Mini Budget 2022

NB: updated 17th October 2022

The Great British Giveaway

There was nothing small about today’s mini budget. The Government announced an enormous £45 billion of tax cuts, gambling on putting more cash in people’s pockets to drive the country out of recession.

Although the energy price caps and the reversal of the Health and Social Care Levy had been announced previously, the changes to SDLT, income tax and the off payroll working rules (IR35) went significantly further than most commentators had predicted. This budget marked possibly the biggest change in fiscal policy since the 1980s.

Of interest to our clients, in addition to the abolition of the additional rate of income tax and the cancellation of the planned rise in corporation tax, will be the reversal of the changes to the IR35 rules and the return to VAT-free shopping for overseas visitors. The changes to the IR35 rules were originally introduced in 2017 for the public sector and 2021 for the private sector. Businesses have spent an enormous amount of time and money preparing for the rule changes, so it will be interesting to see what happens to the market for contractors over the coming months.

Innovation

Seed Enterprise Investment Scheme (SEIS)

From April 2023, companies will be able to raise up to £250,000 of SEIS investment, up from the previous £150,000 limit, and the annual investor SEIS limit will be doubled to £200,000. The gross asset limit will also be increased to £350,000 and the age limit from 2 to 3 years.

The Government further announced its intention to extend SEIS, Enterprise Investment Scheme (EIS) and the Venture Capital Trust (VCT) beyond 2025. The schemes are subject to a sunset clause, as part of European Union state aid rules, which would mean that they would only be available up to 6 April 2025, if not further extended.

Further details on SEIS and EIS, including details of the tax reliefs available can be found here (SEIS) and here (EIS).

Company Share Option Plans

The Government intend to make company share option plans (or “CSOPs”) much more attractive from 5 April 2023. The individual limit on the value of shares which can be put under option will be doubled from £30,000 to £60,000 and the restriction on the types of shares which can be used will be removed. The current restrictions mean (broadly) only ordinary shares which give employees control of the company or are majority owned by investors can be put under option. The relaxation means larger private companies that no longer qualify for the enterprise management incentive plan (“EMI”) will at last have an attractive Government-backed alternative offer to their employees. It should be possible to amend the articles to create a new class of growth shares and to grant CSOP options over them. The low value of the growth shares (which can be agreed with HMRC in advance) and higher £60,000 limit will allow substantial CSOP awards to be made to management. To date the low limit and share class restrictions has meant CSOPs have only been used to make relatively small awards to junior employees.

Companies that no longer qualify for EMI should review their existing incentive arrangements to see whether CSOPs would be preferable to the direct issue of growth shares or joint share ownership arrangements. Further details on CSOPs including the conditions and tax reliefs can be found here.

Annual Investment Allowance (AIA)

The AIA gives businesses a 100% deduction for capital expenditure for qualifying expenditure on plant and machinery up to a specified annual limit. In 2018, the AIA was increased from £200,000 to £1,000,000 on a temporary basis, until April 2023. It has now been announced that the temporary £1 million level of the AIA will be made permanent.

Investment Zone

The Government is to introduce “Investment Zones” across the UK to increase growth in those areas. Areas with Investment Zones will benefit from tax incentives and planning liberalisation, including no business rates on newly occupied premises, reduced National Insurance Contributions and enhanced structures and buildings allowance.

Business Tax

In welcome news for businesses, the UK corporation tax rate will no longer be increasing to 25% from April 2023 but will remain at the current rate of 19%. In line with this announcement, the planned reduction of the banking surcharge rate announced in the Autumn Budget 2021 will also be cancelled. Banks and building societies will therefore continue to pay the current 8% surcharge on their profits, resulting in a combined corporation tax rate of 27% (instead of the 28% combined rate that they would otherwise have been required to pay from April 2023). However, the planned increase in the surcharge allowance from £25 million to £100 million is still set to go ahead, which will take a significant proportion of new banks outside the surcharge completely. The planned increase in the diverted profits tax rate to 31% will also no longer go ahead, with the rate being retained at 25% to maintain the 6 percentage point differential with the main corporation tax rate.

As mentioned above, the 2017 and 2021 reforms to the off payroll working rules (also known as IR35) will be repealed from 6 April 2023. This means that contractors providing their services via an intermediary (ie a personal services company) to clients in both the public and private sectors will be responsible for determining their own deemed employment status and accounting for tax accordingly. Businesses have spent an enormous amount of money preparing for the changes which only came into effect in 2021, and there had been little, if any, demand for the rules to be reversed. This change will incentivise businesses to return to their former models of using teams of contractors to manage their headcount, but whether workers are willing to take all the tax risk when there have been some high profile cases (Lorraine Kelly, Kay Adams, Talksport presenter Paul Hawksbee) in which HMRC has argued (generally successfully) that the contractors were actually deemed employees remains to be seen.

Real Estate

From 23 September 2022, the threshold at which Stamp Duty Land Tax (SDLT) must be paid on the purchase of residential properties in England and Northern Ireland will increase from £125,000 to £250,000. The threshold at which first-time buyers begin paying SDLT also increases from £300,000 to £425,000, with the maximum value of a property on which first-time buyers’ relief can be claimed increasing from £500,000 to £625,000.

Retail & Consumer

VAT free shopping

The introduction of a new digital, VAT-free shopping scheme in Great Britain was announced, which aims to provide a boost to the high street and create jobs in the retail and tourism sectors. The scheme will be targeted at non-UK visitors to Great Britain, allowing them to obtain VAT refunds on goods bought from places such as the high street and airports and exported from the UK in their personal baggage. The scheme that currently operates in Northern Ireland will also be modernised as part of the process. The Government is set to launch a consultation to gather views on the approach and design of the scheme.

Alcohol duty reform

Duty rates for all categories of alcohol will be frozen from 1 February 2023. The Government has now published its response to the Consultation on the new alcohol duty system announced in the Autumn Budget 2021 as well as the draft legislation that will implement the changes, which is intended to come into effect from 1 August 2023.

Personal Tax

The ‘rabbit out of the hat’ of the mini budget announcement are the changes made to personal taxation. The following cuts have been announced and apply UK-wide, unless otherwise specified:

• The cut in basic rate income tax to 19% will apply from April 2023, a year earlier than planned. This cut applies to the basic rate of non-savings, non-dividend income for taxpayers in England, Wales and Northern Ireland; the savings basic rate for taxpayers UK-wide; and the default basic rate.
• The additional rate of income tax (45%) will be scrapped from April 2023. This applies to the additional rate of non-savings, non-dividend income for taxpayers in England, Wales and Northern Ireland. This removal also applies to the additional rate for savings, dividends, and the default rates UK-wide.
• The Health and Social Care Levy will be reversed, meaning that the previously increased rate of National Insurance Contributions by 1.25% will no longer apply from November 2022. The introduction of the Health and Social Care Levy as a separate tax from April 2023 is also being cancelled.
• The dividend tax increase of 1.25% will be reversed from 6 April 2023. The ordinary and upper rates of dividend tax will also revert to 2021-22 levels of 7.5% and 32.5% respectively.
• A four-year transition period for Gift Aid relief will apply, maintaining the income tax basic rate relief at 20% until April 2027.
• There will be a one-year transitional period for Relief at Source (RAS) pension schemes to permit them to continue to claim tax relief at 20%.

And finally….

To simplify the tax system further and boost growth the Government has announced that it will be abolishing a Government body – the Office of Tax Simplification…

Postscript 17 October 

The new Chancellor, Jeremy Hunt, has today cancelled all of the changes set out in the mini budget on 22 September except for the reversal of the Health & Social Care Levy (and the temporary NICs increase), and the SDLT changes.