Introduction
The government announced a dramatic change in plans on some of the actions mentioned in the mini-budget dated 23-sep-22 on 17th October 2022. Then-Chancellor Kwasi Kwarteng announced significant changes to taxes and National Insurance in the government’s mini-budget on 23rd September. Which included a proposal to do away with the top rate of Income Tax. Since given up – as well as a scheme to freeze Corporation Tax at 19%. This was reverted on 14th October when Kwarteng was substituted as Chancellor by Jeremy Hunt. The Corporation Tax rate will now rise up to 25% in April 2023, as previously proposed.
Major Issues
The major issues needing special consideration are listed below:
Support in Energy Costs
The government’s Energy Bill Relief Scheme was presented by Business Secretary Mr Jacob Rees-Mogg on Wednesday. Providing information on the support for businesses previously announced by Prime Minister Liz Truss.
Under the scheme, the government will supply a discount on wholesale gas and electricity prices for all UK businesses for a six-month period starting on October 1st, 2022. The discount is anticipated to be “less than half the wholesale prices anticipated this winter”. There is no need for businesses to contact suppliers, as the discount will be applied to their bills automatically.
Drop in the Income Tax Rate
The mini-budget initially proposed cutting the top rate of Income Tax – the additional rate levied on income above £150,000 – from April 2023. However, on 3rd October the government announced that it was scrapping the plan to cut the rate to 45%. The Chancellor said it had become “a massive distraction”.
NI Rate Reversed
The previously scheduled increase in National Insurance rates for April 2022 has been reversed. This means that NI rates will return to the following levels:
For Class 1 Employee’s National Insurance: 12%
Class 1 Employer’s NI: 13.8%
Class 4 NI for the self-employed: 9%
The change will come into effect from the first pay packet after 6th November for those who have NI deducted monthly. HMRC has announced that those who pay NI on an annual basis, such as the self-employed and company directors, will pay annualized rates of NI that have been revised. The updated rate will be released at a later date.
The Dividend Tax Rate Rise Reversed
The increase in the tax rate on dividends from April 2022 will be reversed from April 2023. This means that dividends will once again be taxed at the following rates:
1. 7.5% for basic rate,
2. 32.5% for higher-rate and
3. 38.1% for additional-rate taxpayers – provided the decision to retain the additional rate applies to dividend income as well.
AIA to be Fixed at £1 Million
Previously, the Annual Investment Allowance was set to fall back to £250,000 per year in April 2023, but this has now been changed permanently to £1 million.
IR35 is to be Streamlined
The Chancellor has announced a simplification to IR35, namely that the reforms made in 2017 and 2021 will be repealed from April 2023. This means that contractors, not the person or organization they are contracted to, will be solely responsible for deciding whether their work falls under IR35. The contractor will decide if their work falls under employment income and will be responsible for paying any extra taxes and National Insurance.
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