by Steve Wiltshire
After a dizzying few weeks in British politics, which have seen an almost complete reversal of the measures announced in the September mini budget, as summarised in our previous article, we thought it might be helpful to set out what remains of the economic measures announced in September, and how they might affect you.
National Insurance contributions
The government has confirmed that it will reverse the temporary increase in NICs from November as set out in the mini budget.
For employees and employers, these changes take effect for payments of earnings made on or after 6 November 2022, so:
- Primary Class 1 NICs (employees) will reduce from 13.25% to 12% and 3.25% to 2%
- Secondary Class 1 NICs (employers) will reduce from 15.05% to 13.8%.
The effect on Class 1A (payable by employers on taxable benefits in kind) and Class 1B (payable by employers on PAYE Settlement Agreements) NICs will effectively be averaged over the 2022/23 tax year, so that the rate will generally be 14.53%.
For the self-employed, following the same principle, the changes to Class 4 NICs will again be averaged across 2022/23, so that the rates will be 9.73% and 2.73%.
Income Tax
The Government had previously announced that there would be a cut in the basic rate of income tax, from 20% to 19%, from April 2024. This was to be accelerated so that it took effect from April 2023. However, both approaches have now been shelved indefinitely, meaning that the basic rate of income tax will therefore remain at 20%.
In the Mini Budget, the government also announced a plan to abolish the 45% additional rate of income tax from April 2023. However, the government will now not proceed with the abolition of the 45p tax rate.
Dividends
The government has also confirmed that the proposed 1.25% reduction in rates of dividend taxation from April 2023 will not proceed, meaning that the rates will remain as follows:
- dividend ordinary rate – 8.75%
- dividend upper rate – 33.75%
- dividend additional rate – 39.35%
As corporation tax due on directors’ overdrawn loan accounts is paid at the dividend upper rate, this will also remain at 33.75%.
These changes will apply in Scotland and Wales as the rules on dividends apply to the whole of the UK.
Corporation Tax
In the mini budget is was proposed that the planned increase in the rate of corporation tax for many companies from 19% to 25% from April 2023 would be cancelled. However, the government announced on 14 October that this increase will now proceed.
This means that, from April 2023, the rate will increase to 25% for companies with profits over £250,000. The 19% rate will become a small profits rate payable by companies with profits of £50,000 or less. Companies with profits between £50,001 and £250,000 will pay tax at the main rate reduced by a marginal relief, providing a gradual increase in the effective corporation tax rate.
Capital allowances
The Annual Investment Allowance (AIA) gives a 100% write-off on certain types of plant and machinery up to certain financial limits per 12-month period. The limit has been £1 million for some time but was scheduled to reduce to £200,000 from April 2023. The government has announced that the temporary £1 million level of the AIA will become permanent and the proposed reduction will not occur.
Up to 31 March 2023, companies investing in qualifying new plant and machinery are able to benefit from capital allowances, generally referred to as ‘super-deductions’. These reliefs are not available for unincorporated businesses. Interestingly, these allowances were not mentioned in any statement, other than minor amendments to the current rules, so it appears the scheduled withdrawal of them will occur in 2023.
Stamp Duty Land Tax
A number of changes are made to the Stamp Duty Land Tax (SDLT) regime. Generally, the changes increase the amount that a purchaser can pay for residential property before they become liable for SDLT.
The residential nil rate tax threshold is increased 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.
The changes apply to transactions with effective dates on and after 23 September 2022 in England and Northern Ireland. These changes do not apply to Scotland or Wales which operate their own land transactions taxes.
IR35 and off-payrolling
The government’s announcement in the mini budget that it would repeal the off-payroll working rules from 6 April 2023 has now been reversed, and it has been confirmed that these will remain in force.
VAT-free shopping areas
The government had announced that it would introduce a modern, digital, VAT-free shopping scheme with the aim of providing a boost to the high street and creating jobs in the retail and tourism sectors. However, this change will not go ahead either.
Alcohol duties
The government had announced that it would freeze alcohol duty rates from 1 February 2023 but this will not go ahead.
If you have any questions about current and proposed tax rules and how they apply to you, please get in touch, we’d be delighted to talk to you.