Today’s less-than-mini budget contained a raft of changes to the tax and regulatory system, aimed at improving confidence, our competitive edge, and growing an economy deemed to be already in recession.
Its measures are sure to be polarising, seen as a ‘high stakes gamble’ in volatile conditions. The currency markets reflect this unease with sterling being down 5% against the dollar on the day of the announcement.
Personal and Corporate taxes have either been cut or previously planned rises cancelled. The plans amount to the biggest tax cut for 50 years.
It’s reinvigorated the debate as to whether trickle-down economics (wealth coming from the top) indirectly generates greater prosperity for all through investment and growth.
I’ve summarised some of the main points here:
Personal tax
The basic rate of income tax, the amount paid on earnings above the personal allowance but below the higher tax threshold (22-23: £50,270), will be cut to 19% from Apr 23. The additional rate of tax (22-23: 45% on earnings over £150,000), will be withdrawn completely from Apr 23 meaning all earnings over the higher rate threshold will be taxed at 40%.
Increases in national insurance and dividend tax have also been cancelled with rates reverting back to their 21-22 levels from Nov-22.
So individual tax burdens for all will reduce. For those earning in excess of £150,000, substantially.
As usual at the turn of the tax year, I’ll be in touch with proprietors with your remuneration recommendations and tax projections.
On assets, the purchase price at which stamp duty becomes liable on residential property has doubled from £125,000 to £250,000 (£425,000 for first time buyers). Coupled with liberalised planning laws, this is meant to be a shot-in-the-arm for housing in the face of rising interest rates.
Business tax and regulation
Previously planned corporation tax rises, which were due to be staggered according to Company profitability, have also been cancelled.
The annual investment allowance, which is the ability to deduct the cost of capital purchases from taxable profits, will remain at £1m.
The regulation on banker remuneration is also under review with the aim of making our Cities first choice for financial services jobs and investment. The cap on bankers bonuses will be removed, with the aim of shifting remuneration from fixed to variable costs. There is hope that legacy regulation from the 2008 financial crisis such as the Financial Services Compensation Scheme (FSCS) Levy, and the curb on excessive risk taking in the City is maintained.
IR35
Whilst a review was expected, a complete repeal of the IR35 reforms was somewhat of a surprise. In short, IR35 is a piece of legislation aimed at controlling ‘employees’ operating via their own Limited Companies in order to pay less tax. Plenty of further reading from earlier posts available here and here.
The responsibility, and therefore the tax risk, of determining an individual’s status was passed to the hiring firm in Apr-21. With hiring firms having little to no risk appetite for potential back-taxes, Limited Company engagements ceased altogether in many industries.
Thousands of Companies were dissolved up to and during the 21-22 tax year as a result of the reforms. It will remain to be seen how the labour market responds to this news.
Other
The new Chancellor announced a tightening of the rules around universal credit claims where a certain tranche of claimants will need to demonstrate additional steps at seeking work.
Assurances were also given around the protection of enterprise schemes such as Venture Capital Trusts (VCTs), which incentivises investment in innovation and start-ups.
As announced the day after Liz Truss’ tenure started, the £2,500 cap on energy bills for most households will go ahead. Planned duty increases on beer, wine and spirits (known as sin taxes) have been cancelled.
I’d love to hear your take on today’s announcement too.
If you have any questions as to how any of this translates to your own personal circumstances, please get in touch.
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