Blog: September Mini Budget: biggest series of tax cuts in half a century
The new Chancellor of the Exchequer, Kwasi Kwarteng, delivered his first fiscal announcement on 23rd September.
This ‘mini Budget’ set the tone for Truss’s premiership, undermining some of the statements previously announced earlier this year.
It represents the most extensive series of tax cuts in half a century. Here are the headline tax announcements.
Personal Taxes
National Insurance
From 6 November the National Insurance Contribution (The Health and Social Care Levy) increase of 1.25% will be reversed.
The current ‘rise’ of 1.25% will be removed, and it will not come into force as a separate tax as planned for April 2023.
From 6 November 2022:
| Class 1 NIC | |
| Employees | 12% and 2% upper earnings |
| Directors | 12.73% and 2.73% upper earnings |
| Employers | 13.8% |
Class 1A and 1B employer ownly will see annual percentage rates reduced to 14.53%; Class 4 to 9.73% and 2.73% upper earnings.
The employment allowance increase as announced in March 2022 will be maintained at £5,000.
Employees will see more from their take-home pay, and the cost of employing staff will reduce. It’s estimated that this will be worth around £4,200 on average for small businesses, and £21,7000 for medium-sized firms.
Government state that professional, scientific and technical, wholesale and retail trade, repair of motor vehicles and cycles, and construction sectors are set to benefit the most.
This levy was expected to raise £13bn a year to fund health and social care, and the Chancellor has stated that investment in these services will continue as if the levy was still in place – through general taxation.
There will be a limit of £86,000 to the total cost an individual will have to pay for personal care over the course of their lifetime, and individuals with savings of between £20,000 and £100,000 will be liable for costs on a sliding scale.
Self-employed people and company directors will pay a blended rate of National Insurance – taking into account the changes in rates throughout the year – when they submit their annual self-assessment return.
Income Tax
| 2021/22 | 2022/23 | 2023/24 | |
| Basic rate | 20% | 20% | 19% |
| Higher rate | 40% | 40% | 40% |
| Additional rate | 45% | 45% |
Basic Rate
One year earlier than planned, the basic rate of income tax will be cut from April 2023 from 20% to 19%.
Around 31m people will receive on average £170 a year more in a move set to cost Exchequer £5bn a year.
Additional Rate
*Note this decision was later reversed
From April 2023 the additional 45% rate on income over £150,000 will be abolished and all income over £50,270 will be taxed at 40%.
This will cut tax for nearly 700,000 people, costing the treasury £625m in the 2023-24 tax year.
Dividends
The dividend additional rate will be reduced from 39.35% to 32.5% and the planned 1.25% increase will not take place. This effectively puts basic and higher rates back to the 2021/22 levels of 7.5% and 32.5% respectively. The additional rate will be removed.
For those looking to pay dividends soon, timing becomes even more crucial.
| 2021/22 | 2022/23 | 2023/24 | |
| Basic rate | 7.5% | 8.75% | 7.5% |
| Higher rate | 32.5% | 33.75% | 32.5% |
| Additional rate | 38.1% | 39.35% | 32.5% |
Additional rate taxpayers will also be given a personal savings tax-free allowance of £500 like those at the higher rate – which they previously didn’t have.
This measure will benefit an estimated 2.6m taxpayers.
Innovation and investment have been at the heart of growth plans for some time, and this move is designed to support entrepreneurs and investors in particular.
Off-Payroll Working (IR35)
From April 2023 IR35 off-payroll working rules for the public and private sectors will be repealed. For intermediaries providing services to small private sector clients, there is no change.
This measure will cost up to £1.1bn a year from 2023-24 tax year, rising to £2.6bn by 2026-27.
Introduced in 2017 for the public sector and then in 2020 for the private sector, IR35 introduced a series of rules to identify whether an individual should be defined as self-employed or paid on a PAYE basis.
Those identified as self-employed (contractors working like an employee but through a Personal Service Company) were newly required to pay broadly the same tax and National Insurance as an individual employed directly.
Removing these rules will help businesses simplify their tax processes and will allow individuals to assess their own status, possibly reducing their tax liabilities.
However, a significant amount of time has been spent by businesses to ensure IR35 compliance which they now need to go back and undo. Also, the rules were introduced to stop non-compliance and tax avoidance, so HMRC will have to consider how these often-considered-‘loopholes’ remain closed moving forwards.
Business Taxes
Corporation Tax
The planned 6% increase in Corporation Tax has been cancelled, with rates set at the current 19% for the foreseeable future.
It’s expected this will cost the treasury around £13.5bn next year.
While businesses will no doubt welcome the move, there will be some frustration for those who have already taken measures to update their accounts. We encourage all businesses to seek advice from their accountants on how this affects them moving forwards, particularly those required to maintain certain levels of regulatory capital on their balance sheets.
Annual Investment Allowance
The Annual Investment Allowance was set to revert to £200,000 from April 2023 but this has now been cancelled. The threshold of £1m will remain in place permanently.
This will provide businesses a £930m boost next year and is designed to encourage investment.
New investment zones will also be designated, which will benefit from tax incentives, more a more liberal approach to planning, and further support from local economies. Individuals living and working in these areas may also see tax benefits.
The government is in early discussions with 38 local authorities and the scheme will also be available in Scotland, Northern Ireland and Wales. Early indications are that Greater Manchester, West Midlands, Thames Estuary, Tees Valley, West Yorkshire and Norfolk will see zones created.
Exactly what tax breaks will be offered in these investment zones has yet to be decided, but we believe real cash value incentives like NI relief will make them more appealing to start-ups and those not yet profit-making. Freeport zones are not affected.
Investment Schemes
Seed Enterprise Investment Scheme
Tax-free investment in SEIS will increase from £150,000 to £250,000 from April 2023 in a move set to cost the treasury £45m a year from 2024.
The Gross Asset Limit for SEIS will also be increased, to £350,000. This means that, at the time at which you raise investment – or, before the shares are issued – your company can now have up to £350,000 in assets rather than the previous £200,000.
The maximum age of businesses raising capital through SEIS has increased, from two to three years, and individuals can now invest up to £200,000 through SEIS tax free.
Around 2,000 companies a year currently use SEIS for growth.
Enterprise Investment Scheme
EIS will no longer expire in April 2025 as previously planned, meaning businesses will still be able to raise up to £12m (company lifetime) from investors, who benefit from 30% tax relief on their investment.
It was set to expire on 6th April 2025 because of an EU state aid sunset clause. The clause was put in place by the EU to ensure the effectiveness of the scheme for UK business was evaluated, and meant that the scheme would cease to exist if the EU decided it wasn’t effective.
It’s thought that around 4,000 companies use the scheme to give generous tax relief to investors since 1994, raising £1.6bn for growth (to End April 2021).
Venture Capital Trusts
The Venture Capital Trusts scheme will also now extend beyond 2025. It was subject to the same sunset clause mentioned above.
These moves are all part of Kwarteng’s Growth Plan 2022, but like all investment and tax incentives businesses need to assess the benefits to them before deciding to proceed.
Company Share Options Plans
The value of options that can be granted through CSO will be increased from £30,000 to £60,000 and the restrictions on share class will be removed to align with the EMI scheme.
At the minute the shares must either be of a type that gives employees ownership, or are already on the open market (those not employees or directors). Removing the update ensures shares offered to employees are, essentially, worth having
Other Announcements
A series of other announcements have also been made:
- The nil rate of Stamp Duty Land Tax will be increased to £250,000 for both residential and non-residential properties.
- First-time buyers will pay no stamp duty up to £425,000 and relief can be claimed in properties up to £600,000 – effective from 23 September 2022
- New roads, rail, and energy infrastructure developments will be accelerated by the removal of certain restrictions
- There will be a change in regulations to increase investment by pension funds into UK assets
- A more intensive work search regime will be introduced for Universal Credit Claimants and Job Seekers over 50
- A new digital retail export scheme for GB retailers will be introduced for VAT
- Alcoholic Liquor Duty will be reformed from August 29023, with duty rates frozen until then
In the coming weeks, the Government will set out further details of plans to speed up digital infrastructure, reform business regulation, increase housing supply, improve our immigration system, make childcare cheaper, improve farming productivity and back our financial services.
Sign up to our newsletter to be the first to hear these details.
Bank of England
Following Friday’s announcements Sterling weakened against the dollar, reaching the lowest in 27 year years after falling by as much as 3.5%.
There have been calls for the Bank of England to respond, and some are speculating an emergency rate rise might be on the cards before the scheduled review in November.
Rates are expected to peak at more than 6% according to financial data provider Bloomberg. They have already been rising this year, and were set at 2.25% just this September – the highest level for 14 years.
Press Release
Chancellor announces new Growth Plan with biggest package of tax cuts in generations
The Chancellor today (Friday 23 September) unveiled his Growth Plan to release the huge potential in the British economy by tackling high energy costs and inflation and delivering higher productivity and wages.
- Chancellor unveils new growth plan, tackling energy costs to bring down inflation, backing business and helping households.
- Corporation tax rise cancelled, keeping it at 19% as government sets sights on 2.5% trend rate of growth.
- Basic rate of income tax cut to 19% in April 2023 – one year earlier than planned – with 31 million people getting on average £170 more per year.
- Stamp Duty cuts will help people on all levels of the property market and lift 200,000 homebuyers every year out of paying the tax altogether.
The plan set the ambitious target for 2.5% trend of growth, securing sustainable funding for public services and improving living standards for everyone.
The Chancellor of the Exchequer, Kwasi Kwarteng, said:
“Economic growth isn’t some academic term with no connection to the real world. It means more jobs, higher pay and more money to fund public services, like schools and the NHS.
“This will not happen overnight but the tax cuts and reforms I’ve announced today – the biggest package in generations – send a clear signal that growth is our priority.
“Cuts to stamp duty will get the housing market moving and support first-time buyers to put down roots. New Investment Zones will bring business investment and release land for new homes in communities across the country. And we’re accelerating new road, rail and energy projects by removing restrictions that have slowed down progress for too long.
“We want businesses to invest in the UK, we want the brightest and the best to work here and we want better living standards for everyone.”
Setting out the first steps towards growth, Kwasi Kwarteng revealed a package of major cuts to Stamp Duty Land Tax, with the changes expected to increase additional residential investment, boost spending on household goods and support the hundreds of thousands of jobs in the property industry from removals companies to decorators. The nil rate band will be doubled from £125,000 to £250,000, meaning that 200,000 more people every year will be able to buy a home without paying any Stamp Duty at all. 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 and £1,150 on energy bills – and if they have a combined income of £50,000 around an additional £560 on tax. This is around £4,200 in total.
And the Government is going even further to support first time buyers, who will now pay no stamp duty up to £425,000, and increasing the value of the property on which first time buyers can claim relief, from £500,000 to £625,000. This tax cut took effect from midnight today (Friday 23 Sept 2022). The Chancellor also announced that he will further support homebuyers by increasing the disposal of surplus government land to build new homes, increasing supply.
The Chancellor also set out plans to tackle to the biggest drag on growth – the high cost of energy driven by Vladimir Putin’s invasion of Ukraine, which has driven up inflation. To tackle this the government’s Energy Price Guarantee will save the typical household £1,000 a year on their energy bill with the Energy Bill Relief Scheme halving the cost of business energy bills, reducing peak inflation by about 5 percentage points.
Also revealed today were major tax reforms to allow businesses to keep more of their own money, encouraging investment, boosting productivity and creating jobs. New measures include cancelling the planned rise in corporation tax, keeping it the lowest in the G20 at 19%, and reversing the 1.25 percentage point rise in National Insurance contributions, a change which will save 920,000 businesses almost £10,000 on average next year. The Chancellor also announced more relief for businesses by making the Annual Investment Allowance £1 million permanently, rather than letting it return to £200,000 in March 2023. This gives 100% tax relief to businesses on their plant and machinery investments up to the higher £1 million limit.
It was also confirmed that the government is in discussion with 38 local and mayoral combined authority areas in England including Tees Valley, South Yorkshire and West of England to set up Investment Zones in specific sites within their area. Each Investment Zone will offer generous, targeted and time limited tax cuts for businesses and liberalised planning rules to release more land for housing and commercial development. These will be hubs for growth, encouraging investment in new shopping centres, restaurants, apartments and offices, and creating thriving new communities.
Revealing further tax reforms, Kwasi Kwarteng outlined sector specific support for pubs and hospitality, freezing alcohol duty for another year. Reforms to modernise alcohol duties will also be taken forward and the government will publish a consultation on these plans. The new measures backing business come on top of the government’s Energy Bill Relief Scheme for businesses to cap costs per unit, which will protect them from soaring energy costs this winter by providing a discount on wholesale gas and electricity prices.
The Chancellor also reiterated the important principle of people keeping more of what they earn, incentivising work and enterprise. He announced a 1p cut to the basic rate of income tax one year earlier than planned. From April 2023, the basic rate of income tax will be cut to 19% and will mean 31 million people will be better off by an average of £170 per year. Due to the combined impact of the reversal of the HSCL and the reduction of the Income Tax Basic Rate, someone working full time on the current National Living Wage will see a tax cut of over £100.
Alongside cutting the basic rate of income tax, the Chancellor also abolished the additional rate of tax, taking effect from April 2023. In its place will be a single higher rate of income tax of 40%. The policy removes the UK’s previous top rate tax, which was higher than countries like Norway, USA and Italy, and is designed to attract the best and the brightest to the UK workforce, helping businesses innovate and grow.
In a further move to grow the economy, the Chancellor announced plans to accelerate new roads, rail and energy infrastructure. In 2021 it took 65 per cent longer to get consent for major infrastructure projects than in 2012. New legislation will cut barriers and restrictions, making it quicker to plan and build new roads, speeding up the deployment of energy infrastructure like offshore wind farms and streamlining environmental assessments and regulations.
To further support businesses, the Chancellor announced new measures to unlock private investment. The Government will change regulations to increase investment by pension funds into UK assets, benefiting savers and boosting economic growth, and incentivising investment into Britain’s science and tech companies.
New measures were also announced to help people on low incomes secure more and better paid work. Universal Credit Claimants who earn less than the equivalent of 15 hours a week at National Living Wage will be required to meet regularly with their Work Coach and take active steps to increase their earnings or face having their benefits reduced. This change is expected to bring an additional 120,000 people into the more intensive work search regime. Jobseekers over the age of 50 will also be given extra time with jobcentre work coaches, to help them return to the jobs market. Rising economic inactivity in the over 50s is contributing to shortages in the jobs market, driving up inflation and limiting growth. Returning to pre-pandemic activity rates in the over 50s could boost the level of GDP by 0.5-1 percentage points.
The majority of announcements today are UK-wide, however the Scottish Government is expected to receive more than £600 million extra funding over the 2021 Spending Review period as a result of the changes to income tax and Stamp Duty Land Tax and the Welsh Government will receive around £70 million over the same period as a result of the change to Stamp Duty Land Tax. The reversal of the Health and Social Care Levy will save 4.3 million people across Scotland, Wales and Northern Ireland more than £230 on average next year.
In the coming weeks, the Government will set out further details of plans to speed up digital infrastructure, reform business regulation, increase housing supply, improve our immigration system, make childcare cheaper, improve farming productivity and back our financial services.
Further information
Factsheets on each of the major measures can be found here:
- The Growth Plan: Factsheet on cancellation of National Insurance rise and Health and Social Care Levy
- The Growth Plan 2022: Factsheet on Investment Zones
- The Growth Plan 2022: Factsheet on Corporation Tax
- The Growth Plan 2022: Factsheet on Stamp Duty Land Tax
- The Growth Plan 2022: Factsheet on Income Tax
The full document can be found here.
