How does the mini budget 2022 affect you and your business?

This blog has been updated 18 October 2022 to reflect a number of additional announcements made by the Government scrapping many of the announcements made in this mini-budget.

Today’s mini budget announced many changes for individuals, landlords, self-employed, contractors and businesses. But has today’s mini budget and the other announcements on the lead up to this fiscal event gone far enough for you?

In this blog we cover announcements made today and those made prior to the fiscal event that will affect you and your business.

Corporation tax cuts

This announcement was scrapped; therefore, Corporation tax will now increase from 19% to 25% in April 2023.

Today’s announcement to cancel the Corporation Tax increase previously planned was no surprise as this had been widely speculated in the press. This means that Corporation Tax will remain at its current rate of 19%, which is great news for business owners.

The cancellation of the increase in Corporation Tax rates will have a huge impact on personal service companies and small businesses, as the marginal rate of tax for companies with profits between £50,000 to £250,000 would have been 26.5%. This coupled with the increase in dividend tax rate of 1.25% (Health and social levy surcharge), would have made the position much worse.

Annual Investment Allowance (AIA)

The AIA will remain at £1m

The Annual Investment Allowance will remain at £1m, which is great news for business owners that are planning longer-term investments in plant and machinery.

The AIA was due to fall to £200,000 from April 2023, so this means that businesses can now plan capital investments in plant and machinery next year and benefit from the 100% tax relief on investments up to £1m.

Super Deduction

This will remain until 31 March 2023

There have been no changes in today’s statement to the Super Deduction, this remains at 130% first-year relief on qualifying plant and machinery up until 31 March 2023.

Low tax investment zones

Creation of these low-tax, low-regulation investment zones continue as per the announcement below.

The Chancellor announced the creation of a network of Investment Zones creating low-tax, low-regulation areas around the UK.

In these zones, planning rules will be relaxed to encourage industrial, commercial and residential development and taxes will be cut for 10 years to incentivise investment.

Amongst the help and reliefs on offer in these zones, the Chancellor outlined:

• Accelerated tax reliefs for structures and buildings.
• 100% tax relief on qualifying expenditure in plant and machinery and purchases of land and buildings for new commercial and residential developments.
• No stamp duty land tax (SDLT) on purchases of qualifying commercial / business premises.
• No business rates on newly occupied business premises.
• No Employer NI payments on the first £50k of any new employees’ earnings.

Potential zones include areas in:

• Tees Valley
• West Yorkshire
• West Midlands
• Norfolk
• West of England

Scotland, Wales and Northern Ireland may also benefit if they are willing to agree.

These benefits could have a significant impact on businesses that are involved in developing these areas and businesses moving into these zones.

National insurance

This announcement will remain and there will not be any rise in National Insurance from 6 November 2022.

The planned 1.25% rise in National Insurance will be reversed from 6 November. It will cover Class 1 (both employee and employer), Class 1A, Class 1B and Class 4 (self-employed) NICs.

Health & social care levy

The health & social care levy will not be put in place. Companies should continue to remove messages from payslips relating to this.

A huge relief for many individuals was the axing of the planned levy to fund health and social care. This means most employees will get a tax cut in their November salaries, with some only getting it in December or January due to changes needed in payroll software.

HMRC had previously requested that employers and software developers include a temporary generic message on payslips for the tax year (2022 to 2023) to explain the reason for the NICs uplift. This message will not be applicable from 6 November 2022, and it should be removed from payslips with effect from this date.

But what does this mean for future health and social care in the UK?

Income tax

The abolition of the 45% higher rate of income tax and the 1p cut in basic rate income tax due in April-2023 will now not happen.

For higher earners, there was a huge announcement made today, which was the decision by the Chancellor to abolish the 45% additional rate of income tax from 23^rd April 2023. There will now only be a single rate of higher income tax at 40%.

The basic rate of income tax will also be cut to 19% from April 2023.

Bringing forward the planned cut to the income tax rate by 1p, will leave umbrella workers better off by up to £370 from next year.

IR35

The new Chancellor has announced that the off-payroll working reforms introduced in 2018 and 2021 will no longer be reversed and current rules will remain in place.

The IR35 reforms in the past few years affecting off payroll working have been incredibly controversial, adding complexity and cost to many businesses that employ contractors. The rule changes have also seen complexity for contractors and have made contracting less attractive to many.

So, it was surprising today that the Chancellor announced that they will repeal the 2017 and 2021 reforms. Great news for businesses and contractors alike.

The abolishment of the tainted IR35 reforms, is a welcome move for the entire contracting industry - hard-hit by the undue administration required to comply with the legislation. This will simplify the hiring process, decrease the increase in costs brought by the inside IR35 assignments and bring back small businesses.

Contractors who have faced nothing but disappointment in the last 5 years, with complete exclusion from Covid-19 support packages and the harsh IR35 reforms, have finally something to cheer about.

VAT

The changes to introduce VAT free shopping for overseas visitors has now been scrapped and will no longer go ahead.

There were no major changes to VAT, with the only change announced being the introduction of VAT free shopping for overseas visitors. There are plans to replace the old paper-based system with a modern digital one. However, when this will happen is unclear as it was announced that this would be in place “as soon as possible”.

Stamp Duty Land Tax (SDLT)

This announcement will remain in place and SDLT thresholds for residential properties have been increased from 23 September 2023.

Great news for the property & construction industries, property investors and individuals were the announcements on Stamp Duty Land Tax.

From immediate effect, the following changes will happen:

• Cutting Stamp Duty Land Tax for those purchasing a residential property by doubling the level at which people begin paying this from £125,000 to £250,000.
• Increasing the level first-time buyers start paying stamp duty from £300,000 to £425,000.
• Allowing first-time buyers to access the relief when they buy a property costing less than £625,000 rather than the current £500,000.

Seed Enterprise Investment Scheme & Company Share Option Plans

This announcement remains in place and increased limits will apply

To encourage investment in small, early-stage companies, the limits applicable to the Seed Enterprise Investment Scheme will increase. Investors will be able to make SEIS investments up to £200,000 a year (double the current limit), and companies will be able to raise up to £250,000 (up from £150,000).

The limits for Company Share Option plans (CSOP) has also been increased from £30,000 to £60,000

The ‘worth having’ restriction on share classes within CSOP will be eased as well for growth companies

Tax simplification

For many years, the UK tax system has been seen by many as too complex and the Office of Tax Simplification (OTS) has been working to simplify the UK tax regime. So, it was a shock today that the Chancellor announced the winding down of the Office of Tax Simplification (OTS) and will place the responsibility for simplifying the tax regime to every tax official within government.

It will be interesting to see what this achieves in the long term.

EU Law

The Chancellor announced that there will be a drive for government departments to review, replace or repeal retained EU law. We will need to wait and see what difference this makes to businesses and individuals in the future.

Innovation

The Chancellor announced that £500 million would be provided to support new innovative funds and attract billions of additional pounds into UK science and technology scaleups. We don’t currently know the detail on this announcement, more detail will follow.

Announcements prior to the mini budget

Dividend tax

This announcement has been scrapped and the 1.25% rise in dividend tax rates that applied from 6th April 2022 will remain.

Great news for business owners, was the announcement of the scrapping of the 1.25% increase in dividend tax that came into effect from April 2022. The increase will be abolished from April 2023.

Further, the additional rate of tax applicable to dividends of 38.1% will also be removed from 6 April 2023. It is important to time your dividends correctly following the change.

Real Living Wage

It was announced prior to the fiscal event that the real living wage would rise by £1 to £10.90 across the UK and by 90p to £11.95 in London.

The 10.1% rise was brought forward from November and is the biggest rise in the scheme’s 10-year history. However, with other business costs rising, this may mean many companies will struggle to afford it.

Energy bills

The announcement this week of a huge government support package around business energy bills gave some relief to businesses. This equates to energy bills for many businesses being cut to around half their expected level previously expected.

The wholesale gas and electricity prices for businesses will be fixed for 6 months from the 1^st October. However, it is the base / wholesale cost that will be fixed, your energy supplier will also add on additional charges, such as standing charges etc.

If you are on a fixed deal that was arranged on or after the 1^st April, the scheme will apply to your business. Those on variable and flexible tariffs will also be eligible.

It is expected that the scheme will be reviewed after three months, and the government may opt to extend this support for ‘vulnerable businesses’. It is unclear which sectors will be included in the vulnerable category.

Although this is a huge help, many energy intensive industries such as manufacturing may still see businesses close due to their increased energy costs. In sectors such as hospitality and leisure, it could make the difference between closure or surviving and help those businesses get through the crucial Christmas period.

The discount will automatically be applied to your business bills so, you won’t need to contact your energy suppliers. It’s expected savings will be seen from October, but probably won’t be received until November.

Many businesses have already made plans to cut production, make staff redundant or close premises permanently or for periods over the winter and these announcements may not change those plans. With support packages only running until April, it is still difficult for many businesses to plan ahead and it could delay longer-term decision making.

If you are a landlord with tenants that pay all-inclusive bills, you need to be aware that new laws will be introduced to ensure you pass the energy cost discounts you receive onto your tenants.

Summary

There have been many U-Turns and changes since the mini-budget. We will continue to update this blog as new announcements and changes are made.

I have never seen such a bold budget, with so many tax-cuts to fuel the growth of the economy. With a combination of high interest rates and high growth is this sustainable? Will this provide enough balance for growth?

If you have any questions about any of the changes announced, please contact dns on 03300 886 686, or email us on enquiry@dnsaccountants.co.uk.

About the author

Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.