Mini Budget 2022: Major reversal in the government's tax plans
The key measures retained are:
Reductions in rate from 6 November to go ahead. (But no matching reduction in dividend taxation.)
Cuts to SDLT on residential property, through increases in various rate bands, have been retained.
It appears that the government will go ahead with proposed measures on:
- Annual Investment Allowance;
- Company Share Option Plans (or "CSOPs"); and
- Seed enterprise investment scheme (or "SEIS").
The key measures that have been dropped are:
The CT rate will go up to 25% from April 2023.
The 23 September proposal to abolish the 45% additional rate has been dropped.
The planned April 2024 cut in the basic rate of income tax from 20% to 19% will not now happen in 2023 nor will it go ahead in 2024.
The reversal in 2023 of recent reforms relating to "disguised employment" will not take place.
The proposed reduction of 1.25% in the dividend rate for income tax purposes, to match the NICs reduction, from April 2023 is cancelled.
Neither the proposal for VAT-free shopping for non-UK visitors, nor the one year freeze to alcohol duties, will go ahead.
Corporation tax rise announced
3 March 2021
Rishi Sunak announces in the Spring Budget that the corporation tax rate will rise from 19% to 25% with effect from April 2023; and freezes the income tax personal allowance and income tax higher rate threshold (and a number of other allowances and exemptions) from April 2022 until April 2026
Health and social care levy announced
8 September 2021
Rishi Sunak announces the introduction of a health and social care levy from April 2023 and 1.25% increases to NICs and dividend tax rates from April 2022
Future income tax cut announced
23 March 2022
In his Spring Statement, Rishi Sunak announces that the basic rate of income tax will be cut from 20p to 19p from April 2024; and raises the amount at which NICs starts to be paid to match the threshold for income tax
NICs and dividend tax increases
6 April 2022
Rise in NICs (adding 1.25% on employer and NICs and 1.25% on employee NICs) and dividend tax rate (increased by 1.25%) come into effect
Energy windfall profits levy
26 May 2022
Rishi Sunak announces the introduction of a 25% energy windfall profits levy with immediate effect
Liz Truss takes office
6 September 2022
Liz Truss takes office and appoints Kwasi Kwarteng as chancellor
Growth plan / mini budget
23 September 2022
Kwasi Kwarteng delivers his Growth Plan including the abolition of the 45% additional rate of income tax, the cancellation of the planned increase in corporation tax rate to 25%, abolition of recent changes to off payroll working rules, bringing forward the basic rate income tax cut to April 2023, SDLT cuts and reversal of the April 2022 increases to NICs and dividend tax rates
45% Income tax cut cancelled
3 October 2022
Kwasi Kwarteng cancels the planned abolition of the 45% additional rate of income tax
Corporation tax cut cancelled
14 October 2022
Liz Truss announces that corporation tax will rise to 25% from April 2023 and replaces Kwasi Kwarteng with Jeremy Hunt as chancellor
20% Income tax cut cancelled
17 October 2022
Jeremy Hunt announces that the basic rate of income tax will remain at 20% indefinitely, that no changes will be made to off payroll working rules and that the planned reversal of April 2022 increases to dividend tax rates will not occur
Cuts to stamp duty land tax (SDLT) for residential property, which took effect from 23 September, will be retained.
The nil rate band was doubled from £125,000 to £250,000. The nil rate band for first time buyers was also extended from £300,000 to £425,000 and the value of which first time buyers' relief can be claimed has also risen from £500,000 to £625,000. The government expects that this will significantly reduce stamp duty bills, as first time buyers can access up to £11,250 in relief.
This change was effected by way of a budget resolution on 23 September but will need to be legislated for in due course.
On taking office, the new prime minister, Liz Truss, confirmed that she would scrap the Health and Social Care Levy. Legislation reversing the increase in NICs rates and repealing the Health and Social Care Levy Act had already been introduced to Parliament. This measure was confirmed by Jeremy Hunt on 17 October.
This levy was introduced in April 2022 and initially collected through a 1.25% increase in the rates of NICs paid by employees, employers and the self-employed. The Treasury has announced that these NICs increases will be reversed from 6 November at which point NICs rates will return to their 2021-22 levels (subject to some transitional arrangements for contributions collected annually). The plan for the levy to be charged separately next year has also been cancelled and the legislation to make these changes has already been presented to Parliament. When the levy was introduced, there was a corresponding 1.25% increase in the rates at which dividend income is taxed. It was expected that the corresponding increases in dividend tax rates would be reversed with effect from April 2023, but on 17 October HM Treasury confirmed that this reversal would not go ahead.
To soften the impact of the NICs rises, in July, the point at which employees start to pay NICs was aligned with the income tax threshold. This will stay the same notwithstanding that the Health and Social Care Levy is to be scrapped. HMRC has said that it recognises the timeline for the NICs changes is tight and has written to employers and payroll software developers with practical guidance on what they should do.
The legislation to introduce a new UK-wide Health and Social Care Levy to fund adult social care reforms and enable the NHS to tackle the COVID-19 backlog was enacted in October 2021. The levy applied from April 2022 but has initially been collected by way of a 1.25% increase to rates of NICs paid by employees, employers and self- employed persons. Accordingly, since 6 April 2022, employment earnings have been subject to both an increased rate of employee NICs (3.25% instead of 2% for higher earners) and at the same time an increased rate of employer NICs (15.05% instead of 13.8%). When it was enacted, the intention was for a separate 1.25% levy to be introduced on both employees and employers from April 2023, at which point, rates of NICs would return to their tax year 2021-22 rates. To coincide with, but separate from the levy, rates of income tax on dividend income above the £2,000 tax-free dividend allowance were also increased by 1.25% from April 2022.
Annual investment allowance (AIA)
In the Growth Plan, then then Chancellor Kwasi Kwarteng increased this permanently to £1 million, cancelling the planned reset of AIA to £200,000 which was due from April 2023. The Government confirmed on 17 October that this change would go ahead.
The Company Share Option Plan (CSOP) is a form of share incentive arrangement under which qualifying companies can grant tax-advantaged options to their employees. There is a limit on the value of CSOP options that an employee can hold at any one time and for many years this has stayed at £30,000. In the Growth Plan, it was announced that this limit would be doubled to £60,000 from April 2023, which will be very welcome news to those qualifying companies and participants that find themselves held back by the existing cap. Another important announcement is that some of the restrictions on the class of shares that can be used for CSOP options will be eased to bring them closer to the rules of the more flexible Enterprise Management Incentive (EMI) tax-advantaged option scheme. This change will make CSOP available to a wider range of eligible companies, particularly in the private sector, although other qualification rules (such as those on control) mean that it continues to be unavailable to some. HM Treasury stated on 17 October that the CSOP would continue, it is presumed that this statement is intended to mean that the CSOP changes would go ahead.
SEIS is a scheme that provides income tax relief to individuals who invest in early-stage companies. Currently, companies who qualify for the relief are able to raise up to £150,000 through SEIS investments. It was announced in the 23 September Growth Plan that this limit would be raised to £250,000 from April 2023. In addition, it was announced that the requirements for these companies to qualify for this investment would be amended so that their gross asset limit will be increased from £200,000 to £350,000 and their age limit increased from 2 to 3 years, and that the amount on which investors can claim income tax relief would be increased from £100,000 to £200,000. HM Treasury stated on 17 October that the SEIS would continue, it is presumed that this statement is intended to mean that the SEIS changes would go ahead.
- Corporation Tax rate: in his mini budget on 23 September, the then Chancellor announced that the planned corporation tax increase to 25% from April 2023 would be cancelled. However, on 14 October, the prime minister announced that the increase to 25% would in fact go ahead.
- Income tax additional rate: on 23 September, the then Chancellor announced that the 45% additional rate of income tax (which is applicable to ordinary income over £150,000) would be abolished from April 2023. On 3 October Kwasi Kwarteng announced that this measure would no longer go ahead and that the additional rate of income tax will remain in place.
- Income tax basic rate: in the 23 September Growth Plan, it was announced that the planned April 2024 cut in the basic rate of income tax from 20p to 19p would be brought forward to April 2023. On 17 October, the new Chancellor announced that the basic rate of income tax would remain at 20p indefinitely.
- IR35 / Off payroll working: in the 23 September Growth Plan the Government announced that the recent reforms to the off payroll working rules (a part of the rules around "disguised employment" also known as IR35) would be reversed from April 2023. On 17 October, the new Chancellor confirmed that this change would not happen, meaning that there will be no change to existing off payroll working rules.
- Dividend tax rates: in the 23 September Growth Plan, it was announced that the April 2022 1.25% increase in dividend tax rates would be reversed from April 2023. On 17 October, HM Treasury stated that this reversal would not go ahead.
- Investment zones: Generous local tax reliefs were announced in the Growth Plan as part of a package of measures to create new Investment Zones. The tax reliefs go beyond those introduced in relation to freeports in 2021 and include a zero rate of employer NICs on new employee earnings of up to £50,270 and a 20% rate of structures and buildings allowance, relieving the cost of investment in qualifying buildings in just 5 years (as opposed to 33 1/3 years under standard rules). Investment zones have not been covered in any statements subsequent to the Growth Plan.
- Abolition of Office of Tax Simplification (OTS): the OTS was abolished in the Growth Plan. The position of the OTS has not been covered in any further announcements.