This September, Chancellor of the Exchequer Kwasi Kwarteng announced “a new approach for a new era, focused on growth”.
Revealing what the Conservative government is calling The Growth Plan 2022, Chancellor Kwarteng said: “Higher taxes on capital and labour have lowered returns on investment and work, reducing economic incentives and hampering growth still further. This cycle has led to the tax burden being forecast to reach the highest levels since the late 1940s… We are determined to break that cycle.”
Within hours of this announcement, Sterling’s value plummeted to its lowest levels since Britain went decimal in 1971, as international investors panicked in response to the high levels of government borrowing needed to pay for the proposed tax cuts.
Every single taxpaying individual and business will be impacted by the Growth Plan. We explore the key announcements and their likely outcomes.
Individuals
- The Basic Rate of Income Tax will be cut from 20% to 19% from April 2023, rather than from April 2024. At the same time, the Additional Rate of Income Tax – currently 45% – will remain in effect (as confirmed by the UK Government on 3 October, 2022). With effect from 6 November 2022, the government will scrap the Health & Social Care Levy, which since April 2022 had imposed a 1.25% increase in National Insurance Contributions. The planned increase in National Insurance Contributions (“NIC”) for 2022/23 will also be cancelled from November, although the increase stands for the month of April to October 2022.
- The 1.25% increase in tax on dividends – introduced from April 2022, which saw rates for self-employed directors climb to 8.75% for basic rate income taxpayers and to 39.35% for higher rate income taxpayers – will be reversed from April 2023. This means company directors who pay themselves through dividends will be better off, but it is worth reviewing your payment arrangements to ensure tax efficiency.
- There is good news for all purchasers of residential property, particularly for first-time buyers. Effective immediately, the residential property nil-rate band for Stamp Duty Land Tax (“SDLT”) will increase from £125,000 to £250,000. The nil-rate threshold for First Time Buyers’ Relief is increased from £300,000 to £425,000 and the maximum amount that an individual can pay while remaining eligible for First Time Buyers’ Relief is increased to £625,000.
Companies
- The planned April 2023 increase in Corporation Tax from 19% to 25% for companies making profits in excess of £250,000 has been cancelled. This is good news for business since cash will stay in the business, but companies need to understand the immediate impact on business-planning decisions and forecasts.
- The Annual Investment Allowance threshold has been permanently set at £1 million, rather than reverting to £200,000. This is a 100% capital allowance for qualifying expenditure on plant and machinery. Again, this is good news for business, but organisations need to understand the corresponding impact of rising inflation rates and plan accordingly.
- The 2017 and 2021 reforms to the off payroll working rules – also known as IR35 – will be repealed from April 2023. This means workers who provide services via an intermediary, such as a personal service company, will be responsible for determining their employment status and paying the appropriate amount of tax and NICs. This should be a positive step for many users and suppliers of contract workers, who will see this as an opportunity to revert to more tax-efficient ways of supplying and hiring those workers.
- The government is expanding the Seed Enterprise Investment Scheme (“SEIS”) to assist UK companies in raising external investment. Start-ups and early growth companies will receive £100,000 increase to the amount of investment they can raise with the gross assets limit lifted to £350,000. This is a much-needed boost for start-ups that struggle to raise finance in the early stages.
- Another welcome change sees improved flexibility for the Company Share Option Plan (CSOP) scheme, while limits have increased. From 6 April 2023, the value of shares over which an employee can hold tax advantaged CSOP share options increases from £30,000 to £60,000.
The Growth Plan promises much change and it is essential individuals and companies are aware of how they are affected and take steps to keep their affairs up to date.
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