In an unusual move, yesterday the International Monetary Fund (IMF) openly criticised the UK government’s mini budget . The IMF have concerns that the proposals delivered by Kwasi Kwarteng are likely to make the UK a more unfair society and add to the existing inflationary pressures.
The markets have lost faith in the pound during the last few days as many investors are also unsure of the UK Government’s move to introduce huge tax cuts via borrowing more.
Reduction in Tax
One of the main issues is that under the new plans, the additional tax rate of 45% has been abolished. This move delivers a significant tax cut for those earning over £150,000 from April 2023.
What’s also been announced is the reduced rate in the basic rate tax to 19% from next April as well. But ahead of these changes the 1.25% increase in national insurance for employees and employers has been cancelled, effective from 6 November.
The result of these tax cuts means there are some gains for most earners, although the highest earning taxpayers will benefit the most.
The cost to the Treasury is an estimated £2bn in tax take a year.
Based on the announcements, here is a breakdown of the extent of tax cuts across various earning levels.
| Earnings | National Insurance cut from 6 November 2022 | 19% base rate & NI from 6 April 2023 |
| £20,000 | £38 | £167 |
| £40,000 | £142 | £617 |
| £60,000 | £247 | £969 |
| £100,000 | £455 | £1,469 |
| £200,000 | £976 | £5,220 |
As a basic planning point, you may want to consider delaying the payment of any dividends or bonuses until after 6 April 2023. If you currently fall in the higher rate tax band of 45% it means that you will have an immediate tax gain so long as you do not need the cash now.
If you do, then you can consider taking out a short-term loan from your Company in the interim but do check with your accountant for any other tax implications.
IR35 changes
In another surprise move, the chancellor announced the reversal of IR35 changes introduced in April 2020.
The “off payroll rules” introduced two years ago will be abolished from April 2023. This means that private and public sector employers will no longer be required to assess whether their contractors are bona fide freelance workers or should be employed on PAYE contracts. It is again down to the individual worker to do this.
Stamp Duty for the Housing Market
There is an attempt to deliver growth in the housing market and support home ownership by increasing the threshold before any tax is due.
The new threshold of £250K comes into effect immediately and for the first-time buyers the new increased threshold is £400K.
However, in the immediate aftermath of the announcements many lenders were pulling their rates for mortgages in anticipation of large interest rate rises from the Bank of England.
For your Company
The planned corporation tax increases were cancelled leaving the rate at 19%. You may recall the announcements of a Super-Deduction allowance of 130% on capital purchases in the 2021 Autumn Budget. This comes to an end (as we stand today) on 31st March 2023.
With the previous expected increase of corporation tax to 25% the position after next April was going to be neutral (regarding the timing of the purchase) but not now. So, if you are considering a purchase then maybe you want to consider accelerating it, so it comes into play before the end of next March.
There’s more to come
Since delivering the Budget last Friday, the Chancellor Kwasi Kwarteng has indicated that this is only the beginning of his tax cutting agenda. There is going to be another announcement on 23rd November outlining more on the UK’s Growth Plan and another Budget in the Spring.
There are also further statements expected as follows
- In October/ early November
Announcements on the supply side of the growth measures. This includes changes in the planning system to simplify these, immigration rules due to shortage of labour, childcare to entice longer working hours and other business regulations.
- In October
Announcements on regulatory reforms in the financial services sector. We already know that the cap on banker’s bonuses is going to be removed.
There are suggestions that there could be reforms to the higher rate child benefit charge, which is seen as an unfair tax as it does not consider the total earnings of a household.
None of us are really sure of what happens next. We know there are going to be more announcements over the coming months. We will of course keep you posted. In the meantime, if you have any questions about any of the above please call or email your manager at Myers Clark.