While we were expecting to wait patiently for 31st October to hear more detail about the government's plans for changes to tax regimes and allowances, the political world entered a further period of turmoil - culminating in several U-turns.
Reading the headlines and trying to determine which changes affect you and your business is challenging, so we have collated this article to clarify which amendments remain valid, which have been scrapped, and what we are still to receive clarity on.
Our advice in the meantime is to contact SAS Accounting Services at your convenience if you would like any advice about what these announcements mean or to ensure you are basing your forecasts and plans on the most accurate information we have available.
Income Tax Rates
The basic rate of income tax, currently at 20%, was originally due to be reduced to 19% in 2024, following a pledge made by former chancellor Rishi Sunak back in July.
Kwasi Kwarteng then unveiled plans to bring this reduction forward to April 2023, with plans to save £170 a year from the tax bills of 31 million people.
Jeremy Hunt, the new chancellor as of 14th October, has confirmed that the basic rate income tax will remain at 20%, and the planned reduction to 19% has been shelved, possibly indefinitely.
The other big headline news was the intention to scrap the additional income tax band of 45%, a heavily criticised move thought to benefit the wealthiest in society amid a cost of living crisis.
Taxpayers pay the additional rate on earnings above £150,000 in England, Wales and Northern Ireland, with the mini-budget set to remove this tax band entirely and impose a standard 40% tax across higher and additional rate brackets.
This plan has also been scrapped, and the 45% rate reinstated.
Corporation Tax Rates
The original plan was for corporation tax to climb from 19% to 25%, albeit only for businesses earning above a threshold, and tapered for corporations making profits at varying levels.
Plans to introduce higher corporation tax rates from April 2023 had been cancelled but reinstated.
Companies will be subject to the 25% rate if they earn taxable profits above £250,000, although those with a net profit of £50,000 or less will continue to pay the 19% rate.
Energy Price Caps
One of the grey areas is around price caps on residential and commercial energy bills, which have multiplied several times this year and have been a key focus for economists and those trying to see how a weakening income in an inflationary economy can cope with soaring costs.
The government has announced a maximum residential energy bill for gas and electricity, capped at £2,500 for the next two years, starting from October 2022.
Although the long-term changes are yet to be clarified, the existing government has shortened that guarantee to cover the winter ahead until April 2023.
There are - as yet - no comprehensive energy price caps for businesses. However, the Energy Bill Relief Scheme from 1st October is expected to provide financial support for companies, covering incorporated organisations that entered into a fixed-term contract from 1st December 2021 onward.
Commercial price caps are set at £0.211 per kWh for electricity and £0.075 for gas but apply only to a proportion of energy bills.
IR35 is a regulation that dictates how off-payroll workers (generally contractors, freelancers and self-employed staff) are accounted for, with companies required to collect PAYE tax and provide employee benefits to workers falling within the IR35 remit.
The government had stated an intention to change the rules to protect companies from being forced to transfer contractors onto employee tax schemes, saving £2 billion a year and removing costs and complexities.
Recent changes mean these reforms have been cancelled, and IR35 regulations will be unaffected.
Cancelled Tax Reliefs and Changes to Duty
Among the other measures since scrapped, the government has cancelled:
- VAT-exempt shopping for foreign nationals.
- Freezes on alcohol duty.
- Reductions in dividend taxes - the changes introduced last April will remain.
Tax Reforms Expected to Stay
Despite the length of this list, some reforms have been confirmed and remain valid since the mini-budget was announced on 23rd September.
National Insurance Rates
National Insurance rates increased by 1.25% from April and were expected to be replaced by a new Health and Social Care Levy from April 2023.
The Liz Truss government reversed that rise from 6th November, reinstating the previous deductions and cancelling the additional social security burden taxpayers and businesses have been paying since April this year.
To date, it seems that the Health and Social Care Levy will not now be introduced, and National Insurance will revert to the rates before April 2022.
Stamp Duty changes were brought about in the mini-budget, lifting the thresholds at which duty becomes payable from £125,000 to £250,000 and to £425,000 for first-time buyers in England and Northern Ireland.
This change has not been reversed, allowing 200,000 more homebuyers to get onto the property ladder or upgrade to a larger property without any tax obligation.
The rules applied to universal credit applicants have been tightened, reducing benefit payments if an applicant is considered not to have met commitments to search for employment actively.
This change affects 120,000 people claiming universal credit, who will need to prove that they have attempted to increase working hours, find a suitable job, or face reduced benefit income.
Adjustments to universal credit conditions have not been scrapped, although job seekers over 50 will be supported by work coaches and allowed extra time to meet the mandatory requirements.
Bonuses for Bankers
Among the more controversial changes, the government announced that it would lift regulations restricting the maximum bonuses payable to bankers.
We do not yet know the extent of the reforms, and there has not yet been confirmation, although a regulatory reform package is expected in the weeks ahead.
Managing Tax Affairs in Turbulent Times
With the tax landscape changing so quickly, dramatically, and without precedent, it can be extremely difficult for employers, workers and business owners to navigate the climate and predict their tax obligations.
Please get in touch with SAS Accounting at your convenience if you would like assistance with budgeting, forecasting and planning for the trading period to come, factoring in potential tax changes to ensure you have a contingency plan in place.