Chancellor Kwasi Kwarteng has unveiled on 23 September 2022, what he claims are the biggest tax cuts in a generation, so what is in his Fiscal Statement?
The key announcements from the chancellor at a glance
Changes to income tax
In a surprise move, the Chancellor announced plans to abolish the additional 45% rate of income tax on annual income above £150,000 from 6 April 2023.
This was then followed by the news that the basic rate of income tax would be reduced from 20% to 19% from April 2023. This means the change will be implemented a year earlier than promised by previous Chancellor of the Exchequer in his spring statement, in which he pledged to do this by April 2024.
Once the additional rate of tax is removed, there will no longer be a rate of tax of 45% placed on annual income above £150,000. Therefore, all annual income above £50,270 will be taxed at the higher rate of income tax (40%). The change will apply to the main rates which apply to:
non-savings, non-dividend income for taxpayers in England, Wales and Northern Ireland
the savings rates applicable to savings income for taxpayers across the UK
the default additional rate applicable to non-savings and non-dividend income of any taxpayer not subject to either the main rates or the Scottish rates of income tax.
Even though the basic rate of tax is reducing to 19% from April 2023, there will be a four-year transition period for Gift Aid relief, to maintain the income tax basic rate relief at 20%, until April 2027. There will also be a one-year transitional period for relief at source pension schemes to allow them to continue to claim tax relief at 20%.
The dividend additional rate will also be removed to align with the dividend upper rate, which is being reduced to 32.5% from 6 April 2023.
Health and social care levy abolished
The Chancellor has confirmed that he will cut national insurance by 1.25% for employees and employers from 6 November 2022.
The government is cancelling the health and social care levy – initially introduced as a 1.25 percentage point rise in National Insurance contributions (NICs) - which took effect in April 2022.
This will be delivered in two parts:
the government will reduce NI rates from 6 November 2022, in effect, removing the temporary 1.25 percentage point increase for the remainder of the 2022/23 tax year;
the 1.25% health and social care levy will not come into force as a separate tax from 6 April 2023 as previously planned.
The increased contributions people have paid from 6 April 2022 – 5 November 2022 will not be refunded. Refunds of NICs will be allowed for contributions after 6 November 2022, should software developers be unable to implement the changes in time.
This tax cut reduces 920,000 businesses’ tax liabilities by £9,600 on average in 2023/24. This is 60% of the UK’s businesses with employer NICs liabilities. It means 28 million people across the UK will keep an extra £330 a year, on average, in 2023/24.
Reversing the dividend tax increase
In line with the decision to abolish the 45% additional tax rate, the government has also cut the dividend tax rate for the highest earners by 6.85%.
The government is reversing the 1.25 percentage point increase in dividend tax rates applying across the UK from 6 April 2023.
From 6 April 2023 the ordinary and upper rates of dividend tax will return to 7.5% and 32.5% respectively. Additional rate taxpayers will further benefit from the abolition of the additional rate of dividend tax.
Annual investment allowance (AIA) fixed at £1m
In a welcome move for businesses, the Chancellor announced plans to set the annual investment allowance at £1m on a permanent basis.
Changing the level of annual investment allowance has featured in many recent Budgets and this one was no exception. The drop from £1m to £200,000, due next year, has been reversed, with the AIA now set permanently at £1m.
Investment zones
The government has committed to working with local councils and devolved administrations to bring new investment zones across the UK. According to the government, these zones will bring tax incentives, simplify planning restrictions and drive growth. While similar in concept to freeport tax sites, they are distinct in operation and function.
Businesses within the zones will receive 100% relief on business rates for newly occupied premises and some existing business will also qualify if they expand within the zone.
Capital allowance and structures and buildings allowances are to be enhanced for businesses within the zones. As well as a full stamp duty land tax relief for land and property bought for commercial use or development or new residential developments.
The tax incentives under consideration are:
· 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.
· enhanced capital allowance – 100% first year allowance for companies’ qualifying expenditure on plant and machinery assets for use in tax sites; and
· enhanced structures and buildings allowance – accelerated relief to allow businesses to reduce their taxable profits by 20% of the cost of qualifying non-residential investment per year, relieving 100% of their cost of investment over five 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; and
· 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.
Repealing off-payroll working reforms
The Chancellor has announced plans to abolish the IR35 off payroll working rules for the public and private sector from April 2023
The Growth Plan sets out the first steps in taking complexity out of the tax system. The 2017 and 2021 reforms to the off-payroll working rules (also known as IR35) will be repealed from 6 April 2023.
From this date, workers across the UK providing their services via an intermediary, such as a personal service company, will once again be responsible for determining their employment status, and for paying the appropriate amount of tax and NICs.
Payroll professionals will no longer be required to add ‘deemed employees’ to payroll software to account for income tax and employer NICs because this becomes the responsibility of the PSC once more.
The off payroll working rules were introduced in 2017 for the public sector and 2020 for the private sector, cutting the number of people who could work on a contract basis and introducing a complex set of rules to identify whether an individual should be defined as self-employed or paid on a PAYE basis.
Planned corporation tax increase cancelled
The Chancellor confirmed that the planned 6% rise in corporation tax will not go ahead in April 2023 with rates set at 19%.
Under the previous government’s plans, the rate of corporation tax was due to increase from 19% to 25% from April 2023 for firms making more than £250,000 profit.
The government has now cancelled this planned increase. Rather than rising to 25% from April 2023, the rate will remain at 19% for all firms, regardless of the amount of profit made.
At 19%, the UK corporation tax rate is the lowest in the G20.
Stamp duty land tax (SDLT)
The threshold for stamp duty land tax (SDLT) has been doubled to £250,000 for all home purchases with immediate effect.
From 23 September 2022, the threshold above which the SDLT must be paid on the purchase of residential properties in England and Northern Ireland will increase from £125,000 to £250,000. From the same date, the threshold at which first-time buyers begin to pay SDLT will increase from £300,000 to £425,000. The maximum value of a property on which first time buyers can claim relief will also increase from £500,000 to £625,000.
Energy
Freeze on energy bills, which the government claims will reduce inflation by 5 percentage points.
The energy price guarantee (EPG) will place a cap on the unit rate of electricity and gas, meaning the average household will pay no more than £2,500 per year for a period of two years, from October 2022. An additional payment of £100 will be given to compensate anyone who isn’t able to receive additional support for heating costs through the EPG. All households will also receive £400 in additional support through the energy bills support scheme in winter 2022.
The energy bill relief scheme (EBRS) is a temporary six-month scheme in Great Britain, which will help businesses and other non-domestic energy users by offering a discount on wholesale gas and electricity prices. The government will review the scheme in three months to determine future support following March 2023.
Scrapping the bankers’ bonus cap
The cap placed on bonuses to certain banking staff, of 100% of their fixed pay (or 200% where there’s stakeholder approval) will be removed.
Shopping
VAT-free shopping for overseas visitors
Planned increases in the duties on beer, for cider, for wine, and for spirits cancelled
Alcohol duty reform
The duty rates for all categories of alcohol will be frozen from 1 February 2023. A government response to the consultation on the new alcohol duty system will soon be published, along with draft legislation to underpin the changes. The reforms will be implemented from 1 August 2023.
Presented to Parliament
by the Chancellor of the Exchequer
by Command of His Majesty
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