Following on from last weeks blog, the pressure of public opinion, the IMF, the financial markets, and other Conservative MP’s has led to Kwasi Kwarteng doing a sharp U-turn in respect of the abolition of the 45% additional rate of tax. Although the remaining budget still favours the wealthy more than the average taxpayer, the results are less likely to lead to lead to significant socio economic inequalities – so it is a welcome change. We await the forecasts from the Office of Budget Responsibility which, we are told, will not be released until 23 November.
The markets have reacted positively to the news so far and no doubt, further detail will be released in due course – but below is a reminder of the other measures implemented by the mini-budget – which remain relevant at present.
What are the actual measures being introduced:
1. There is to be a 1% tax cut from 6 April 2023 – bringing down the rate of tax in the UK on earnings and savings from 20% to 19% on income of £37,700. (Absolute value is therefore £377). Scottish taxpayers will only benefit in the reduced rate as it applies to savings income – but not on employment income, self employed income or rental income – rates in respect of this type of income will be determined by Holyrood.
2. The National Insurance rises which were to be called the ‘Health and Social care levy’ come April 2023 have been scrapped. This is a 1.25% decrease on what we have seen for the last few months only. It is due to come into effect from 6 November 2022. This particular measure has a disproportionate benefit for those people earning over £50,270. For those under £50,270 this represents a 9.4% decrease in the NI rates, whereas for those earning over this amount it represents a 38.4% decrease in their rates.
3. The planned increase in dividend tax rates has also been cancelled, and the rates will remain as 7.5% within the basic rate and 32.5% in the higher rate and 38.1% in the additional rate.
4. Corporation tax rates which were due to increase from 19% up to a maximum of 25% in April 2023 for those companies with profits over £50,000, will instead now remain at 19%, making us the cheapest country in the G20 in which to operate a business.
5. The Annual Investment Allowance limit will remain at £1m indefinitely.
6. There are to be stamp duty cuts in England which double the tax free threshold for residential purchases and increases support for first time buyers in an attempt toboost the property market.
7. The cap on bankers bonuses is to be scrapped. This was previously limited to a bonus of 2 times their annual salary.
8. The Office of Tax Simplification is to be closed. This body has been operating for over 10 years and has made efforts to effect changes that will assist the general public in understanding and declaring liabilities themselves. The remit of this office was always to concentrate on existing legislation rather than assist in drafting better legislation and this restriction has had an impact on the effectiveness of the organisation. Several large ‘big picture’ recommendations have been made during its lifetime, though few acted on. One wonders whether it would have been a better idea to further empower this team, rather than abandon the idea of simplification.
9. IR35 legislation has been repealed, including all the changes made during 2017 and 2021. The onus now rests again with the contractor to determine the nature of the engagement with their end user. This will put many minds at ease and may have a positive effect on the economy.
10. Alcohol duty increases that were planned for February 2023 under the previous administration have been scrapped. This will benefit Scottish exports.
11. Investment Zones are going to be established throughout England in cooperation with local government to bolster growth across all geographic areas.
Brona MacDougall, Tax Partner