The Chancellor, Kwasi Kwarteng, announced a series of tax cuts in his fiscal statement, or ‘mini-budget’ on 22 September 2022. Although not a full Budget, the statement contained significant policy announcements and a shift in the economic policy of the UK Government. After the challenges of Brexit, he is clearly sending a message that Britain is open for business.
The Chancellor began the announcement by addressing the cost of the energy crisis and summarised the steps the Government is taking. Then moved on to say that UK growth is not as high as it should be, with higher taxes having stunted growth. Accordingly, the Government will now focus on breaking the tax cycle and turn the economy around from stagnation to growth.
Many of the announcements are devolved in Scotland, so we will need to await the Scottish Government’s response in their Budget in the next few weeks.
We've summarised some of the main announcements, below:
Corporate Tax
John McAuslin, Tax Partner
*Update 17 October 2022 - Corporation Tax Rate measure was reversed on 14 October 2022. The Corporation Tax rate will increase to 25% in April 2023 as originally planned*
Key changes were also announced to the Annual Investment Allowance and Capital Allowances Super Deduction. New investment zones were also announced, plus changes in the banking sector.
Read more in our Mini-Budget 2022: Corporation Tax blog.
Personal Tax
Alex Docherty, Tax Partner and Head of Private Client
*Update 17 October 2022 - the measures on the reduction of the main rate of income tax from 20% to 19% was reversed by the new Chancellor, Jeremy Hunt. Changes to the additional rate of income tax and the reduction in the dividends tax rate were also reversed by the Chancellor.*
Significant tax cuts were applied to income tax rates, and it was announced that the top 45% rate would be scrapped for tax payers resident in England, Wales and Northern Ireland. However, on 3 October 2022 Chancellor Kwasi Kwarteng reversed this proposed decision to scrap the top 45% of income tax.
There were also cuts to recent increases to National Insurance Contribution rates (NICs), and changes to Stamp Duty Land Tax.
Read more in our Mini-Budget 2022: Personal Tax and Mini-Budget 2022: Stamp Duty Land Tax blogs.
Indirect Taxes
Alex Nicholson, VAT and Indirect Tax Partner
*Update 17 October 2022 - the measures on VAT-free shopping for non-UK visitors to the UK and the freeze on alcohol duty rates were scrapped by the new Chancellor, Jeremy Hunt.*
In a potential boost to the high street, a new VAT-free shopping scheme for non-UK visitors to Great Britain will allow them to claim a VAT refund of goods purchased from bricks-and-mortar shops, airports and exported in travellers’ personal luggage. This represents a shift in mindset in reversing the decision to deny VAT rebates to travellers leaving the UK, which was only implemented on leaving the EU, and reinforces the message that the UK is seeking to attract tourists as well as business investment. This measure was scrapped by the Chancellor on 17 October 2022.
The Government will also freeze the Duty rates on all categories of alcohol from 1 February 2023, to support businesses and help consumers with the cost of living. Whilst undoubtedly welcomed by the hospitality industry, these measures fall short of a VAT rate cut for the sector, for which there were widespread calls. This measure was scrapped by the Chancellor on 17 October 2022.
Elsewhere, the announcement of plans to create up to 38 Investment Zones will raise hopes that the Indirect Tax reliefs applicable to Freeports will be mirrored there to the fullest extent possible.
Entrepreneurial Taxes
Stephen Oates, Tax Director and Head of Entrepreneurial Taxes
Seed Enterprise Investment Scheme (SEIS) – At a time when the cost of living is so high it can be very difficult for a new company to obtain the required investment needed to grow their business in the early years, even with the tax reliefs associated with EIS (e.g. 30% income tax relief). The SEIS changes today should be a step in the right direction in increasing investment in start-up companies. The tax reliefs associated with SEIS (e.g. 50% income tax relief) can offer additional tax benefit to investors compared to EIS. Today’s changes increase the maximum investment limit a company can receive from £150,000 to £250,000, increase the age limit from 2 to 3 years, increase the gross asset limit to £350,000 and double the annual investor limit to £200,000. This should hopefully result in addition investment and subsequently additional growth for young companies.
Company Share Option Plan (CSOP) – The CSOP scheme has become somewhat redundant due to the popularity of the EMI scheme. The reason for this is due to the significant tax benefits associated with EMI as well as the flexibility to structure the scheme. Although doubling the limit on the value of shares from £30,000 to £60,000 should make CSOP more appealing, this will likely only be in situations where EMI is not possible.
It’s also encouraging to see that the UK Government remains supportive to the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT) and sees the value in extending them beyond April 2025, when they were due to be reviewed and renewed.
Off-Payroll Worker rules
Brian Rudkin, Director and Head of Employer Services
*Update 17 October 2022 - the following measure was scrapped by the new Chancellor, Jeremy Hunt. Off-Payroll Worker rules are to continue as before.*
The Chancellor announced that the Off-Payroll Worker rules introduced in the private sector in 2021, and the Public Sector previously in 2017, are to be repealed with effect from 6 April 2023. It was widely anticipated that a ‘review’ of these rules would be confirmed this morning but few would have expected the Government going all the way in removing them completely.
On the face of it, this is a welcome announcement, the Off-Payroll Worker rules continue to cause difficulties for users of contractors, labour agencies and contractors themselves as a result of the rules being overly complex and difficult to manage in practice. The Government’s desire to ‘simplify’ the tax system around contractors is therefore needed and a positive step in cutting red-tape for businesses in the UK.
However, today’s announcement is unlikely to make all problems go away in this space. IR35 legislation will still exist, but with the backdrop of tax simplification at the heart of tax policy we hope that what comes out next will make it easier to comply. Today’s repeal is expected to cost the Government over £6bn in the four-year period 2023/4 to 2026/7.
