What a month, what a week, what a day!
An emergency statement by the Chancellor this morning, in order to prevent further speculation and help settle the markets in advance of the fiscal statement due on 31 October 2022, has taken us back in time to where we were less than a month ago in many respects – what some would refer to as a major u-turn is in fact being reported as a handbrake turn!
Essentially, the reset button has been pressed – announcements at the mini-budget which did not take immediate effect or have not been legislated for are essentially being scrapped.
On the back of the reversal of the scrapping of the additional tax rate and the planned cut in corporation tax, we now have the proposed acceleration to the reduction in the basic rate of income tax from 20% to 19% cancelled. Although this early announced pre-election tax cut falls away, the Chancellor noted the desire for this to be brought forward when it is ‘affordable’ – there is no expectation that this will happen in the short-term though.
The reversal of the national insurance hike will remain, but the same cannot be said for the impact on dividend tax rates – these were increased by 1.25% at the time when the national insurance rise was brought in, and there was some logic to this. Without the corresponding rise to dividend tax rates, those able to shift their income from salary to dividend could take advantage of the differential.
However, the announcement today makes clear that the dividend rates will remain at their current level, being 8.75% for basic rate taxpayers, 33.75% for higher rate taxpayers and 39.35% for additional rate taxpayers – a very different place to where we thought we were at the time of the mini-budget and an imbalance in the ‘salary v dividend’ equation compared to pre-April 2022 times.
The stamp duty land tax changes (the doubling of the 0% threshold and the extension of first-time buyer reliefs) are being left in place while the reforms of the off-payroll working legislation (which were a shift in the obligation rather than a tax cut) are to be scrapped.
At this point, we have not seen anything in respect of the original announcements around the annual investment allowance or the new investment zones, although both of these are more aligned to incentivising businesses to invest, so we can assume (at this stage) that these will remain in place.
What is ahead is still uncertain though – there is still a hole to fill in the UK finances following the mini-budget. Some of this may be dealt with by the restriction of the energy support (now limited to April 2023, with more targeted support expected beyond that date), while we still have a fiscal statement due in two weeks time which, although likely to focus on cost savings across Government departments, could well deliver some more tax changes.
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