On Friday 28 September we were presented with a ‘Mini-Budget’ – in light of the new parliamentary changes. PM Truss’ campaign came with promise of bold plans to cut taxes and stimulate growth in the economy, and although a ‘mini’ budget by name, it was not ‘mini’ by nature in respect of the changes ahead.
There have since been a change of Chancellor and an almost complete reversal of the announced provisions. This blog has been updated and reflects the current position.
We list below the main announcements that are still set to go ahead and where appropriate the impact they could have on you and your business:
Annual Investment Allowance – Spend up to £1m
The annual investment allowance is the cap on which businesses can claim a 100% tax deduction on capital expenditure and has bounced from £200,000 to £1,000,000 over the past couple of years. The planned change to reduce this from 1 April 2023, has also been shelved giving certainty to businesses where previously the timing of expenditure could have an impact on the speed with which you received tax relief in your company.
National Insurance Increases Reversed
As ‘announced’ a couple of days prior to the Mini-Budget, the 1.25% ‘Health and Social Care Levy’ on national insurance rates will be reversed from 6th November 2022.
This means that for employees, the previous 2021-22 NIC rates of 12% and 2% (for earnings over £967 weekly) will apply, with an employer’s rate of 13.8%.
Hybrid rates of National Insurance will apply for directors’ earnings, Class 1A NICs on benefits in kind and on Class 4 NICs on self-employed profits, which average out the rate changes during the year. For the 2022-23 tax year, the rates will be as follows:
Class 1A NIC – 14.53%
Class 4 NICs – 9.73% and 2.73%
There have been no announced changes to the NICs thresholds, just the rate at which it is charged at.
Dividend Tax Increases Reversed
From 6th April 2022 all dividends have been subject to a 1.25% increase from the previous year. This has been scrapped from 6th April 2023.
So, for dividends declared in 2022-23, higher dividend rates of 8.75%, 33.75% and 39.35% will apply for the whole tax year, but from 2022-23, these will revert down to 7.5% and 32.5% (and no higher rate – see below)
A noteworthy planning opportunity may be to delay taking further dividends until the new lower rates of dividend tax comes into play from 6th April 2023. This needs to be carefully planned out to avoid unexpected complications.
Whilst not direct changes to personal or business taxes, there were several other noteworthy changes:
Stamp Duty Land Tax
There’s good news for property purchasers as the Budget saw the increase of the residential nil rate band increase from £125,000 to £250,000, meaning no stamp duty is payable up to this limit – a 5% rate applies thereafter up to £925,000.
The nil rate bank for first time buyers was also increased from £300,000 to £425,000.
Whilst a great saving to purchasers, it has been criticized for contributing further to the housing crisis by putting additional upward pressure on prices in the long run as demand increases.
These revisions apply to England and Northern Ireland as there are different regimes in Scotland and Wales.
Seed Enterprise Investment Scheme (SEIS)
The SEIS currently provides unconnected investors into a start up business with an income tax deduction of 50% of the amount invested, up to £100,000 a year. There is also a generous capital gains tax relief for the investor. From 6 April 2023 the investment qualifying for SEIS relief is extended to £250,000.
The subject of much discussion lately is the increase in energy costs and the cost-of-living crisis, it has been announced that the government will provide two support packages in respect of this:
- The Energy Price Guarantee which places a cap on the unit price of electricity and gas.
- This will run alongside the already announced £400 Energy Bills Support Scheme, which will be paid to households from October.
- The Energy Bills Support Scheme for businesses will provide support in the way of a discount for a six-month period, with a possibility of extension thereafter for certain businesses.
In summary, carefully planning the timing of drawings from companies is more important than ever and is specific to individual earning levels and spending requirements.
In addition, the timing of capital spend and discretionary pay rewards e.g., staff bonuses will also have an impact on the tax burden your businesses suffer.
How can we help you minimise your tax liabilities?
If you have any questions about some of the detail of the above changes, please reach out to your account manager.
For all those clients who have pre-year-end tax planning meetings as part of their agreed service we will review the impact of the changes over the coming months.
We can assist with a plan to help with this.
If you have never had a pre-year-end tax planning meeting and your profits are growing, then you may want to consider this. For limited companies there is little that can be done to minimise tax liabilities once your year-end has passed. A planning meeting two to three months before the year end will provide you with an estimate of the potential tax bill and would then form the basis of a discussion as to how to reduce that tax liability.
Similar exercises can be done for the self-employed and to review an individual’s personal tax position before the 5th April, again to estimate tax liabilities and to look at ways to minimise your personal tax bills.
If you are interested in having a pre-year-end tax planning meeting please speak to your account manager.
The content in this blog is correct as at 17 October 2022 See terms and conditions.