The fallout from the Mini Budget – properly known as HM Government Growth Plan 2022 – continues.
To recap, the promised scrapping of the 45% rate of tax has been reversed, and the 2023 rises in Corporation Tax which were to be withdrawn are now happening.
Following the appointment of a new Chancellor, with almost indecent haste, further reversals have been announced. Haste is an opportune word, as the original plans were criticised for not being fully costed and reviewed by the Office of Budget Responsibility, and as far as can be seen that is still the case, no OBR involvement, which means its anybodies guess whether the position today will still be current in a few weeks, let alone by the start of the new tax year.
Its an interesting reflection – the only thing thats worse than a tax raising budget, it seems, at least at present, is a tax cutting budget. With the scale of support needed over recent years for the pandemic, and prospectively for energy prices/cost of living, caution around cutting taxes is probably prudent. Its worth noting that for most people any benefit from the tax cuts proposed in the Growth Plan has been more than eroded by the loss in value of pension funds and the increased cost of mortgages and borrowing since then.
Where We Are Now
Here are the main proposals from the Growth Plan as announced on Friday 23rd September 2022, and current status:
- SDLT – Increase in thresholds – these measures survive.
- IR35 – Proposed reversal of 2017 and 2021 reforms in Public and Private Sector from April 2023 now abolished. This means reformed reverse IR35 continues. Further thoughts on this below.
- Income Tax 45% rate – Proposed abolition from April 2023 reversed. It will remain in place for incomes over £150k.
- Income Tax 20% rate – Proposed cut to 19% deferred indefinitely.
- National Insurance and Health and Social Care Levy – Cut in NI rates from 6 November 2022 back to 2021/22 levels to go ahead. Abolition of 1.25% Health and Social Care Levy which was to come in from April 2023 is still happening. More detail below.
- Dividend Tax – Dividend Tax increased by 1.25% from April 2022 coupled with the increase in NI and the proposed Health and Social Care Levy. The Growth Plan proposed to remove this increase from April 2023. This proposed reduction is reversed, meaning the rise in Dividend Tax rates from 2022/23 is permanent.
- Corporation Tax – The Growth Plan proposed to scrap the planned increase in Corporation Tax to 25% from April 2023. This proposal is now reversed, meaning the April 2023 increases will go ahead.
- Annual Investment Allowance – The Growth Plan proposed the current temporary annual threshold of £1mto be made permanent – it was due to reduce to £200k. This seems to still be happening, which is sensible as the £1m kept being extended “temporarily” and it was difficult to track and necessarily complex.
- VAT – The Growth Plan proposed no changes in rates or thresholds, but proposed a VAT free shopping scheme for oversees visitors to the UK to be set up – this latter scheme is now reversed.
- Investment Zones – The Growth Plan proposed new raft of Investment Zones to be set up with relaxed planning rules, lower business rates, lower Stamp Duty. This still seems to be happening.
IR35
The decision to now keep the 2017 and 2021 “reverse IR35” reforms in place is disappointing. There is little doubt that large engagers have been acting cautiously, and its not hard to see this being a brake on flexibility in labour markets.
Whilst original IR35 wasn’t perfect by any stretch, its a shame that proper thought out proposals haven’t come forward.
Interestingly HM Government suggests keeping reformed IR35 in place will raise Government revenue by £1.1bn in 2023-24 rising to £2bn by 2026-27. This suggests Government thinks either reformed IR35 is leading to a cautious approach by engagers with enhanced revenue stemming from Contractors being categorised as IR35 caught, or Government believes a return to original IR35 would reduce compliance, which is de facto an admission that HMRC can’t police it – which was clearly the case between 200 and 2017. Either way a sorry state of affairs, and a huge bureaucratic overhang on the economy.
National Insurance and Health and Social Care Levy – Dividend Tax
To track the changes here:
- Announced in October 2021 that NI rates would rise by 1.25% for 2022-23 only. Back to old level for 2023-24 but a 1.25% Health and Social Care Levy would come in instead as a third item alongside Tax and NI – people would pay Tax, NI and Levy.
- In March 2023, amidst concerns that the increased NI rates would disproportionally effect lower earners, it was announced that from 6th July 2022 NI thresholds would rise. This would mitigate the effect of the NI Rises / Levy for lower earners.
- In the Growth Plan of 23rd September 2022, the increased NI rates were reversed from 6th November 2022, but the increase thresholds stay
- This seems to be the current position
This means that NI rates are back to 2021-22 levels, but with higher thresholds. The Health and Social Care Levy from April 2023 won’t be happening.
Clearly this leaves quite a hole in Government finances, so further changes may yet occur between now and April 2023.
Dividend Tax rates rose by 1.25% from April 2022, for 2022-23 onward, commensurate with the increase in NI for 202/23 and the Levy from 2023/24 onward. The Growth Plan took Dividend Tax rates back to 2021-22 levels from April 2023, meaning the increase would be for one year only. The latest set of proposals now leave the rise in Dividend Tax by 1.25% in place indefinitely.
Corporation Tax Rises and Super Deduction
We’ve had some queries about the Super Deduction. As far as we can tell this is unchanged, and will operate as proposed up to and including 31 March 2023. We’ve not seen anything to the contrary, but do some research if you are relying on it to make economic sense of a major investment.
The rise in Corporation Tax from April 2023 is covered in our earlier briefing. Do be aware that although there is a 19% Small Profits Rate where profits are below £50k, the tapering of this creates a 26.5% marginal rate on profits between £50k and £250k.
Also be aware that the £50k and £250k thresholds are split between connected companies, potentially including those controlled by spouse or family members. If you have two or more companies then it pays to make sure the profits are as balanced as possible, and one company isn’t wasting its Small Profits threshold.
Sole Trader / Partnership v Limited Company Decisions
Salary v Dividend Decisions
Although there is a lot to assimilate in these recent changes, our provisional analysis is that there is no change in advice regarding:
- Choices between Unincorporated and Incorporated structures – i.e. Sole Trader and Partnership v Limited Company
- Dividend v Salary mix advice for owner managed small companies
Updating Our Website
It will take us a short time to update the guidance on our website for these changes. Do check with us if there is anything you are unsure about.