On 23rd September 2022, the new chancellor, Kwasi Kwarteng, published his mini-budget.
The headline-grabbing budget has been designed to promote growth, tackle inflation, and ease the cost-of-living crisis for both individuals and businesses.
We will cover the key announcements from the September 2022 budget and the impact they could have on the economy.
Cancellation of Corporation Tax changes
Corporation tax is the main tax that registered businesses must pay to the government on both the profits of the business and on any gains from selling assets.
It was previously announced that the rate businesses pay (corporation tax) would increase from 19% to 25%, for businesses with profits of over £250,000 from April 2023. There were plans for a small profit rate and a marginal relief category also, adding further complexities to the tax system.
However, these changes to corporation tax were shelved as part of the mini-budget, resulting in the current flat rate of 19% tax remaining. The cancellation of plans to increase the tax enables the UK to keep the title of the lowest rate of corporation tax within the G20, aiming to promote the UK as a low tax opportunity for investors, improving the UK’s economy over the longer term.
Cut to National Insurance
National Insurance is a tax that all employees, employers and self-employed individuals must pay, where the individual concerned is over 16 years old but less than the state pension age. This tax covers the costs of some state benefits, including pensions.
In 2022, the former Conservative government increased National Insurance by 1.25p per pound in order to ease the financial pressure on the NHS and the social care system. This came into effect on 6th April 2022, impacting both employees and employers alike.
The chancellor reversed this previous tax increase as part of the mini-budget, taking effect from 6th November 2022. This announcement brings National Insurance back down to previous levels of 12% for standard rate payers and is much welcome during the cost-of-living crisis.
However, the change will require employers to make this change within payroll processes.
Income Tax Changes
Income tax is a tax payable to the government on gross earnings and is used for general government spending such as transport, the NHS and education.
As part of the September 2022 budget, Kwasi Kwarteng announced two changes to the income tax system coming into effect from next April.
Firstly, the basic rate of income tax will be cut from 20% to 19%, resulting in a tax saving averaging £170 per person, per year. This announcement is the first cut to the basic rate of income tax in 15 years and the rate of 19% will be the lowest that has ever existed within the modern income tax system.
Secondly, the chancellor also abolished the additional rate of income tax, which is currently 45% payable on earning above £150,000. This move is said to incentivise enterprise and simplify the tax system.
Stamp Duty cut
The budget also announced an instant and permanent cut to stamp duty rates paid when purchasing property. The threshold at which stamp duty is payable has doubled from £125,000 to £250,000.
First-time buyers will also benefit from avoiding payment of stamp duty on properties up to the value of £425,000.
Summary
SRB associates based in Melton Mowbray can assist with answering questions regarding how the changes announced in the mini-budget may impact your business. Call us today to book a tax consultation on 01664 503 681.