All change: tax & budget update

You will have almost certainly seen the various announcements and then revisions of those announcements on tax and related matters from the Government over the last four weeks. Here we summarise where we have got to on most of the main measures so far.

There are, of course, several scenarios in which further changes might be made, but for now, this is the state of play. If anything further of significance is announced on the formal statement the Chancellor gives on the 31 October, or at other times, we will update you further.

Corporation tax – going up after all in April 2023

Some time ago, Chancellor Sunak announced that Corporation Tax, the tax paid by limited companies, would go up from 19% to 25% in April 2023, with some relief for the smallest companies. Chancellor Kwarteng announced that this would NOT be happening after all, and the rate was to remain at 19%. Chancellor Hunt has now reversed that, and Corporation Tax is rising in April 2023, as planned.

IR35 and Off-payroll – not being repealed, rules stay the same

Known as the ‘new IR35’, the Off-payroll working rules introduced in 2017/2021 moved the decision on IR35 status away from the contractor and into the supply chain, along with the liability for taxes if things went wrong. Chancellor Kwarteng announced that these controversial rules would be abolished in April 2023 as they were bad for business and the UK economy. This would leave the part of the contracting market that had been impacted by Off-payroll reverting to the old IR35 rules. Chancellor Hunt has reversed this position and the new Off-payroll rules will remain in place after all. We do expect this situation to prompt more attention on Off-payroll rules and possibly lead to some amendments to them in future, but not in time for April next year.

National insurance and Health and Social Care Levy – being reduced from November / cancelled altogether

The rate of national insurance (NIC) was raised by 1.25% for Employees and Employers in April 2022, in anticipation of the impact of a similar, new deduction called the Health and Social Care Levy (HSC) being brought in in April 2023, which would replace the rise in NIC. In response to concerns about the cost of living, Chancellor Sunak increased the threshold at which many people pay NIC to ease the burden on them. Chancellor Kwarteng announced that the NIC increase of 1.25% would cease early, in November 2022, and the introduction of the HSC would be cancelled. These reductions have survived the announcements of the last few days and are still going ahead. Many contractors pay little or no NIC and so will not feel the impact of this change in November.

Income tax – not being reduced, rates stay the same

Chancellor Kwarteng announced the abolition of the 45% additional tax rate, so that 40% would be the top rate of income tax. He also announced that the basic rate at 20% would be reduced to 19%. Both of these changes were scheduled to take place in April 2023 – both of them have now been cancelled.

Dividend tax – not being reduced, rates stay the same

The dividend tax rates had all increased in April 2022 by 1.25%, at the same time as the NIC increase started to apply. Chancellor Kwarteng announced that the 1.25% rate increase would be reversed, and the top rate of dividend tax would be abolished in a similar way to the changes to mainstream income tax. Chancellor Hunt has now cancelled all of these changes and dividend tax rates in 2023/24 will be the same as they are now.

Stamp duty – nil rate band increases stay in place

An increase in the nil rate band (to £250k and £425k for first-time buyers) was introduced by Chancellor Kwarteng from 23rd September 2022, and that remains in place, as it was already operating.

Energy price cap – guaranteed period of support reduced

Although not a tax measure, announced at the same time was an energy price cap per unit of energy, so that average bills would not exceed a certain value. This was originally scheduled to last for two years for private households, but the length of that support has now been cut to six months, with more targeted support expected to replace it in April 2023.

If you would like to discuss how these measures will affect you, please contact us.