Today was always going to be an interesting day – a new Government setting the tone of how they intend to govern, the ongoing cost of living crisis, the recent unlimited commitment to support taxpayers with their energy bills and talk of the UK heading towards (if not already in) recession.
It was clear that there were going to be tax cuts, but the extent of these was not quite known. However, this Budget sees the biggest tax cutting event since 1972, so it is clear that the Government are pinning all of their hopes on a low tax, high growth economy!
The promised reversal of the national insurance hike (which was to be known as the social care levy) was confirmed, with this taking effect from 6 November 2022 for employers and employees. Although the corresponding 1.25% reduction to the dividend tax rate was announced too, this won’t apply until 6 April 2023.
Income tax rates will fall too – the planned 1% reduction to 19% from 6 April 2024 will now apply from 6 April 2023, to all but dividend income. More radical is the abolition of the additional rate of income tax from 6 April 2023, meaning the top rate of income tax will be 40%. Consequentially, there will be transitional provisions for relief at source pension schemes and charities claiming gift aid, to preserve the current 20% tax relief in the short-term.
The result of the income tax and national insurance changes mean that from 6 April 2023, dividends will be taxed at 7.5% and 32.5% for basic and higher rate taxpayers respectively.
The cancellation of the intended increase to corporation tax was also confirmed – the rate will now remain at 19%, rather than being increased to 25% from 1 April 2023. There will be tweaks to the super-deduction provisions to ensure that they apply as intended and it is assumed, that as there will be a single rate of corporation tax, there will be no need to reintroduce the ‘associated companies’ provisions.
All businesses will benefit from the fixing of the annual investment allowance at £1 million rather than being reduced to £200,000 as intended – a relief that the transitional provisions associated with a rate change will not be required as much as the benefit of the relief itself!
Wider reliefs were announced for businesses in new investment zones though. Much more detail is required here, but the headlines are – 100% business rates relief; exemption from stamp duty land tax on commercial and residential developments; 100% first year allowances on plant and machinery, which is presumably not capped; accelerated structures and buildings allowances, providing 100% relief over five years, rather than 33 years; and an exemption from employers national insurance on salaries up to £50,270 for new employees spending 60% of their employment time in the investment zones.
Somewhat of a boost has been given to UK start-ups with confirmation that EIS and venture capital schemes will continue beyond 2025 and there were also some favourable tweaks around the edges of SEIS relief and CSOP share schemes. In a radical move though, changes to the off-payroll working legislation introduced since 2017 will be repealed – this isn’t all good news though, as these changes simply shift the burden of what is commonly known as ‘IR35’ from the business receiving the services back to the worker.
Last, but not least, were the announcements in relation to stamp duty land tax. There is the doubling of the 0% threshold with immediate effect, meaning no stamp duty land tax is due unless a property exceeds £250,000, although the additional charge in respect of certain residential properties (for second properties, companies and non-residents) will still apply. In addition, we saw an extension of the first-time buyer reliefs, meaning that they will not have to pay stamp duty land tax unless the property is worth £425,000 and will not be liable to the 5% rate unless the property exceeds £625,000.
It’s difficult to know how to sum up such an event – many will think that the benefit of the tax cuts has been focused in the wrong place, some will suggest that the tax cuts will fuel inflation, others will question whether these have been properly costed. These are all perfectly good questions, and only time will tell whether the tax cut gamble will pay off!
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