Fall 2022 Mini Budget: Tax Update

On September 23, 2022, Chancellor Kwasi Kwarteng presented his so-called ‘mini budget’ which has been repeatedly described as a ‘game changer’, a ‘new approach for a new era’ and (perhaps less optimistic) a “bet on growth”. Critics of the government were quick to point out that the Office of Budget Responsibility’s usual forecasts were not released in conjunction with the government’s proposals, a feature that critics say is key to assessing the viability of the proposals. in light of the current situation in the UK. fiscal and economic circumstances.

The main elements include the abolition of the additional rate (45%) of income tax, an acceleration of the previously announced 1% reduction in the basic rate of income tax, the repeal of the health and social care (and the cancellation of the interim National Insurance contribution increases) and increases in various land stamp duty thresholds to benefit home buyers (especially first-time buyers) . On the business front, the planned increase to 25% (from 2023) in corporate tax rates, as promised by former chancellor Rishi Sunak, has been reversed, and the government has announced that it is repealing various recent reforms of the so-called “IR35 Regime”, rules in place since 2000 which aim to tax what are effectively employment services provided by intermediaries. The “mini budget” is a very clear signal that the new cabinet just over two weeks old wants to act quickly and put a significant distance between its budget action plan policies and those of the former chancellor.

Detailed comments on energy-related measures are beyond the scope of this update, although it should be noted, given the current focus on soaring energy prices, that the “mini budget” also included various support measures intended to reduce the pressure on British households and businesses. .

Please contact a member of the Weil London tax team if you would like to discuss anything in more detail.

Business-related tax measures

The government is of the view that high and/or complicated taxes reduce the incentive to work and hamper business investment. He therefore announced the following measures:

  1. Corporate tax rate:
    • Corporation tax: The previously planned increase in the main corporate tax rate from 19% to 25% which was due to come into effect in April 2023 will not take place. The overall rate will remain at 19%.
    • Banking Corporation Tax Supplement (BCTS): The planned drop in the BCTS rate to 3% which accompanied the planned increase in corporation tax will also be cancelled. The rate will now remain at 8%, which means that the overall combined corporate tax and BCTS rate will remain at 27%. The planned increase in the BCTS allowance (i.e. the amount of profit not subject to BCTS) from £25m to £100m will however proceed as planned.
    • Tax on energy benefits: There has been no announcement of changes to the new 25% tax on energy profits enacted in July this year, nor changes to the corporate tax rate (30%) and tax additional (10%) that apply to oil and gas companies. .
  2. IR35 outside work rules on payroll: The 2017 and 2021 reforms to the non-payroll work rules, also known as the “IR35 regime”, will be repealed as of April 6, 2023. The IR35 regime may apply where an individual provides services to a client through the intermediary of an intermediary (such as a personal services company) but, in substance, this person is (except for the intermediary) an employee of the final customer. Generally speaking, the current version of the IR35 scheme shifts the responsibility of assessing whether PAYE income tax and National Insurance (NIC) contributions are applicable to fees from the intermediary to the end customer (instead of l ‘intermediate). The scheme has been notoriously difficult to navigate, poses a significant administrative burden for businesses, and has resulted in numerous disputes. From 6 April 2023, workers across the UK providing services through an intermediary will once again be responsible for determining their employment status and paying the appropriate amount of tax and NIC.
  3. Capital allowances Annual investment allowance: From 1 January 2019 businesses can deduct (for corporation tax purposes) 100% of any qualifying plant and machinery expenditure, up to an annual amount of £1 million per annum. This annual allowance was due to drop to £200,000 from April 2023, but this reduction will no longer take place and the annual investment allowance will therefore remain at £1 million.
  4. Seed Business Investment Program (SEIS): The SEIS scheme encourages investment in early-stage companies by offering investors who invest in qualifying companies certain generous income tax, capital gains tax and other tax relief . Previously, companies wishing to benefit from SEIS had to have gross assets of no more than £200,000 – this amount has been increased to £350,000. The annual investor limit will also be doubled to £200,000.
  5. Corporate Stock Option Plans (CSOP): CSOPs are a form of tax-advantaged stock option scheme available to employing companies in the UK. The current share value limit (at the time of grant) under CSOP options will increase from £30,000 to £60,000. Some other restrictions will be relaxed to bring the program in line with the generally more flexible Business Management Incentive (EMI) program.

Personal taxation measures

  1. Income tax (additional rate): In what is perhaps the most surprising announcement of the “mini budget”, the Chancellor announced that the additional rate (45%) of income tax will be abolished from April 2023, with the aim of “simplify the tax system” and allow individuals to “keep more of what they earn.” The additional rate for savings and dividends will also be abolished from April 2023.
  2. Income tax (basic rate): The basic rate of income tax will be reduced to 19% from April 2023, compared to the current rate of 20%. This is an acceleration of the base rate reduction that was announced in the Spring Statement 2022 and was originally not expected to be implemented until April 2024. It is expected that this change will also impact the withholding at source on interest and other annual installments that are linked to the base rate.
  3. Stamp Duty Land Tax (SDLT): To reduce the burden on homebuyers, the SDLT zero rate threshold is doubled to £250,000 for all home purchases from 23 September 2022; the zero rate threshold for first-time buyer relief simultaneously rises to £425,000 (from £300,000) and applies to any property worth up to £625,000 (from £500,000) £).
  4. National insurance contributions (NIC): As promised by Liz Truss at the start of the leadership race, the short-lived 1.25% increase in the NIC threshold will be reversed from November 6, 2022; the measures announced in the Spring Statement 2022 to raise the threshold had just come into force in July 2022. This measure goes hand in hand with the repeal of the Health & Social Care Levy (see below).
  5. Health and social care tax: The 1.25% levy, which was due to come into effect from April 2023, has been scrapped altogether, with the government suggesting the cancellation will make it cheaper for businesses to employ more staff.
  6. Dividend tax: In order to support entrepreneurs and investors, the government will cancel the 1.25% increase in dividend tax rates from April 2023, which means that ordinary and top dividend tax rates will be reduced at 2021/22 levels of 7.5% and 32.5%. , respectively.
  7. Banker bonuses: As part of its drive to “reaffirm the UK as a center for financial services”, the government has announced that the cap on bankers’ bonuses will be scrapped by the Prudential Regulation Authority. The existing cap essentially limits bonuses to 100% of fixed salary (or 200% with shareholder approval). The Chancellor hinted at further regulations to come.
  8. Tax-free purchases: The government will introduce a ‘modern, digital and VAT-free shopping scheme’ for non-UK visitors to Britain, with the stated aim of boosting the high street and creating jobs in retail sectors retail and tourism.

Investment areas

  1. The government has announced that it will introduce new ‘investment zones’ across the UK. Initial discussions have started regarding 38 proposed investment areas. The objective of this measure is to stimulate investment through tax incentives, relaxation of building permits and certain other measures. From a tax point of view, the main tax incentives envisaged are the following:
  • Business rate: 100% exemption from professional rates on newly occupied professional premises and certain existing premises extended in the investment zone.
  • Enhanced Capital Deductions on P&M: Capital allowances not capped at 100% in the first year for business expenditure on qualifying plant and machinery acquired for use in investment areas.
  • Improved allocation for structures and buildings: Accelerated relief for structures and buildings allowing companies to reduce taxable profits by 20% of eligible non-residential investment construction expenditure per year (allowing a relief of 100% of these expenditures over five years). The current rules only allow a 3% allowance per year over a 33-year period.
  • NIC relief for employers: The first £50,270 of salary for any new employee working in an investment area will not be subject to employer NICs. Normal employer NIC rates apply above the £50,270 threshold. Note that there is no impact on the network cards of the employees, so this represents only a saving for the employer.
  • Full SDLT relief: No SDLT will be payable on land purchased in an area for commercial investment or commercial development.

The growth plan is generally sketchy and it remains to be seen what additional information will be released by the government in due course. We are still awaiting an official government budget later this year which may further inform the above measures in addition to any other measures that may be announced at that time.

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