December 5, 2022

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Mini-Budget 2022: What the latest announcements mean for your business

Mini-Budget 2022: What the latest announcements mean for your business

Editor’s note: Following the mini-Budget on 23 September 2022, there have been numerous changes to it, most notably on 17 October 2022. This article has been updated to reflect that.

Extraordinary times call for extraordinary measures.

And so it was that, on 23 September 2022, Chancellor Kwasi Kwarteng announced The Growth Plan 2022 policy paper.

Referred to popularly as the mini-Budget, the intention was to combat the cost of living crisis for both individuals and businesses.

Even more extraordinary, though, is that on 17 October 2022, new Chancellor Jeremy Hunt reversed many of the mini-Budget’s measures (in additional to changes to the 45% income tax rate and corporation tax announced earlier in October) due to market turbulence.

This was as part of the Medium-Term Fiscal Plan – the full plan will be published on 31 October 2022.

In this article, we’ve kept the initial measures and added updates to each one, so you can see which ones are still in place and those that have been either amended or scrapped.

Here’s what we cover:

The Energy Bill Relief Scheme, announced a few days before the mini-Budget, is covered in detail in a separate article here on Sage Advice.

Corporation tax

In April 2023, corporation tax was set to change. It would rise for a minority of businesses.

This change was announced way back in the 2021 Spring Budget, and was to be implemented two years after to allow businesses time to prepare.

Corporation tax was set to rise to 25% based on an upper profits threshold of £250,000. Only around 10% of corporation tax-paying businesses are at this level, according to the government.

Smaller businesses with profits under £50,000—around 70% of total businesses, according to the government—were set to stay at the 19% main rate. A tapered rate was to be applied to businesses with taxable profits between £50,000 and £250,000.

In the mini-Budget, all of these changes were abandoned.

14 October update:

Following an announcement from the Prime Minister on 14 October 2022, this decision was reversed and corporation tax will rise to 25% in April 2023.

17 October update:

No further changes from the government.

Income tax

Chancellor Kwasi Kwarteng took out his carving knife and made some of the biggest changes in a generation:

  • Basic rate cut to 19%: This had been planned for introduction as of the 2024/25 tax year. The Chancellor has brought it forward to April 2023. It affects only England, Wales and Northern Ireland because Scotland has its own income tax-setting powers (and already has a starter rate of 19%).
  • No more 45% additional rate: In the mini-Budget, the Chancellor announced that as of April 2023, the 45% tax rate for taxable income over £150,000 would be removed. It would have left three tax bands: a 0% rate (up to £12,570), a 19% Basic Rate (£12,571 to £50,270) and a 40% Higher Rate (£50,271 and above).

No change to tax bands or the tax-free personal allowance was mentioned in the mini-Budget.

3 October update:

The government announced that the 45% tax rate won’t be scrapped for those earning more than £150,000. This affects England, Wales and Northern Ireland.

17 October update:

New Chancellor Jeremy Hunt announced the basic rate cut to 19% has been shelved indefinitely. This means the basic rate of income tax will remain at 20%.

National Insurance and Health & Social Care Levy

April 2022 saw Class 1 National Insurance contributions (NICs) for both employers and employees rise, both being boosted by 1.25%.

This meant employer NICs rose to 15.05%, from 13.8%.

Employee NICs rose to 13.25% for pay of £1,048.01 to £4,189 per month, up from 12%.

Self-employed rates rose in a corresponding way.

Class 2 contributions rose to £3.15, from £3.05. Class 4 rates rose to 10.25% for taxable profits between £9,568 and £50,270 (previously 9%), and 3.25% for anything above £50,270 (previously 2%).

All these rises are cancelled as of 6 November 2022. Effectively, rates revert to the 2021/22 levels.

Notably, the increase in the NIC Primary Threshold introduced on 6 July 2022 is not being reversed, which means employees who were pulled out of paying NICs at that time remain so.

As of April 2023, the 1.25% employer/employee NIC increases were to be baked into an independent and new tax called the Health and Social Care Levy (HSCL).

This has now been entirely cancelled.

However, the Employment Allowance increase introduced in April 2022 has not been cancelled. This allowance means businesses with NICs of less than £100,000 can claim back up to £5,000 (up from £4,000 previously before April 2022).

The government points out that this Employment Allowance increase, combined with the cancelled Class 1 NIC increases/HSCL cancellation, will mean 40% of businesses will not pay any NICs as of 6 November 2022.

17 October update:

No changes have been brought in for National Insurance, meaning the reversing of the 1.25% rise remains in place.

And the Health and Social Care Levy isn’t being reinstated.

Annual Investment Allowance higher rate

Back in January 2019, the Annual Investment Allowance (AIA) was temporarily raised from £200,000 to £1m. After several extensions, this was finally due to end at the end of the 2022/23 tax year.

The good news is that the £1m allowance will now continue “permanently”, to quote the government.

The Annual Investment Allowance is a form of capital allowance that allows organisations to offset the cost of certain plant and machinery investments against their tax bill.

Notably, AIA is available in addition to the standard capital allowance main and special rate pools.

17 October update:

No changes were announced, meaning the £1m allowance will stay in place.

IR35 (off-payroll)

While many media outlets have focused on the tax and NIC cuts, the Chancellor slipped in an additional U-turn with his mini-Budget.

The off-payroll status determination rules that have applied to the public sector since 2017, and large businesses in the private sector since 2021 (along with employment agencies in some situations), are to be repealed as of April 2023.

Known informally as IR35 rules, the reversal removes the legal requirement for employers and agencies they use to determine if contract workers operating through intermediaries are “inside IR35″—that is, they’re deemed employees, so should pay the same tax and NICs as an employee.

This added a significant admin cost for businesses, if nothing else. It also raised the ire of contractors.

The IR35 reversal presumably also cancels plans for IR35 status determination requirements to be rolled out to smaller businesses.

With the repeal of the legislation, contractors themselves are relied upon to determine their status.

17 October update:

The government announced that the IR35 reforms will remain in place.

Investment zones across the UK

Up to 38 local authorities across the UK may soon have investment zones within them.

Startup businesses willing to have their premises within these zones, or to co-locate there, can receive some extremely generous tax cuts, as follows:

  • 100% relief on business rates on newly occupied or expanded business premises.
  • 100% enhanced capital allowance relief for plans and machinery for the first year.
  • Zero-rate Class 1 employer NICs on salaries for new employees who are paid up to £50,270.
  • No stamp duty on land bought for commercial or residential development.
  • Enhanced Structures and Buildings Allowance relief of 20% per year.

It’s worth mentioning that the above applies only to activities within the zone.

In other words, if you have a second business premises elsewhere, you can’t apply zero-rate NICs relief to employees working there.

Nor can you buy plant and machinery for use outside the zone and claim the enhanced capital relief allowance (although the Annual Investment Allowance could apply—see above).

17 October update:

No changes were announced regarding investment zones.

Other key measures in the mini-Budget

A number of other things were announced in the mini-Budget, some of which are as follows:

VAT-free shopping for tourists

The introduction of a “digital, VAT-free shopping scheme” for non-UK visitors will see VAT on high street and airport purchases refunded via an easy-to-use scheme that no longer relies on paper-based forms.

There are no dates around this measure and a consultation will commence soon.

17 October update:

The government announced that it won’t be proceeding with this scheme.

Alcohol duties

Good news for the hospitality sector arrives in the form of a freeze on the duty rates for all alcohol categories from 1 February 2023.

The government also published its response to the Alcohol Duty Review consultation on the same day as the mini-Budget, with the aim to reform and simplify alcohol duties as of August 2023.

17 October update:

The government revealed that the freezing of alcohol duty rates will no longer happen.

However, the Alcohol Duty Review’s next steps, announced in The Growth Plan 2022, are set to continue as previously planned.

Stamp duty

There are a variety of changes to residential Stamp Duty Land Tax (to give it its full title).

The changes take effect immediately and see an increase to £250,000 for the threshold where stamp duty is payable (up from £125,000).

For first-time buyers, the threshold increases to £425,000, from £300,000, with first-time buyers are able to claim relief on properties valued at up to £625,000 (increased from £500,000).

17 October update:

The cuts to stamp duty will stay in place, according to the government.

Dividend tax

The 1.25% increase to the income tax on dividends in April 2022 is reversed. However, you’ll have to wait until April 2023 for this change to take effect.

17 October update:

This has been overturned. The 1.25% increase now remains in place.

Seed Enterprise Investment Scheme (SEIS)

This scheme that allows startups and entrepreneurs to source early stage funding gets a bump as of April 2023.

Companies will be able to raise up to £250,000 of SEIS investment, and the gross asset limit is increased to £350,000 (and the age limit raised to three years).

The annual investor limit is doubled to £200,000.

17 October update:

No changes were announced for the Seed Enterprise Investment Scheme.

Company Share Option Plan (CSOP)

From April 2023, businesses using CSOP will be able to issue up to £60,000 of tax-advantaged share options to employees.

This is double the current £30,000 limit.

17 October update:

No changes were announced for the Company Share Option Plan.

Final thoughts: What it all means for businesses

Many of the landmark changes announced in the mini-Budget have been overturned as the government seeks to stabilise the markets.

Therefore, for businesses, it means in reality, nothing much has changed prior to the announcements from former Chancellor Kwasi Kwarteng.

However, some parts of The Growth Plan 2022 remain, such as the now-permanent Annual Investment Allowance, which offers an incredibly generous capital expenditure boost for businesses looking to grow.

Meanwhile, the Investment Zone scheme offers seemingly unbelievable tax breaks for businesses willing to establish or expand in those areas.

It’s worth keeping an eye on any further financial announcements that come from the government, including the delivery of the full Medium-Term Fiscal Plan, which will be published on 31 October 2022 alongside a forecast from the independent Office for Budget Responsibility.