By Mel Hackney

On Friday, the Chancellor of the Exchequer delivered the government’s so-called ‘Mini Budget’, outlining cuts to income tax, reversal of the NIC increases, and scrapping of the planned increase in corporation tax, to name a few. Those which may be of particular interest to many are as follows:

Changes to income tax rates

Reduction in basic rate

The basic rate of income tax is currently 20% and will be reduced from 6 April 2023 to 19%. This will apply to non savings, non dividend taxable income falling within the basic rate band in England, Wales and Northern Ireland. This had been planned for April 2024, but has been accelerated by this announcement.

Removal of additional rate

This is the big surprise of the mini budget. The additional rate of income tax is currently 45%. From April 2023 this rate will be removed and will no longer apply to the non-savings, non-dividend taxable income of taxpayers in England, Wales and Northern Ireland.

The removal of the additional rate will apply to all taxpayers in the UK in respect of savings, dividends and the default rates.

National insurance contributions

As predicted, the following changes to national insurance contributions (NIC) will be made:

• the increase in the rate of Class 1, Class 1A, Class 1B and Class 4 contributions by 1.25 percentage points that applied from 6 April 2022 will be cancelled with effect from 6 November 2022
• the health and social care levy (HSCL) of 1.25% that was due to be introduced from 6 April 2023 will now not go ahead

Reversal of the dividend tax increase

The government is reversing the 1.25 percentage point increase in dividend tax rates applying across the UK from 6 April 2023. The ordinary and upper rates of dividend tax will be restored to 2021/22 levels of 7.5% and 32.5% respectively (currently at 8.75% and 33.75% respectively).

Due to the abolition of the additional rate of income tax, dividend income that was previously charged at the additional rate (39.35% in 2022/23), will now be charged at the upper rate of 32.5%.

Corporation tax rate

The planned increase in April 2023 to the corporation tax rate (from 19% to 25%) for companies making more than £250,000 profit 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 done away with. 

Annual investment allowance

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

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

If you have any questions about the measures announced in the mini budget, or how they will impact you or your business, please get in touch.

Photo by Alex Gruber on Unsplash