"Mini" Budget u-turn! - A4G LLP | Kent, London & South East

Mini Budget u-turn!

On 17th October, the new Chancellor Jeremy Hunt announced he was scrapping the majority of the tax cuts announced in the mini budget.
The most significant part to this is that small businesses operating as limited companies will be hardest hit by these changes. This is due to a potential tax increase of 6% on Corporation Tax along with the dividends tax rates no longer decreasing to previous levels from April 2023 – despite the dividends tax rises supposedly being part of the Health and Social Care Levy, which has now been abolished.

Here is our summary of the headlines from yesterday. We will provide further analysis once the fallout from this is known.

The following was scrapped:

Corporation Tax – Cancellation of rise from 19% to 25%
Income Tax – Removal of 45% top rate for high earners
Income Tax – Cutting basic rate by 1p to 19p
Dividends Tax Rate cuts
IR35 rules simplification
VAT tax free shopping

The following will remain:

National Insurance – Reversing the 1.25% rise
Stamp Duty – No duty on first £250,000 and £450,000 for first time buyers
Energy Price Cap – Will remain but will be reviewed in April 2023

Whilst this has calmed markets for now, the economic conditions for the government are still worse than they were before the mini budget. The political atmosphere is far from stable. We therefore continue to watch with interest (frustration?) on what will happen next.

Corporation Tax

The Corporation Tax increase from 19% to 25% was announced on 27th October 2021 to come into affect from April 2023. This was then scrapped in the mini budget on 23rd September to again be brought back into affect during the mini budget u-turns!

From April 2023 the corporation tax system will return to having two rates of tax and a tapering calculation to attempt to avoid a cliff-edge of tax for companies. Companies earning over £250,000 in taxable profit will pay 25% corporation tax. Those earning £50,000 or less in taxable profit will remain taxable at 19%. For those in between these two values, the rate will increase on a sliding scale from 19% to 25% depending on how close to £250,000 your taxable profits are.

This lower rate only applies to trading businesses (it excludes investment companies, such as those that hold property investments). There are also some exceptions of this rate for companies in a group, or that have associated companies. More complicated business structures will have an added layer of complexity in calculating the rate that might apply.

Essentially if you own more than one company the £250,000 banding is divided by the number of companies you own. For example, if you have three trading businesses each business would have the tapered corporation tax rate applied for profits up to £83,333 of profits (£250,000 divided by 3). If one of the three businesses had profits of £200,000 it would pay the full 25% on those profits. If another of the businesses had profits of £10,000 it would pay tax the 19% rate.

National Insurance

National Insurance is a complicated area of tax. To look at this we have broken it into three parts:

Employees

A welcome reduction in National Insurance rates was announced on Thursday and HMRC hastily sent out an update for employers. The reduction in the National Insurance rates will return them to their pre 6 April 2022 rates and is effective from the 6 November 2022.

The rates will return to a 12% for Employees with 2% for the upper band of earnings, whilst Employers NI will reduce back to 13.8%.

Introduction of the change halfway through the tax year results in a little uptick in net income for employees and a slight decrease in the NI bill the employers pay. However, it does come in the middle of a tax year which creates a bit of complexity and marks the second mid tax year change payroll operators have had to deal with in the 2022-23 period.

It’s not a good time to be a payroll software developer! HMRC have asked software providers to be ready to reverse all the previous increases ready for the November payment runs.

Directors:

There is a quirk for director’s salaries as these are calculated on a cumulative basis for the deduction of National Insurance. The calculation of cumulative NI is effectively being pro-rated for how much of the year NI was at the higher rate. Directors on our previously advised “basic” salary basis will not be affected as this is below the National Insurance thresholds.

Self Employed:

The self-employed, who pay National Insurance via their self-assessment tax returns in one go at the end of the year, will also have a new NI rate. This effectively pro rates the tax year between the 10.25% and reduced 9% rates for the main band of NI, and between 3.25% and reduced 2% for the higher band.

Be warned the resulting NI percentage rates are not pretty!

Self Employed or Partnership earnings between £11,908 and £50,270 will suffer 9.73% NI in the 2022-23 tax year, falling back to 9% in the 2023-24 tax year. Earnings for these businesses above £50,000 will be taxed at 2.73%, falling back to 2% in 2023-24.

Stamp Duty

The rates of Stamp Duty Land Tax on residential property are to be changed as of midnight today, therefore from 24th September 2022.

Previously nothing was payable on the first £125,000, this is to be permanently doubled to £250,000 with the following rates applying:

Previous stamp duty rates

From	To	Stamp Duty rate
0	£125,000	0%
£125,000	£250,000	2%
£250,000	£925,000	5%
£925,000	£1,500,000	10%
£1,500,000+		12%

New stamp duty rates (from 24^th September 2022)

From	To	Stamp Duty rate
0	£250,000	0%
£250,000	£925,000	5%
£925,000	£1,500,000	10%
£1,500,000+		12%

This is a saving of £2,500 per property on purchase prices above £125,000. This applies to both 2^nd purchasers and investors.

The Stamp Duty Surcharge of 3% on second properties, or properties in companies, remains.

First time buyers (From 24th September 2022)

First time buyers can now benefit from a 0% SDLT share on the first £425,000 of property values (previously £300,000).

First time buyers’ relief is available on properties worth up to £625,000, up £125,000 from the previous £500,000 allowance, paying a rate of stamp duty at 5% between £425,000 and £625,000. Previously house purchases above £500,000 would not have qualified under the scheme. This is a saving of £6,250 on a property of £425,000 and saving of £11,250 at a house price of £625,000.

Due to the rising cost of housing, the average age of a first-time buyer has been pushed to 34. The SDLT changes allow them to still benefit from the first-time buyer scheme when buying a house that can accommodate a young family.

VAT

Despite expectations there would be something to either help hospitality or cut rates on energy charges none were announced.

There was also no relief mentioned for micro businesses that are currently not VAT registered as their turnover is below the registration limit. But with these businesses having turnover pushed up by inflation, it is increasingly squeezing these businesses against the £85,000 VAT registration threshold. As a lot of these are business-to-consumer trades, this will have a big effect on small businesses.

If you are worried about the VAT threshold, it is best to get accurate figures and keep these up to date. It is never too early to discuss with us planning for what will happen if (or when) you reach the threshold.

One change that was announced but will need a lot of detail to work out how it will operate was VAT free shopping for non-UK visitors. This is aimed at increasing the spending of foreign tourists in the UK but will need some strict legislation and protocols to be practical.

The announcement stated:

“The government will 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. The delivery will include modernising the scheme that currently operates in Northern Ireland and introducing a new digital scheme in Great Britain – a consultation will gather views on the approach and design of the scheme, to be delivered as soon as possible. The new VAT-free shopping scheme for non-UK visitors to Great Britain will enable them to obtain a VAT refund on goods bought in the high street, airports and other departure points and exported from the UK in their personal baggage.”

Investment Zones

Investment zones are to be considered and, once designated, will be given tax incentives to drive growth and unlock housing potential, such as the following:

Business rates – 100% relief from business rates on newly occupied business premises, and certain existing businesses where they expand in English Investment Zone tax sites. Councils hosting Investment Zones will receive 100% of the business rates growth in designated sites above an agreed baseline for 25 years
Employer National Insurance contributions relief – zero-rate Employer NICs on salaries of any new employee working in the tax site for at least 60% of their time, on earnings up to £50,270 per year, with Employer NICs being charged at the usual rate above this level
Stamp Duty Land Tax – a full SDLT relief for land and buildings bought for use or development for commercial purposes, and for purchases of land or buildings for new residential development
100% first year allowances available on qualifying plant and machinery for use in such sites
Enhanced Structures and Buildings Allowance (SBA) to be given, accelerating relief over 5 years by allowing 20% of the cost per year

A full list of applicable zones are yet to be announced.

Energy Bill Relief Scheme

Household bills will be cut by £1,400 this year with Energy Price Guarantee and £400 grant. The most vulnerable will receive additional payments, taking their total savings this year to £2,200.

For businesses, the Energy Bill Relief Scheme, was announced. The Energy Bill Relief Scheme will provide a discount on wholesale energy costs for non-domestic customers, expected to be at £211 per MWh for electric and £75 per MWh for gas.

It will apply to fixed contracts agreed on or after 1 April 2022, as well as to deemed, variable and flexible tariffs and contracts. It will apply to energy usage from 1 October 2022 to 31 March 2023, running for an initial six-month period for all non-domestic energy users. The savings will be first seen in October bills, which are typically received in November.

This means that energy providers are buying in the electricity and gas at a lower price. It does not mean that end user businesses will be charged 21.1p per KWh.

The announcement does say that there are criteria for providers to pass this saving on stating “Those on default, deemed or variable tariffs will receive a per-unit discount on energy costs, up to a maximum of the difference between the Supported Price and the average expected wholesale price over the period of the Scheme.” Note this is a “maximum” not a “minimum” so the exact values are undetermined.

You don’t need to apply for this, the support in the form of a p/kWh will be automatically applied to your bills.

More information on the Energy Bill Relief Scheme

If you would like any advice or further information how to Budget announcements impact your business, please get in contact with one of our team by calling 01474 853 856 or emailing enquiries@a4g-llp.co.uk.

We will provide further more detailed updates on the sections that were reversed once more information is released. It is important to note there will be a ‘proper’ Budget in the coming months where we will provide a summary again.

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“Mini” Budget u-turn!