An updated version of this article reflecting the latest budget developments can be found here.
Kwasi Kwarteng certainly made an impression during his first fiscal event as Chancellor. Although many of the measures announced as part of his 'Growth Plan' were expected, having been trailed as pledges in Liz Truss's Tory leadership campaign, their sheer volume and significance will give businesses plenty to digest.
We've set out below a summary of the key tax announcements. If you would like to discuss the impact of any of the changes, please get in touch with a member of the tax team or your usual Taylor Wessing contact.
Rates
Corporation tax: as widely predicted, next year's planned increase in corporation tax to 25% has been abandoned. The current 19% rate will therefore remain. Associated increases to the bank surcharge and Diverted Profits Tax (DPT) have also been cancelled.
Income tax: the planned reduction to the basic rate of income tax has been brought forward a year, with the 19% rate now taking effect in April 2023. In a surprise move, the Chancellor also announced the removal of the 45% additional tax rate from next year. The dividend additional rate will also be abolished to align with the dividend upper rate, which is being reduced to 32.5% from April 2023.
Stamp duty land tax: with effect from 23 September 2022, the nil rate band for purchases of residential property will be permanently doubled from £125,000 to £250,000. In the case of first-time buyers, the band will be raised from £300,000 to £425,000, with the maximum value of a property eligible for relief increasing from £500,000 to £650,000.
Tax simplification: the Chancellor has announced that the Office of Tax Simplification (OTS) will be abolished, with tax officials in HM Treasury and HMRC instead being mandated to simplify the tax system.
Employment tax measures
National Insurance Contributions (NICs): although announced in advance, the reversal of the 1.25% NICs increase, and the dropping of next year's planned Health and Social Care Levy, were both confirmed by the Chancellor. From 6 November 2022 NICs rates will revert to their previous levels, and the thresholds that were increased earlier in the year will be maintained.
Company Share Option Plan (CSOP): following the recent government review of employee share options, from April 2023 qualifying companies will be able to issue up to £60,000 of CSOP options to employees (currently £30,000). The 'worth having' restriction on share classes within CSOP will also be eased, better aligning scheme rules with those in the Enterprise Management Incentive (EMI) scheme and widening access to CSOP for growth companies.
IR35: businesses will welcome the repeal of the much-criticised reforms to the off payroll working rules. From April 2023 workers across the UK providing their services through an intermediary, such as a personal service company, will once again be responsible for determining their employment status and paying the appropriate amount of tax and NICs. Businesses engaging with contractors directly (not through an intermediary) will still need to consider their payroll obligations. However, the much-maligned CEST tool will presumably be abolished as will the complex paper retention and notification requirements.
Bankers' bonuses: the current cap (which limits remuneration of certain bank staff to 100% of their fixed pay, or 200% with shareholder approval) is to be scrapped. Regulatory reform is, however, expected later this year.
Investment
Annual Investment Allowance (AIA): having undergone numerous changes over the past few years, the AIA limit will now be permanently set at £1 million, allowing businesses to claim 100% tax relief on acquisitions of plant and machinery up to this amount each year.
Investment zones: discussions are underway with 38 local authorities (initially in England, but also to follow in the devolved administrations) to establish investment zones in designated sites. These will benefit from accelerated development and lower taxes including:
- 100% first year enhanced capital allowances for plant and machinery used within designated sites and enhanced Structures and Buildings Allowance relief of 20% per year
- full SDLT relief on land bought for commercial or residential development
- 100% business rates relief
- zero rate for employers' NICs on new employee earnings up to £50,270.
Investor reliefs: The Chancellor has confirmed that the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT) will continue beyond 2025. Enhancements have also been announced to the Seed Enterprise Investment Scheme (SEIS). From April 2023 the SEIS investment limit will increase to £250,000 (currently £150,000), the gross asset limit to £350,000 (currently £200,000) and the age limit from two to three years. The annual investor limit will also be doubled to £200,000.
Given the importance of this fiscal event, it remains to be seen whether we'll get an 'actual' Budget this Autumn. The Chancellor's promise that the Office of Budget Responsibility (OBR) will publish a full economic and fiscal forecast before the year end might suggest so, although the media has reported that a further tax-cutting Budget is planned for the new year. Watch this space.
