7 min read 17 Oct 22
On 23 September Kwasi Kwarteng delivered the mini budget / growth plan.
The new Chancellor of the Exchequer, Jeremy Hunt, has announced that the government is reversing almost all of the tax measures announced in the growth plan (mini budget) given by his predecessor three weeks ago.
The Chancellor also made it clear that there would be more difficult decisions on tax and spending yet to come.
Last week we heard that the increase in corporation tax would go ahead after all (having previously been scrapped in Kwasi Kwarteng’s mini budget) and that the plan to scrap the 45% tax rate for higher earners had been dropped. We now heard more about the status of the other announcements made in the mini-budget.
Jeremy Hunt announced that the planned cuts to National Insurance and Stamp Duty rates, which are already progressing through parliament, will continue but that most of the other measures proposed by his predecessor will not now take place. This includes scrapping plans to:
Also, the Chancellor will publish the government’s fiscal rules alongside an OBR forecast, and further measures, on 31 October.
The planned changes to corporation tax that were originally scrapped will in fact take effect on 1 April 2023.
The rate of Corporation Tax is to increase from 19% to 25% from April 2023 for firms making more than £250,000 profit, around 10% of actively trading companies.
Companies making between £50,000 and £250,000 will also face a rise in Corporation Tax, with the rate increasing incrementally from 19% to 25% depending on how much profit a company is making. For the remaining 70% of actively trading companies, those who make profits of £50,000 or less, Corporation Tax is to remain at 19%.
The current 1.25% increase on the previous tax year's dividend rate will remain in place.
The policy of cutting the basic rate of income tax to 19% from April 2023 will no longer be taken forward. While the government aims to proceed with the cut in due course, this will only take place when economic conditions allow for it and a change is affordable. The basic rate of income tax will therefore remain at 20% indefinitely. This is worth around £6 billion a year.
The government is reducing NICs rates by 1.25 percentage points from November.
This will save 28 million taxpayers an average of £330 a year. This measure will also make it cheaper for businesses to employ more staff being worth an average of £9,600 for over 900,000 businesses.
Perhaps the most complex issue to keep abreast of this year. We had a new effective band for the Primary Threshold (PT) for NI when this was altered on 6 July 2022. Now with rates changing from 6 November 2022 this means that for those earning between the PT and Upper Earnings Limit (UEL) will pay an effective rate of NI for the year of 12.73% (which applies on the effective band between £11,908 of earnings to £50,270). For those above the UEL the effective rate will become 2.73% for the year. And for employers, the effective rates for NI contributions will become 14.53%.
So an effective reduction for the year of 0.52% for all.