Mini-Budget 2022 — What YOU Need to Know

The Biggest Tax Cut in Generations Just Happened

Last week, the Chancellor announced a new mini-budget to tackle enormous energy costs and inflation.

This new Number 10 believes that May and Johnson pursued the wrong goals, lacked focus and crippled the country for the best part of the last decade. The purpose of this new growth plan will deliver higher productivity and wages for the greater good of the British economy. However, the British Pound has dramatically fallen to a fresh 37-year low against the dollar in the week since.

As financial markets react to the most significant tax cuts in 50 years, what exactly are they reacting to?

The big hitters of the mini-budget

  • Income tax cut from 20% to 19%
  • National Insurance increase scrapped
  • Corporation tax to remain at 19%
  • Stamp duty reassessed and reduced
  • Capital Allowances remains £1 million

Income Tax

From April 2023, the basic income tax rate will fall from 20% to 19% (based on annual earnings between £12,571 and £50,270)*. According to the Treasury, 31 million people will be better off by an average of £170 per year.

⬜ | Applicable to England, Wales and Northern Ireland taxpayers.

This is not only one year earlier than planned, but the 45% additional rate is to be abolished altogether. So, for high earners reaping more than £150,000, from April 2023, you can look forward to paying just 40% instead.

*This is mirrored for tax on dividends paid on or after 6 April 2023. The additional rate of 39.35% will be scrapped, leaving dividends for basic rate taxpayers chargeable at 7.5% and the higher rate at 32.5%.

National Insurance (NI)

According to the Treasury, The government is committed to a low-tax, high-growth economy. They want to ensure people keep more of the money they earn. Plus, it’s for businesses to have the right conditions to drive investment, growth and productivity. From November 2022, the 1.25% rise in NI contributions — which took effect in April this year — will be axed. The Health and Social Care Levy, which was due to replace the April 2022 NI increases, has also been abandoned. This enforced change will save 920,000 businesses almost £10,000 on average next year.

So, from henceforth, the rates will be:

⬜ | Employees’ Class 1 (primary) — 12% and 2%
⬜ | Employers’ Class 1 (secondary) — 13.8%

National Insurance Classes
Class 1Employees earning more than £242pw and under State Pension age — they’re automatically deducted by your employer
Class 1A or 1BEmployers pay these directly on their employee’s expenses or benefits
Class 2Self-employed people earning profits of £6,725 or more a year. If you’re earning less than this, you can choose to pay voluntary contributions to fill or avoid gaps in your National Insurance record
Class 3Voluntary contributions — you can pay them to fill or avoid gaps in your National Insurance record
Class 4Self-employed people earning profits of £11,909 or more a year

To clarify . . .

  • Additional NI payable by employees over the upper earnings limit (£4,189pm or £50,270 p.a.) will also be reduced by 1.25% to 2% from November.
  • For 2022/23, there will be a transitional rate of 14.53% for Class 1A and 1B NI contributions, i.e. that paid by employers on taxable benefits in kind.
  • Self-employed taxpayers will pay composite rates of Class 4 NI for 2022/23. The rates will be 9.73% on profits between £11,909 and £50,270 and 2.73% on profits above the upper limit.
  • For taxpayers with annual earnings periods, e.g. directors, the rates will be 12.73% on earnings between £11,909 and £50,270 and 2.73% on higher earnings.

Corporation Tax

Under the previous government’s plans, the rate of Corporation Tax was to increase from 19% to 25% from April 2023. However, the increase in the corporation tax rate to 25%, due to apply from April 2023, has since been cancelled. The Treasury wants to grow the economy by creating the conditions for businesses to thrive. Doing so will create jobs and increase investment in the UK. So, rather than rising to 25% from April 2023, the rate will remain at:

⬜ | 19% for all firms, regardless of the profit.

As one of many major tax reforms of the mini-budget, at 19%, corporation tax remains the lowest in the G20. It’s also significantly lower than the rest of the G7. The tax rate by companies who lend money to shareholders, linked to the 1.25% NI rise in April 2022, will also be reduced. According to ex-Prime Minister Boris Johnson:

“Every time corporation tax has been cut in this country it has produced more revenue.”

Stamp Duty Land Tax

Governments typically use stamp duty holidays to encourage activity in the housing market. Theoretically, this boosts economic growth as new homeowners spend money on home improvements. However, we have some good news for homebuyers in England and Northern Ireland. The chancellor has stated that there will be a permanent cut in stamp duty — instead of a stamp duty holiday. With immediate effect, the nil-rate band has doubled from £125,000 to £250,000 for all residential property purchases. Therefore . . .

⬜ | Stamp duty will no longer be charged on the first £250,000 of a property’s price.

According to the Treasury, 200,000 more people can buy a home every year without paying any stamp duty whatsoever. The standard buyer in England will save £2,500, meaning a typical family moving into a semi-detached property will save £2,500 on stamp duty. In addition, there is an immediate increase in First Time Buyers’ Relief from £300,000 to £425,000. First-time buyers will also see the maximum value of qualifying property increase to £625,000. Previously, the additional first-time buyers’ relief only applied if the property cost less than £500,000.

Other Announcements

Capital Allowances

The Chancellor has announced more relief for businesses. Rather than letting it return to £200,000 in March 2023, the Annual Investment Allowance will be £1 million indefinitely. This gives 100% tax relief to businesses on their plant and machinery investments up to the higher £1 million limit.

 

Off-payroll Working

The 2017 and 2021 reforms to the off-payroll working rules — otherwise known as IR35 — will be rescinded from April 2023. Henceforth, the laws which govern off-payroll working are to be simplified. Those who work via an intermediary will once more be responsible for determining their employment status. With this in mind, the individuals will be responsible for paying the appropriate amount of tax. This also includes their national insurance contributions.

Investment Zones

The seed enterprise investment scheme and company share option plan are being enhanced. It was also confirmed that the government is in discussion with 38 local and mayoral combined authority areas in England. These discussions have sought to establish Investment Zones in specific sites. Each Investment Zone will offer generous, targeted and time limited tax cuts for businesses. It will also offer liberalised planning rules to release more land for housing and commercial development. Essentially, these Investment Zones will attract similar tax breaks as freeport sites. Each area will encourage investment in new shopping centres, restaurants, apartments, and offices. Ultimately, the government wants them to be hubs for growth and create thriving new communities.

The benefits of the new mini-budget

  • Income tax cut from 20% to 19%
  • National Insurance increase scrapped
  • Corporation tax to remain at 19%
  • Stamp duty reassessed and reduced
  • Capital Allowances remains £1 million

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