary policy introduced by the Conversative party.
Contrary to conventional financial practice Prime Minister Liz Truss and her neighbour at Number 11 Downing Street are attempting to stimulate growth of 2.5% in the economy by reducing the tax receipts at a time when government borrowing is at an all time high.
The extensive cuts of the mini-budget followed the recent announcement that the energy price cap will be frozen for households for up to 2 years and 6 months for businesses. The new cap plus the £400 support announced during the summer means a typical home’s energy will now cost £2,500 a year. This is still a £538 rise compared to the present Ofgem price cap. However, it could add up to a £150 billion to the government’s already substantial debt pile.
So what did the “Growth Budget” include that might impact your business? A number of the key headline changes have been summarised below:
Reversal of Health & Social Care Levy
Reversal of Health & Social Care Levy of 1.25% on national insurance contributions effective from November 6th 2022. For an employee earning £30,000 per annum, this cut is worth approximately £18 per month, whilst an employee earning £100,000 per annum will save around £91 per month. The reversal of the similar charge on dividends will not come in until April 2023.
Basic rate of income tax to be cut
Basic rate of income tax to be cut by 1p to 19% with effect from April 2023. This will provide a welcome annual saving for many. However, income tax thresholds are currently frozen until 2026. So an increased number of people will be pushed into the higher-rate tax band during that period.
Additional rate of income tax of 45% and dividend tax of 38.1% to be abolished
Additional rate of income tax of 45% and dividend tax of 38.1% to be abolished from 6 April 2023. The most unexpected and controversial of all the announcements. Those who take dividends and others who can control the timing of their earnings could now consider the merits of delaying income until April 6th 2023 to benefit from these changes.
Planned increase in corporation tax to 25% effective from April 2023, has been cancelled
Planned increase in corporation tax to 25% effective from April 2023, has been cancelled and one rate of 19% will continue to apply. The UK’s rate of corporation tax will remain at its historic low at which it has been since 2017. It is by far the lowest rate in the G7 as well as being the lowest in the G20.
Annual Investment Allowance limit reduction scrapped
It was due to come down from £1m to £200,000 in April 2023, hat will no longer happen. The allowance will be permanently set at £1m.
Off-payroll working (IR35)
Off-payroll working (IR35) reforms reversed – rules introduced in 2017 and 2021 will be repealed from April 5th 2023. From this date the responsibility for determining employment status and paying the appropriate tax will once again fall on the personal service entity. The rules have been deemed onerous due to the administrative requirements relating to communicating status decisions as well as handling status disputes. This announcement will be particularly welcome news to firms that depend on a contractor workforce. The challenge of compliance will be passed back to the contractors and their personal service companies. This could increase the use of contractors as a flexible workforce once the tax risk has shifted away from them again.
Stamp Duty Land Tax (SDLT) on residential properties
Stamp Duty Land Tax (SDLT) on residential properties, effective from midnight on 23rd September, thresholds will be increased from £125,000 to £250,000. The rate for first-time buyers will also increase from £300,000 to £425,000 and the maximum value of a qualifying property for first-time buyers will increase to £625,000. This measure will, benefit practically all purchasers of residential property. Though in time, these benefits may well be lost amongst higher property prices. Those subject to the various surcharges that apply to SDLT on residential property will also benefit from the reductions, meaning that in all cases the SDLT liability on a purchase costing more than £250,000 will fall by at least £2,500.
Alcohol duty to be frozen from February 2023 with future reform planned.
Various Investment schemes were amended and so called New Investment zones with specific tax benefits were also unveiled.
It is yet to be seen whether any of the income tax and stamp duty land tax changes are mirrored by the Scottish and Welsh devolved administrations. The changes and their impacts have been well received by many UK business groups. Although city money traders do not appear convinced that the measures will have the desired effect on growth. Many have bet against the pound as it continues to struggle against the dollar, reaching an almost unprecedented low in recent days. That weakness will only serve to increase the cost of borrowing for the government. That in turn will increase the likelihood that the Bank of England will continue to increase interest rates.
With near double digit inflation it is an unsettling time to be owning and/or running a business. Feel free to reach out to Plan Insurance Brokers if you would like assistance with reducing your risk transfer-related outgoings.
Contact the team of commercial insurance experts at Plan Insurance Brokers today to discuss your business insurance needs.