Updated 17 October 2022 with details of reversals announced during October
The Chancellor’s speech on 23 September (The Growth Plan) wasn’t, of course, a Budget. But its financial effects are likely to be much more significant than most Budgets in recent years have been. Some commentators have expressed bemusement that this non-Budget injects several billion pounds into the economy a day or two after the Bank of England raised interest rates to cool the economy down. We’ll leave others to comment, and restrict ourselves in this note to tax.
Income Tax [and later reversal]
The headline points have been widely reported. The reduction of the basic rate of Income Tax and abolition of the 45% Additional Rate (both from 6 April 2023) mean that deferring taking income until the new tax year is likely to be worth considering in any case where you have the flexibility to do so. In that regard, one quirk to note (a function of the different ways in which tax and NICs are collected) is that although the 1.25% NIC increase on remuneration is cancelled with effect from 6 November, the equivalent reduction to tax rates on dividends doesn’t happen until 6 April 2023.
Bad luck if you’re a Scottish taxpayer – Income Tax rates are devolved so, unless the Scottish Government chooses to follow suit, none of the Income Tax changes apply in Scotland (which already had higher rates than the rest of the UK even before these reductions). And the reductions to Stamp Duty Land Tax don’t apply to land in Scotland either.
In principle, reduction of the basic rate of Income Tax to 19% reduces the amount that charities can recover under Gift Aid. But as a transitional measure, charities will continue to be able to recover at 20% for the next four years.
In October 2022, after this article was originally published, various Government announcements reversed some of the above:
- The 45p tax rate will not be abolished
- The reduction to tax rates on dividends will not take place
Corporation Tax [and later reversal]
The U-turn on increasing the rate of Corporation Tax will be welcomed, as will be the decision to retain permanently the Annual Investment Allowance limit of £1m. This means that the vast majority of businesses (with the notable exception of, inter alia, partnerships which have one or more corporate members) will continue to be able to write off capital expenditure on most classes of plant and machinery in full in the year of acquisition.
In October 2022, after this article was originally published, Prime Minister Liz Truss announced that this U-turn would not be taking place. In other words: as announced by the previous Government, from April 2023 the corporation tax rate will increase from 19% to 25% for firms making more than £250,000 profit.
Seed Enterprise Investment Scheme and Company Share Option Plan
A number of tax incentives are increased or promised. In particular, the amount that a company can raise under the Seed Enterprise Investment Scheme (‘SEIS’) increases from £150,000 to £250,000 and the annual investor limit is doubled to £200,000. No changes are announced to the Enterprise Investment Scheme. This is due to expire on 5 April 2025, but the non-Budget statement says that the Government ‘sees the value in extending’ the scheme, which, while not a commitment, is encouraging.
Over the years the failure to increase the limit on shares issued under the Company Share Option Plan (‘CSOP’; generally aimed at incentivising key executives rather than as a company-wide scheme) has very much hampered the attraction of the scheme. This limit is now doubled to £60,000. We wouldn’t want to be thought carping, but it should be noted that this still represents, in real terms, an 85% reduction from the value of the limit (£100,000) when the scheme was introduced in 1984!
IR35 [and later reversal]
One thing that was not expected was the abolition of the ‘off payroll remuneration’ rules which were introduced to the public sector in 2017 and extended to most companies in the private sector only last year. There has been some misreporting on this: the changes do not abolish the IR35 rules altogether – they simply restore the pre-2017 position so that personal service companies themselves (rather than the ‘end-users’ of their services) are again responsible for deciding whether the rules apply and responsible for applying them.
Since the 2017 and 2021 changes were supposedly made because HMRC found that policing the pre-2017 rules was in practice very difficult and demanding of resources, the reversal of them is surprising. Indeed, the non-Budget statement discloses that in the first year the exchequer cost of the change (which is, effectively, the tax expected to be lost through failure to operate IR35 correctly) is estimated at over £1 billion, rising in future years to over £2 billion. We suspect we may not yet have seen the end of this story.
In October 2022, after this article was originally published, Chancellor Jeremy Hunt announced that the ‘off payroll remuneration’ working reforms would not be abolished
Simplification and permanence?
Also interestingly buried in the small print is detail of the abolition of the independent Office of Tax Simplification (‘OTS’): henceforth the Government will ‘embed tax simplification into the institutions of government’ and ‘set a mandate to HM Treasury and HMRC to focus on simplifying the tax code’. We can’t help wondering if the OTS may have hastened its own demise by appearing, in some of its recent reports, to be overstepping the brief of simplification and straying into policy areas better left to government.
Finally, we mentioned ‘permanence’ above. All of these bold changes must be seen in context. With a General Election due in a bit over two years, and the Government currently lagging in opinion polls, ‘permanence’ is a relative thing.
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Our Growth Plan 2022 (‘Mini Budget’) coverage also includes a key tax announcements list.