In Friday 23rd September's much-trailed statement from recently appointed Chancellor of the Exchequer, Kwasi Kwarteng, was expected to address the host of pressing financial issues faced by the UK.
Prime Minister Liz Truss had already hinted that the Government’s plan to deal with rising interest rates, the soaring cost of living and sky-high energy costs for individuals and businesses would be to stimulate and grow the economy. Lowering taxes was to be a key component in doing this.
Whilst we were to a degree forewarned the extent of the changes is a little surprising. There is no doubt that her Chancellor made a major impact with the launch of ‘The Growth Plan 2022’.
Looking to change economic thinking, the plan outlined a raft of measures likely to affect the finances of individuals and businesses alike.
So, what were today’s first steps and how will it affect contractors and the UK at large? Here’s a short summary of what was announced as part of the package of measures:
- The National Insurance increase of 1.25% which was introduced only in April this year, is to be reversed from November. This is calculated to save the average worker £330 a year. Gone too is the Health Care Levy which was due to come into effect in April 2023;
- The increase in tax on dividends, introduced to match the NIC rise, is being abolished from April 2023;
- Probably the most significant announcement for contractors today was the surprise statement that the IR35 off-payroll reforms of 2017 and 2021 were to be repealed from April 2023. Workers providing their services via an intermediary (usually a PSC) will once again be responsible for determining their IR35 status and paying the appropriate amount of tax and National Insurance contributions. PayStream’s PSC clients can of course take advantage of free IR35 reviews from the IR35 team.
- Another rabbit out of the hat was the abolition of the Additional Rate of Income Tax of 45%. The top rate of personal tax becomes 40% from April 2023;
- The proposed reduction in the basic rate of Income Tax by 1p has been brought forward by a year to April 2023;
- Support for households and businesses with the introduction of an energy price cap, already being touted in the media were confirmed at £2,500 for households and an equivalent unit rate for businesses ;
- Predictions around changes in Stamp Duty thresholds came to pass with the NIL band being doubled to £250k and first-time buyers benefitting from a new NIL threshold of £425k up from £300k;
- For businesses the planned increase in Corporation Tax has been abandoned and the rate will remain at 19%. Businesses may also benefit from the Annual Investment Allowance for capital expenditure remaining at £1m instead of a proposed reduction to £250k;
- Other new measures announced by the Chancellor included the creation of Investment Zones in places such as Tees Valley, the West Midlands, Norfolk and Somerset. Businesses created or moving into these zones will be eligible for significant investment and tax incentives;
- VAT-free shopping for overseas visitors is to be delivered by a modern, digital system in the future to encourage retail growth in appropriate areas. The Chancellor also announced that alcohol duty increases were being cancelled.
The foundation of the Growth Plan, according to the Chancellor is based on the simplification and reduction of taxes, reforming the supply side of the economy, and taking a responsible approach to public finances.
Although today’s statement was titled a ‘mini-budget’ it’s probably true to say that its’ content was more dramatic than any normal Budget over the last few years. Extraordinary measures for extraordinary times!
