The Chancellor of the Exchequer delivered a fiscal statement to the House of Commons, outlining cuts to Income Tax, reversal of the NIC increases, scrapping of the planned increase in Corporation Tax, permanent £1m annual investment allowance, unwinding of the 2017 and 2021 off-payroll working rules changes, and cuts to SDLT.
Corporation Tax Rate
The planned increase in April 2023 to the corporation tax rate (from 19% to 25%) for companies making more than £250,000 profit has been cancelled. The rate will remain at 19% for all companies.
Annual Investment Allowance
The Annual Investment Allowance (AIA) had been temporarily increased from £200,000 to £1m and was due to revert on 31 March 2023. The government will now make the £1m AIA permanent. This is intended to “further support businesses to invest and grow” and should provide more stability for businesses. The Growth Plan 2022 states that it will also “make tax simpler for any business investing between £200,000 and £1 million in plant and machinery” on the basis that it can deduct 100% of the costs in the first year.
Changes to Income Tax Rates
Reduction in Basic Rate
The basic rate of income tax is currently 20% and it was due to be reduced to 19% from 6 April 2024. This reduction has been brought forward so that from 6 April 2023 the new reduced rate of 19% will apply to non-savings, non-dividend taxable income falling within the basic rate band in England, Wales and Northern Ireland.
A 1% reduction will also apply from 6 April 2023 to the:
- savings basic rate which applies to savings income for taxpayers across the UK, and
- default basic rate that applies to non-savings and non-dividend income of any taxpayer that is not subject to either the main rates or the Scottish rates of Income Tax
For the purposes of Gift Aid, the 20% basic rate of income tax will continue to apply until April 2027 so that there is a four-year transition period.
For the purposes of Relief at Source for pension contributions, a one-year transition period will apply meaning that pension schemes are permitted to continue to claim relief at 20% until 5 April 2024.
Removal of Additional Rate
The additional rate of income tax is currently 45%. From April 2023 this rate will be removed and will no longer apply to the non-savings, non-dividend taxable income of taxpayers in England, Wales and Northern Ireland.
The removal of the additional rate will apply to all taxpayers in the UK in respect of savings, dividends and the default rates.
The current Personal Savings Allowance of £500 for higher rate taxpayers will apply to all higher rate taxpayers including those that were additional rate taxpayers before this change.
Scottish Rates
Any changes to Scottish rates will be determined by the devolved Scottish government which will receive appropriate founding.
National Insurance Contributions
The following changes to National Insurance Contributions (NIC) are expected to be made:
- the increase in the rate of Class 1 primary and secondary, Class 1A, Class 1B and Class 4 contributions by 1.25 percentage points that applied from 6 April 2022 will be cancelled with effect from 6 November 2022
- the health and social care levy (HSCL) of 1.25% that was due to be introduced from 6 April 2023 will now not go ahead
For Class 1 NIC, the reduced rates apply to earnings paid on or after 6 November 2022 only. For directors, who are assessed to Class 1 NIC on an annual basis, composite rates of 12.73% (main primary percentage) and 2.73% (additional primary percentage) apply for the individual and a composite rate of 14.53% applies for the employer for the 2022/23 tax year. For Class 1A and Class 1B, a composite rate of 14.53% applies for the 2022/23 tax year. For Class 4 NIC, this is achieved by way of composite rates of 9.73% (main Class 4 percentage) and 2.73% (additional Class 4 percentage) for the 2022/23 tax year. The appropriate rates in the annual maxima calculation in SI 2001/1004, regs 21, 100 are similarly changed for the 2022/23 tax year.
Reversal of The Dividend Tax Increase
The government is reversing the 1.25 percentage point increase in dividend tax rates applying across the UK from 6 April 2023. The ordinary and upper rates of dividend tax will be restored to 2021/22 levels of 7.5% and 32.5% respectively (currently at 8.75% and 33.75% respectively).
Due to the abolition of the additional rate of income tax, dividend income that was previously charged at the additional rate (39.35% in 2022/23), will now be charged at the upper rate of 32.5%. No details have been made regarding the rate applicable to trusts (which mirrors the additional rate) and it remains to be seen if this will now follow the upper rate.
IR35 / Off Payroll Working
In a significant reversal, from April 2023 the Government has decided to completely cancel the IR35 or ‘off payroll working’ obligations previously placed on end users of services (i.e. ‘clients’). These obligations were introduced in the public sector in April 2017, and for medium and large private sector clients, from April 2021. However, from April 2023 the onus to decide whether an engagement contract falls inside or outside IR35, and to account for any PAYE/NIC accordingly, now falls on the contractor’s personal service company (the IR35 obligation therefore reverts to where it was before the 2017 and 2021 changes were introduced).
The switch in onus will be a welcome administrative easement for hirers, but those public and private sector clients affected will rightly ask why they have been forced to set up extensive IR35 review processes (often at considerable cost), only for the extra obligation to be removed within a couple of years.
It was always perceived that personalised IR35 reviews were very labour-intensive, from HMRC and the contractor’s viewpoint. Therefore, on the assumption that contractors will not just be left to ‘go their own way’, it will be important to understand what sort of IR35 compliance activities HMRC will undertake in future.
Stamp Duty Land Tax
The nil-rate band that applies to purchases of residential property in England and Northern Ireland will be doubled to £250,000. The threshold for first-time buyers will increase to £425,000 and the maximum value of a property on which first-time buyers’ relief can be claimed will also increase to £625,000. These are set to be permanent cuts, effective from 23 September 2022. Although SDLT does not apply in Scotland and Wales, separate funding will be provided to the Scottish and Welsh Governments to allocate as they see fit.
SEIS / EIS / VCT
From April 2023, the maximum amount of Seed Enterprise Investment Scheme (SEIS) investment that can be raised by a qualifying company will increase from £150,000 to £250,000. Qualifying criteria will also be relaxed to allow more access to the SEIS scheme by increasing the:
- gross asset limit from £200,000 to £350,000
- age limit from 2 to 3 years
To encourage greater investment the annual investor limit will be increased from £100,000 to £200,000.
The government has also stated that it remains supportive of the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT) and sees the value of extending them in the future. The EIS is currently due to end, with EIS no longer being available for shares issued on or after 6 April 2025. There has been no specific announcement about an extension to this date.
CSOP Reform
The value of options which may be granted under a HMRC approved Company Share Option Plan (CSOP) will be increased to £60,000 from April 2023, the previous upper limit having stagnated for years at £30,000. Also, the restrictions on certain classes of shares are set to be eased, albeit the precise detail on this is not yet available. It is hoped the new limits will encourage wider employee share ownership, and in turn this will help British companies to attract and retain employee talent.
One main advantage of a CSOP is that the options do not have to be offered to all employees. Also, whilst the Enterprise Management Initiative (EMI) scheme can provide higher maximum share option values, unlike EMI schemes, the CSOP does not require the employing company to be carrying on a ‘qualifying trade’ nor is there a ‘gross company assets’ limit; hence CSOPs might be offered more widely.
Investment Zones – Reliefs for Businesses in Designated Tax Sites
The government is to introduce new investment zones across the UK which will provide tax incentives, planning liberalisation and wider support for the local economy in designated areas. Investment zones will be chosen following an expression of interest process and after local consent is confirmed. The Government has indicated that it is in discussion with 38 local authorities on establishing an investment zone in their area.
VAT-Free Shopping Scheme
A VAT-free shopping scheme will be introduced with the aim of providing a boost to the high street and creating jobs in the retail and tourism sectors. The delivery will include modernising the scheme that currently operates in Northern Ireland and introduce a new scheme in Great Britain. The previous VAT refund scheme (the VAT Retail Export Scheme) was withdrawn in Great Britain on 31 December 2020.
The new VAT-free shopping scheme for non-UK visitors to Great Britain will enable them to obtain a VAT refund on goods bought in the high street, airports and other departure points and exported from the UK in their personal baggage. The mechanism through which VAT will be reclaimed is expected to be digital, rather than via paper forms.
A consultation will gather views on the approach and design of the scheme, to be delivered as soon as possible. The date of implementation has not been confirmed, although Government forecasts suggest it will be sometime in 2024.
Freeze on Alcohol Duty
Alcohol duty rates will be frozen for all categories from 1 February 2023 as a measure to address the cost-of-living crisis.
