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The Mini-Budget

26 September 2022

The Chancellor (on Friday 23 September) unveiled his Growth Plan to release the huge potential in the British economy by tackling high energy costs and inflation and delivering higher productivity and wages.

At a glance: We explore some Mini-Budget notes relevant across sectors.

Investment

The Chancellor stated that he wants the UK to be an "entrepreneurial, share-owning democracy" and advised that various existing reliefs will be extended and made more generous to encourage investment in risk carrying businesses.

The Chancellor announced that the Government intends to extend the end date of the Enterprise Investment Scheme ("EIS") and Venture Capital Trusts ("VCT"). Due to European Union State Aid requirements the existing rules included sunset clauses for the expiry of the regimes under which shares must be issued by qualifying companies before 6 April 2025.  The Chancellor has confirmed that this date will be extended but gave no indication of the new longstop date.

Mr Kwarteng also said that the limits that apply to Seed Enterprise Investment Schemes ("SEIS") and Company Share Option Plans ("CSOP") will be increased to make them more generous. Companies can currently receive a maximum of £150,000 through SEIS investments and this will be increased to £250,000 from April 2023. The current CSOP rules give employees or full-time directors the option to buy up to £30,000 worth of shares at a price fixed at the market value of the shares at the date of the award to the employee.  This will be increased to £60,000 from April 2023.

Green Levies

The Chancellor announced in the House of Commons on 23 September 2022 that, as part of the 2022 Growth Plan, the Government is moving immediately to introduce a new Energy Price Guarantee (“EPG”), which includes a temporary suspension of green levies.

'Green levies' is the term loosely used to refer to the variety of policy costs added to energy bills, introduced over the past 15 years to drive the Government's low carbon objective. The Government policies include measures to reduce greenhouse gas emissions, such as measures to use biogas instead of natural gas, as well as social policies, such as the warm home discount, an energy rebate to assist low-income and vulnerable households to assist with the cost of heating. The EU Emissions Trading Scheme adds to bills by increasing the cost of generating electricity as a result of burning fossil fuels. Others, like the Energy Company Obligation apply the levy directly to bills.

The green levies make up around 8% of a typical energy, or "dual fuel" bill. The Chancellor noted that the EPG and suspension of green levies will mean that, from 1 October 2022, a typical household will save £1,000 a year and pay no more than £2,500 per year for the next two years. In addition to the EPG, all households will receive £400 in support from the Energy Bills Support Scheme over the course of this winter. This means the typical household will save at least £1,400 for the next year.

The Government anticipates that this measure will assist with re-stabilising the energy market.

VAT-free shopping

The Chancellor today announced that it will introduce a "modern, digital, VAT-free shopping scheme" for non-UK visitors to Great Britain. It will enable them to obtain a refund on goods bought in the high street, airports and other departure points and exported from the UK in their personal baggage. From the brief details announced so far, it does not seem that retailers will need to adapt their systems, as VAT will continue to be charged at the point of sale, with the consumer recovering this from HMRC.

Alcohol duty 

The Chancellor announced that the Government will freeze alcohol duty rates from 1 February 2023.  The Government also published its detailed response to a consultation on a new alcohol duty system. The Government confirmed that generally it will tax alcohol products in a progressive structure by reference to the litres of pure alcohol they contain, and suggests this meets its objectives of simplicity, economic reality and supporting public health goals. Wine will have a single, strength-based duty rate rather than the five existing rates for types of wine (e.g. sparkling, fortified). Draught relief will be expanded to include some spirit-based products and a new small producer relief will be introduced. Changes to the structure of alcohol duty will take effect from 1 August 2023. There is a technical consultation on some aspects of the reform including draught relief, small producers' relief, mergers and acquisitions of producers and effective rates of duty. The consultation and a small producer survey remain open for a short period until 22 October 2022.

Stamp Duty Land Tax

The Government has already published a policy paper has for the changes to Stamp Duty Land Tax (SDLT) for England and Northern Ireland. Unlike other measures announced today, this one has immediate effect. As of 23 September 2022:

  • The residential nil-rate threshold is increased from £125,000 to £250,000; and
  • The nil-rate threshold for First Time Buyer's Relief is increased from £300,000 to £425,000 and the maximum value of that first time purchase can now be £625,000 rather than £500,000. 

Higher rates of 3% on additional dwellings are maintained, as set out below: 

Consideration to be paid for residential property (for higher rates purchases)

SDLT percentage due

Up to £250,000

3%

The next £675,000 (the portion from £250,001 to £925,000) 8%
The next £575,000 (the portion from £925,001 to £1.5 million) 13%
The remaining amount (the portion above £1.5 million) 15%

No changes have been announced for SDLT rates on commercial property. The decision to make the changes with immediate effect was likely to ensure that the housing market is not distorted in the short term, so buyers do not hold off on current purchases to take advantage of potential savings. The increases in threshold rates are projected to remove 200,000 taxpayers from the SDLT regime, supporting the Government's commitment to home ownership and promoting mobility in the housing market.

The Exchequer's forecasts estimate the tax cut will cost £795 million for the rest of this year alone, with projections suggesting that HM Treasury could lose £7.03 billion by 2027. The Institute for Fiscal Studies notes that without a wider package of reforms in the housing market, such as making Council Tax more progressive, this measure may not support the UK housing market as effectively as hoped.

IR35

In an unexpected move, the Chancellor has announced the Government will repeal the 2017 and 2021 reforms to the off-payroll working rules, also known as IR35. These reforms shifted the responsibility to the end client (or recruitment agency) for establishing whether a working relationship was either an employer and employee, or a self-employed contractor and client relationship. These reforms required much greater levels of compliance and due diligence for those engaging contractors and have provoked much criticism. 

The Chancellor stated that the repeal of these measures would simplify the tax system and help drive growth. From 6 April 2023, workers providing their services via an intermediary will once again be responsible for determining their employment status and paying the appropriate amount of tax and national insurance contributions. 

The stated aim of this is to take away added complexities and costs for businesses. The Chancellor has confirmed that the Government will continue to keep compliance closely under review. 

This announcement will evidently be a relief to those businesses engaging contractors and those self-employed workers who may have been affected by the current IR35 regime. As the changes will not be implemented until April 2023, it remains to be seen how past transgressions will be dealt with and how HMRC will implement the rules in the meantime.

Income Tax

Former Chancellor, Rishi Sunak had already indicated that he was planning to reduce the basic rate of Income Tax to 19% in 2024, but his successor, Kwasi Kwarteng, today brought that tax cut forward to April 2023. This will save income tax payers in England, Wales and Northern Ireland an estimated £5 billion per year overall, with an average saving of £170 each. 

The Chancellor also announced, the abolition of the additional rate of Income Tax (45%), from April 2023. This means that those taxpayers earning over £150,000 will now keep more of their income, as the top rate of Income Tax in the UK is reduced to 40%. This is designed to improve the competitiveness of the tax system in England, Wales and Northern Ireland, encourage entrepreneurship and support growth.

The additional rate for income tax on dividends of 39.35% will also be abolished and the ordinary and upper rates of income tax on dividends will be reduced to 2021-22 levels of 7.5% and 32.5% respectively.

The rates and bands for Scottish Income Taxpayers for Non Savings Non Dividend income are set by the Scottish Government except for the personal allowance and remain unaffected by today's announcement.

NICs, Health and Social Care Levy and increase in dividend tax rates

National Insurance Contributions (NICs) rose by 1.25% in April 2022 in a move to fund health and social care in the UK. From April 2023 a separate new 1.25% Health and Social Care Levy was planned to be introduced while NICs would return to 2021-22 levels. The Growth Plan 2022 has reversed these changes and cancelled the introduction of the new Health and Social Care Levy. The announcement from the Chancellor noted that the NHS would still receive funding via other means. 

Similar changes were made to the planned increase in income tax on dividends. The Government had published plans in October 2021 to increase the ordinary rate, upper rate and additional rate of tax for individuals who pay tax on their dividend income by 1.25% per tax rate. This increase will be reversed from April 2023.

Business Taxes

On 3 March 2021, the Government announced a planned rise in the Corporation Tax main rate for non-ring fenced profits from 19% to 25% from 1 April 2023. This 6 percentage point increase has now been scrapped and the Corporation Tax rate will remain at 19% from April 2023.

Annual Investment Allowance (AIA)

The AIA is a scheme designed to encourage businesses to invest more by allowing businesses to deduct the full value of an item that qualifies for AIA from its taxable profits.

The amount of the AIA has changed several times since its introduction in April 2008 The AIA was increased to £1 million from 1 January 2019 and was due to return to £200,000 from 31 March 2023. The Chancellor has announced that the AIA will remain at £1 million "permanently".

Investment Zones

The Chancellor announced the introduction of "Investment Zones" across England and the Government hopes to work with the devolved administrations in Scotland, Wales and Northern Ireland to introduce similar areas of growth and investment across the UK. 

The specific interventions in Investment Zones will include:

  • Lower taxes – businesses in Investment Zones designated as "tax sites" will benefit from tax incentives over 10 years. The tax incentives under consideration are:
    • Business rates – 100% relief from business rates on newly occupied business premises, and certain existing businesses where they expand in English Investment Zones. Councils containing Investment Zone tax sites will retain 100% of the business rates growth in the Investment Zone tax sites above a baseline for 25 years.
    • Enhanced Capital Allowance – 100% first year allowance for companies’ qualifying expenditure on plant and machinery assets for use in Investment Zone tax sites.
    • Enhanced Structures and Buildings Allowance – accelerated relief Structures and Buildings Allowance so that the cost of qualifying investments in Investment Zone tax sites can be recovered over a five year period. 
    • Employer National Insurance Contributions Relief – Companies will not pay NICs on new employees spending at least 60% of their time working in Investment Zone tax sites on earnings up to £50,270 per year.  Employer NICs will be charged at the normal rates above this level. 
    • Stamp Duty Land Tax – full SDLT relief for land and buildings bought for use or development for commercial purposes, and for the purchase of land or buildings for new residential development in Investment Zone tax sites. 
  • Accelerated development – Measures will be considered to ease the rules for planning and development in "development sites", which may overlap with Investment Zones receiving tax incentives.
  • Wider support for local growth – for example, Local Authorities hosting Investment Zones will receive a single local growth settlement in the next Spending Review period.

Further Reading