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On 23 September 2022, Kwasi Kwarteng, the Chancellor of the Exchequer (the UK Finance Minister) delivered a fiscal statement to the House of Commons which unashamedly focused in on economic growth, outlining significant reductions to the current rates of income tax, a reversal of the national insurance contribution (“NIC”) increases, the scrapping of the planned increase in corporation tax, making permanent the current £1m annual investment allowance, unwinding of the 2017 and 2021 off-payroll working rules changes, and cuts to Stamp Duty Land Tax (“SDLT”) chargeable on property acquisitions.

The fiscal event also included the announcement of the Energy Price Guarantee (“EPG”) which should, as from 1 October 2022, result in the average household paying no more than £2,500 per year for a period of two years on their energy bills. This effective subsidy is in addition to a £400 discount to energy bills for households previously announced by the Government.

The fiscal event represents the most radical tax cutting “budget” for over 50 years.

We have highlighted the key announcements below:

Personal taxes

Income Tax

• The basic rate of income tax will be reduced from 20% to 19% from April 2023, a year earlier than expected.

• The additional rate of income tax, which is charged at 45% on income over £150,000, is to be abolished altogether, resulting in one single higher rate of income tax of 40% from April 2023.

• These tax cuts will apply to basic rate tax payers based in England, Wales and Northern Ireland who receive non-savings income (i.e. employment, rental and pension income) and savings income (not including dividend income).

• The Dividend rate increase which was due to take effect from April 2023 has been reversed and the tax rates will remain unchanged with the basic rate being 7.5%, the higher rate being 32.5% and the additional rate being set at 38.1%.
• The tax free dividend allowance will remain at £2,000 per annum.

Health and Social Care Levy

• From April 2022 we saw the rates of National Insurance for employees, employers and self-employed individuals increased by 1.25%. Today it was announced that this rise will be reversed from 6 November 2022 seeing the rates return to 12% and 2% for employees, 13.8% for employers and 9% and 2% for self-employed individuals.

• The Health and Social Care Levy that was to be introduced from April 2023 is to be reversed and it was announced that the funding towards the NHS and Social care will come from general taxation.

Capital Gains Tax

• The Capital Gains Tax Annual Exempt amount will remain at the current levels, of £12,300 for individuals, personal representatives and some trusts and £6,150 for most trusts, until April 2026.

Basis Period Reform

• The new basis period reform introduced by the Government to simplify the basis period rules for the self-employed and partners will still go ahead as planned. The draft legislation will be revised to incorporate suggestions which include more flexible use of overlap relief the transition year and to reduce the impact of transition profits on allowances and benefits. The changes are due to fully come into effect from 6 April 2024.

Starting Rate for Savings

• The 0% tax rate for savings income will remain unchanged up to a value of £5,000 for the 2022/23 tax year.

Individual Savings Accounts (ISA) and Junior Individual Savings Accounts

• The annual subscription limit for adult ISAs will remain unchanged at £20,000 until April 2026.

• The annual subscription limit for junior ISAs also remains unchanged at £9,000 until April 2026.

Pensions

• With effect from 6 April 2028 the normal minimum pension age in which you can access your pension without incurring a tax charge will increase from 55 to 57 years of age.

Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA)

• The Government are still planning to introduce Making Tax Digital from 6 April 2024 for Sole Traders and landlords with income over £10,000.

• General partnerships will not be required to join MTD for ITSA until 6 April 2025.

Seed Enterprise Investment Scheme (SEIS)

• From April 2023 the annual amount that individuals will be able to invest into SEIS schemes will be doubled from £100,000 to £200,000.

Corporate Taxes

Corporation tax

• The planned increase as from April 2023 to the corporation tax rate (from 19% to 25%) for companies making more than £250,000 of taxable profits has been cancelled. The rate will remain at 19% for all companies, so the reintroduction of the concept of a main rate and a small profits rate, and the need for marginal relief, has also been cancelled.

• The announcement means that the UK will continue to have one of the lowest corporation tax rates amongst the developed economies.

• For those accounting professionals who are also responsible for preparing financial statements in the UK, the cancellation of the planned increase in corporation tax may impact the calculation of deferred tax balances which uses the corporation tax rate as the “measurement rate” applied to gross temporary differences. For those companies which do recognise deferred tax in their financial statements, further consideration as to how the cancellation affects them may be required.

Capital allowances (tax depreciation) changes

• The Annual Investment Allowance (AIA) which had been temporarily increased from £200,000 to £1m, was due to revert to £200,000 on 31 March 2023. The government will now make the £1m AIA permanent.

Investment zones

• The Government is to introduce investment zones across the UK, the aim being to provide tax incentives, planning liberalisation and wider support for the local economy in designated areas.

• Investment zones will be chosen following an expression of interest process with local authorities and after local consent is confirmed.

• The tax incentives which the Government is considering are 100% relief from business rates on newly occupied or expanded business premises; 100% first-year capital allowances on plant and machinery; increased structures and buildings allowances at 20% per year; no employers’ NICs on salaries of new employees up to £50,270 and full SDLT relief both for land and buildings for commercial use or development and for land or buildings for new residential development.

• The new scheme will not replace the existing Freeport programme. The government plans to ensure that the two programmes complement one another.

Other headline measures

The scrapping of the cap on bankers’ bonus

• In 2014, following the aftermath of the global financial crisis of 2008, the EU imposed a cap on bankers’ bonuses with the aim of curbing excessive risk taking. The cap limits bonuses to 100% of salaries or 200% if shareholders agree.

• The Chancellor of the Exchequer has scrapped the EU-era regulation on the basis that the UK needs to be as attractive as possible to global banks.

Stamp duty land tax

• The nil-rate band that applies to purchases of residential property in England and Northern Ireland will be doubled to £250,000.

• The threshold for first-time buyers will increase to £425,000 and the maximum value of a property on which first-time buyers’ relief can be claimed will also increase to £625,000. These are set to be permanent cuts, effective from 23 September 2022. Although SDLT does not apply in Scotland and Wales (they have similar types of taxation on land), separate funding will be provided to the Scottish and Welsh Governments to allocate as they see fit.

Value Added Tax

• A new VAT-free shopping scheme for non-UK visitors to Great Britain will enable them to obtain a VAT refund on goods bought in the high street, airports and other departure points and exported from the UK in their personal baggage. The mechanism through which VAT will be reclaimed is expected to be digital, rather than via paper forms.

Should you have any queries or questions in respect of the above, please do not hesitate to contact your main contact at Arnold Hill & Co LLP or Reuben Fevrier or Lucy Duncan.

Email - Reuben.Fevrier@Arnoldhill.co.uk
Contact Number - +44 (0) 207 306 9105

Email - Lucy.Duncan@Arnoldhill.co.uk
Contact Number - +44 (0) 207 306 9102

Disclaimer
The information in this article is believed to be factually correct at the time of writing and publication, but is not intended to constitute advice. No liability is accepted for any loss howsoever arising as a result of the contents of this article. Specific advice should be sought before entering into, or refraining from entering into any transaction.