Today Kwasi Kwarteng, the newly appointed Chancellor of the Exchequer, announced his first, albeit “Mini”, Budget. The speech confirmed some well publicised changes, but also included a number of eye-catching announcements aimed at stimulating investment and driving growth in a bid to tackle rising energy prices and the increased cost of living. We highlight below several measures that may be of interest.
PERSONAL TAXATION
The Chancellor announced cuts to both Income Tax and National Insurance rates. The basic rate of Income Tax will fall marginally from 20% to 19%, whilst the “additional rate” band will be abolished, meaning that earnings over £150,000 will be taxed at 40% rather than at 45%. Both changes will take effect from April 2023.
The 1.25% increase in National Insurance, introduced in April earlier this year, will be reversed from November 2022. This also means that the 1.25% increase in Income Tax on dividend income will be reversed with effect from April 2023.
BUSINESS AND CORPORATION TAX
The previously announced planned increase in the UK Corporation Tax rate from 19% to 25%, due to take effect in April 2023, will be abolished and companies will continue to pay 19% on their taxable profits.
The 2017 and 2021 reforms to the off-payroll working rules (known as IR35) will be repealed with effect from 6 April 2023. IR35 treats self-employed contractors as if they were employees for tax purposes of the client entities, and the abolition of these two reforms will help to ease the burden on those providing personal services and sub-contractors.
To encourage investment in UK businesses, the temporary £1million Annual Investment Allowance will be made permanent, rather than falling to £200,000 after 31 March 2023. In addition, the “super-deduction”, enabling enhanced deductions for the cost of qualifying plant and machinery, will also be retained (although subject to a review based on the retention of the 19% corporate tax rate).
INVESTMENT INCENTIVES
Keeping with the theme of stimulating investment into UK business, the Chancellor announced some changes to the investment schemes that provide tax relief on qualifying investment into UK companies.
From April 2023 Seed Enterprise Investment Scheme (SEIS) companies will be able to raise up to £250,000 of SEIS investment, a two-thirds increase. The gross asset limit will be increased to £350,000, the age limit from 2 to 3 years, and the annual investor limit will be doubled to £200,000.
Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT) will be extended beyond 2025, although precise details have been given as yet.
Company Share Option Plans (CSOPs) will be able to issue up to £60,000 of CSOP options to employees, double the current £30,000 limit. The ‘worth having’ restriction on share classes within CSOP will be eased, better aligning the scheme rules with the rules in the Enterprise Management Incentive scheme and widening access to CSOP for growth companies.
STAMP DUTY LAND TAX MEASURES
To try to counteract the increased cost of borrowing, the Government have cut the Stamp Duty Land Tax (SDLT) rates on residential property with immediate effect. For first-time buyers, SDLT is not payable on the first £425,000 of the property’s purchase price (which must be £625,000 or less) and for all other buyers no SDLT is payable on the first £250,000 of the property’s purchase price.
In addition, there will be full relief from SDLT for purchases of land and buildings for commercial purposes or land and buildings for new residential developments in newly designated ‘Investment Zones’. This relief is designed to drive economic growth in certain areas of the United Kingdom (although, only English sites have been considered so far, and Scotland and Wales have their own separate land tax regimes).
Now may be the time to consider the acquisition of UK property. Especially, if you can benefit from the diminished GBP exchange rate and low rates of interest on borrowing.
OUR COMMENT
It remains to be seen whether today’s announcements can be considered “a budget for all”, but there do appear to be opportunities for investment created by the Mini Budget. The recent fall in value of the GBP, coupled with today’s announcements to reduce SDLT and the retention of the 19% Corporation Tax rate may provide good incentives for foreign investment into UK property as well as UK businesses.
These measures, including the decrease in the top rate of Income Tax, and the extension of investment reliefs such as SEIS, EIS and VCTs could make the UK an attractive proposition for Entrepreneurs looking to establish new businesses through an Innovator Visa, as well as attract talented employees who are incentivised to participate in the growth of these businesses. Whilst the outcome remains to be seen, the UK appears to be a slightly more attractive option for international investment because of today’s Mini Budget.
As always, if you have any questions on how these measures will affect your tax affairs, or the affairs of your clients, then please do not hesitate to contact us.
Jon Elphick
BA (Hons), ATT (Fellow), ADIT
Managing Tax Partner
Email: jelphick@mdaviesassociates.comTelephone: + 44 (0) 203 770 5602
This bulletin is intended to provide general information only and is not intended to constitute legal, accounting, tax, investment, consulting, or other professional advice or services. Before making any decision or taking any action which may affect your tax or financial position, you should consult a qualified professional adviser.