Update on the Mini-Budget

On Friday the 23^rd of September, we saw the first budget of the new Chancellor, Kwasi Kwarteng, who was only appointed to the role by the new Prime Minister on 6^th September. The key points to the ‘mini-budget’ were as follows:

Income tax

The headline grabbing announcements surrounded the significant reduction of income tax. The proposed reduction of the basic rate band down to 19% promised by the previous chancellor, has been brought forward to 6^th April 2023. At the same time, the additional rate tax band of 45% was to have been abolished. However, Chancellor, Kwasi Kwarteng has performed a U-turn and scrapped the plans following opposition from both Conservative MPs and Labour and market instability.

NIC and the dividend tax

Leading up to the budget is had been reported that National Insurance contributions will be reduced by 1.25% from November 2022, this was confirmed in the mini-budget. The mini-budget also saw the Health and Social Care levy, that was due to come into force in April 2023, be cancelled.

Corporation tax and Capital Allowances

The proposed increase to corporation tax to 25% due in April 2023 has been cancelled and therefore the current rate of 19% will continue until further notice.

The Annual Investment Allowance will continue at £1m rather than be reduced to £200,000. Hopefully, this will now remain constant as this allowance has bounced up and down 6 times in the last 14 years.

Stamp Duty Land Tax

Stamp duty land tax (SDLT) will be cut in the hope of encouraging investment into the residential property market. The nil rate band of £125,000 will be doubled to £250,000 and first-time buyers will pay no SDLT up to £425,000. These rates apply to purchases with an effective date on or after 23^rd September.

Off-Payroll working

The mini-budget saw the reversal of in the changes to off-payroll working rules that were brought in for the public sector in 2017 and for the private sector in 2020. The IR35 rules have not been removed however, the changes merely take us back to the rules that previously existed.

Workers providing their services via an intermediary will be responsible for determining their own employment status and paying the appropriate amount of tax and National Insurance contributions under the IR35 rules.

Whether the above adjustments to the tax system will be enough to kick start the economy remains to be seen. The crash in the value of the pound and the significant drop in the markets showed that businesses were concerned as to whether the government could afford such cuts to tax. However, the markets have stabilised a little and following the U-turn on the abolition of the 45p tax rate, we wait to see what the government comes up with next.