As we all know by now, the new Chancellor announced his “Mini Budget” about a week ago and we’ve witnessed how this managed to blow up the markets. Kwasi Kwarteng, is known for his doctoral thesis on 17th-century currency policy and the tendency to refer to historical financial crises in his conversations according to the Financial Times.
He strongly believes that loose fiscal policy and deregulation are the key to economic growth. Whether right or wrong, I guess we will have to wait and see. For now, let’s go over what we know will change in UK’s fiscal policy in the near future.
Stamp Duty Land Tax
One of the major tax cuts in the “Mini Budget” is happening in the Stamp Duty Land Tax. The 0% band will double (from £125,000 to £250,000). According to gov.uk this will allow the average buyer in England to save up to £2,500 on stamp duty. The nil-rate for first-time buyers is being increased from £300,000 to £425,000. Additional changes for first-time buyers come in the property value on which they can claim relief from £500,000 to £625,000. This measure came into effect on 23 Sep 2022.
Personal Tax
National Insurance
In a push for “people to keep more of what they earn”, the chancellor reversed the increase in Class 1 National Insurance Contributions introduced in April this year. This change will take effect on 6 Nov 2022. Additionally, the Health and Social Care Levy expected to come into effect in April 2023 is being cancelled.
Income Tax
The reduction of 1% in income tax (from 20% to 19%) for the Basic Rate taxpayers was brought forward and will take effect in April 2023.
Also, in a surprising move, the Additional Rate of 45% for income above £150,000 was abolished. Instead, there will be only a Basic and Higher Rate tax bands.
The changes will be applied in April 2023.
Dividends
The increase by 1.25% on Dividends Tax introduced in April 2022 was also reversed. Instead, the Basic and Higher rates were brought back to their previous levels of 7.5% and 32.5 respectively.
The reduction in Dividend Tax will also apply as of April 2023.
Off-Payroll
The extension of the IR35 rules into the mid and large-sized clients in the private sector has also been reversed.
Companies which are effectively the end-user of a service provided by a contractor, will no longer be responsible for the status determination. The NICs and Tax liabilities will also be sitting with the contracting party.
This is likely to be seen as good news for businesses as it will significantly reduce the administrative burden.
The change comes into place in April 2023.
Corporate and Business
Corporation Tax
Corporation Tax will stay at its current level of 19% as opposed to increasing to 25% as initially planned.
Capital Allowance
The Annual Investment Allowance (AIA) for qualifying plant and machinery will be permanently kept at its maximum of £1,000,000 from 2023. The initial plan was AIA to be reduced from maximum level to £200,000 per year.
Keeping it to £1,000,000 will provide businesses with a 100% tax relief up to this amount.
Seed Enterprise Investment Scheme (SEIS)
Businesses will be able to raise up to £250,000 (up from £150,000) as well as enjoy an increase in the asset limit from £200,000 to £350,000 under the new rules for SEIS. The individual Investor Limit is also being increased from £100,000 to £200,000 per annum.
The new rules will be in force as of April 2023.
Final Thoughts
Only time will tell if the policies set out in this budget will be the right ones for the UK economy. So far, the media has been almost unanimously negative.
We’ve been bombarded by unsettling news and sensational titles about the budget. We must remember, however, that ‘bad news sells’.
It’s evident that the markets’ reaction is based more on fear rather than logic and we may be better off trying to ignore the noise and think long-term.
