Mini Budget September 2022 - Dawn of a New Era?
In his first Budget speech as Chancellor, Kwasi Kwarteng said that ‘we need a new approach for a new era, focused on growth’. He would build this around three priorities: reforming the supply side of the economy, maintaining a responsible approach to public finances, and cutting taxes to boost growth. What followed certainly delivered on the third of these: this package has been described as the biggest tax cutting budget for half a century, following on from the earlier announcement of very substantial support for individuals and businesses coping with rising energy prices.
The Chancellor also put forward a number of proposals to reduce costs and regulation for businesses, moving the levers of tax and legislation to encourage investment, employment and economic growth. It remains to be seen whether the UK’s productivity and national income will respond in line with his aspirational target of 2.5% a year.
The other priority, fiscal responsibility, was covered in less depth. The response of the financial markets to the announcement of such substantial tax cuts was immediate: the value of the pound and the main stock market index both fell. The Chancellor put off the publication of plans to reduce government debt over the medium term, and full economic and fiscal forecasts, until later in the year.
The government is taking big but potentially risky steps to promote growth. This document describes the main measures that were announced, as well as some things that might have been announced but were left unsaid, and explains the context. If you would like to discuss what it all means for you and your finances, we will be happy to help.
Significant points
reversal of the April 2022 increase in National Insurance rates with effect from 6 November 2022
cancellation of the Health and Social Care Levy that was to be introduced in April 2023
cancellation of the 1.25% addition to dividend tax rates that was introduced in April 2022, with effect from April 2023
basic income tax rate cut to 19% a year early, from April 2023
abolition of 45% rate of tax on incomes above £150,000 from April 2023
cancellation of planned corporation tax increase to 25% in April 2023: the rate will remain 19%
increases in thresholds for Stamp Duty Land Tax with immediate effect
from April 2023, repeal of the ‘off-payroll working’ measures introduced in 2017 and 2021
confirmation of energy cost support packages
Personal Income Tax
In March 2022, Rishi Sunak announced his intention to cut the basic rate of income tax from 20% to 19% from 6 April 2024. Kwasi Kwarteng has brought the cut forward by a year to 6 April 2023, with no conditions attached.
Other Measures
The Chancellor began his speech with what he described as the issue most worrying the British people – the cost of energy. He did not announce any new measures, but summarised the support that has already been announced: the Energy Bills Support Scheme, which will provide a £400 nonrepayable discount to eligible households to help with their energy bills over the coming winter, and a new Energy Price Guarantee.
Stamp Duty Land Tax
With effect from 23 September 2022, the threshold above which SDLT must be paid on the purchase of residential properties in England and in Northern Ireland will be doubled from £125,000 to £250,000. At the same time, the thresholds for first-time buyers will increase from £300,000 to £425,000 and the maximum value of a property on which a first-time buyer can claim relief will increase from £500,000 to £625,000.
VAT
Up to 31 December 2020, it was possible for non-EU visitors to the UK to obtain a refund of VAT paid on goods purchased while here and taken out of the country in their personal baggage. This was abolished as one of the consequences of Brexit, but the government now proposes to introduce a new system ‘with the aim of providing a boost to the high street and creating jobs in the retail and tourism sectors’. A consultation will gather views on the approach and design of the scheme to be delivered ‘as soon as possible’.
Business Tax
As widely expected, the Chancellor confirmed that the planned increase in the main rate of corporation tax from 19% to 25% will not now take place on 1 April 2023.
Savings and Pensions
No changes were announced to the main rules on tax relief for pension schemes and pension contributions. The reduction of the basic rate of income tax affects people who pay contributions to personal pension schemes where the scheme provider claims a credit for basic rate tax on the contribution: at a basic rate of 20%, a contribution of £800 is topped up by the government with £200 to make £1,000, but this falls to £188 and £988 with a 19% tax rate. The government has announced a one-year transitional period that will allow pension schemes to claim at 20% in 2023/24.
National Insurance Contributions
From 6 April 2022, the rates of Class 1 NIC paid by employers and employees, and of Class 4 NIC paid by self-employed people, were increased by 1.25 percentage points. This means that employees pay 13.25% from the primary threshold up to the upper earnings limit and 3.25% above that; employers pay 15.05% on all earnings above the secondary threshold. Self-employed people pay 10.25% on earnings between the lower and upper profits limits, and 3.25% above the upper limit. These increases were a temporary measure for the tax year 2022/23, pending the introduction of a separate Health and Social Care Levy (HSCL) to be paid by the same people on the same income from 6 April 2023.
The Chancellor has decided to cancel the HSCL altogether, and to cancel the increases in NIC from the earliest practicable date – 6 November 2022. It is recognised that some payroll software may not be able to deliver the reduction to the old rates in time for the November payroll, but affected employees should receive a rebate retrospectively with their December payments.
Employees
From April 2023, qualifying companies will be able to issue up to £60,000 of CSOP options to employees, double the current limit. Some restrictions will be eased to align the rules more closely to the Enterprise Management Incentive scheme and widen access to CSOP for ‘growth companies’.