Kwasi Kwarteng set out the UK Government’s key policies to tackle soaring energy costs and inflation in his first Budget which has been referred to as an ‘emergency Mini-Budget’. The Chancellor previously stated a ‘new era for Britain’ with growth at the forefront of any actions will be implemented. This is in line with Liz Truss’ promises to cut taxes for SMEs.
The Mini-Budget comes after lightning bolt comments and decisions from the Bank of England state that Britain’s economy is now in recession and have hiked interest rates up to 2.25% as a counter measure to rising inflation. The rate increase is the highest level since December 2008 and the 7th increase since last December. The interest rate rise may trigger a further tightening of already hard-pressed discretionary spending from consumers facing demands on their incomes.
Due to the Economic outlook, the Chancellor’s tax incentives and support packages are an attempt to combat the “vicious cycle of stagnation” and kick start “a virtuous cycle of growth”.
There were some largely predicted announcements, including the planned Corporation Tax rate being ditched, but also some surprises. Here, we summarise all the key details from the statement that will impact entrepreneurs, Freelancers and The Self Employed.
Although coined a ‘mini budget’, the suggested policies would demonstrate the biggest package of tax cuts since 1972 if they are all implemented.
What you need to know as a small business owner or individual
Corporation Tax
It was announced in the March 2021 Budget that there would be a 6% increase in the Corporate Tax main rate from 19% to 25%. However, in a move that the new Prime Minister has said is key to helping attract investment into the UK, this has been abandoned.
Energy
Ahead of the Budget, Business Secretary Jacob Rees-Mogg announced a new Energy Bill Relief Scheme. The support package will provide a discount on wholesale gas and electricity prices for all non-domestic customers whose current energy bill has been significantly inflated. The support is equivalent to the Energy Price Guarantee put in place for households. As with the Energy Price Guarantee for households, customers do not need to take action or apply to the scheme to access the support. Support (in the form of a p/kWh discount) will automatically be applied to bills. Further information can be found here.
National Insurance
As with the corporation tax rate, it was expected that a reversal of the National Insurance (NI) hike would be confirmed, and this was the case the day prior to the Mini-Budget. It’s predicted that 920,000 businesses are set to save an average of almost £10,000 next year as a result.
Investment Zones
Local Investment Zones are to be created to encourage development and to “unleash the power of the private sector”. In these agreed areas, of which there could be almost 40 in England, taxes will be cut, and tax reliefs will be accelerated, including 100% on qualifying investment in plant and machinery, and on purchases of land for commercial use. There will be no stamp duty to pay on newly occupied business premises, and no business rates to pay in the tax zone. Employers will not have to pay NI on the first £50,000 a new employee in the tax site earns. The creation of similar Zones for Scotland, Wales and Northern Ireland will be discussed with devolved administrations.
Annual Investment Allowance
The Annual Investment Allowance (AIA) for qualifying expenditure on plant and machinery, which was originally increased to £1,000,000 in the 2018 Budget, and was due to revert to £200,000 from 1 April 2023, will instead be permanently set at £1,000,000.
IR35
From April 2023 the IR35 rules introduced for the public sector in 2017 and the private sector in 2021 will be repealed, meaning that end users of contractors engaged through the contractor’s personal service company will no longer be responsible for assessing whether the contractor should be taxed as an employee by the end user. This will revert to being the responsibility of the personal service company providing the contractor.
Personal tax and cost of living takeaways
Income Tax
From April 2023, there will be a single higher rate of 40% on Income Tax. This means the additional rate level will be scrapped. Also, a year earlier than planned, the basic rate will be cut to 19% from next year which “means a tax cut for over 31 million people”.
Stamp Duty Land Tax
Up until today, there was no Stamp Duty Land Tax (SDLT) payable on the first £125,000 of a property’s value in England and Northern Ireland. This level has been doubled to £250,000 with effect from today (23 September).
First time buyers currently do not pay SDLT on the first £300,000, but this will increase to £425,000 and the level at which they can claim relief rises to £625,000 from £500,000.
It remains to be seen whether Scotland’s Land and Buildings Transaction Tax (LBTT) and Wales’ Land Transaction Tax (LTT) will follow similar lines.
National Insurance
As above, a National Insurance (NI) increase has been reversed. The turnaround will be happening from 6 November and is largely to benefit top earners by about £1,800 a year, while those on lowest incomes will be about £7 better off. Despite criticism, Truss has insisted that this is fair. According to the Treasury, almost 28 million people will keep an extra £330 of their money on average every year.
It was also announced that the planned conversion of the NI into a new Health and Social Care Levy would be axed.
Energy
As announced a couple of weeks back, the Government is to cap household energy bills at £2,500 for two years from 1 October 2022. This cap is said to equate to an average household saving of £1,000 a year. Further detail can be found here.
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