Our take on the mini budget – September 2022
In a statement of belief in trickle down economics and an attempt to ‘stimulate’ the economy on many levels, the new Chancellor has offered a glimpse into the economic strategy in which he believes – as outlined in a book he co authored and published a decade ago with Liz Truss, Priti Patel, Dominic Raab and Chris Skidmore, five Conservative MPs who were elected in May 2010 and belong to the party’s Thatcherite-leaning Free Enterprise Group. Called Britannia Unchained this book provides ‘global lessons for growth and prosperity’. Whatever we’ve come to see from the No. 11 over the last few years looks set to be in question in the immediate future.
After yesterday’s indication from the Bank of England that the country may already be in recession, the Chancellor focused his messaging on ‘trickle-down’ economic measures that he said will “drive the country’s economic growth while maintaining responsible public finances.”
“We are determined to break that cycle. We need a new approach for a new era focused on growth.”
Ironically Mr Kwarteng desires stability to enable growth but with, for example, three changes to NI in the past year, it’s anyone’s guess as to which of these changes are going to remain cast in stone. People are accusing the new government of ‘short termism’, and certainly they’ve shorted the pound which will have aided hedge fund managers who believed the rumours and removed the cap on bankers’ bonuses. Are they trying to buy favour for the inevitably short period of time this particular government ‘team’ are in power? Who knows? Ours is not to reason why, ours is to tell you what we understand right now.
What is happening:
You cannot have failed to see or hear of the drop in the value of the pound, reaching almost a state of parity with the dollar, because the ‘markets’ reaction to the mini budget announcements was a drop in the value of the pound. Which is usually taken as a sign that the rest of the world is not convinced we’re a good bet. Ironically the changes were made to apparently stimulate growth, however, it will mean that exports are going to be affected and it is mooted that Interest Rates will rise.
The budget seemed to address benefits for people at all levels. Although the ‘benefits for the well off’ have been pushed as a media story. You could be forgiven for not hearing about these other aspects of the budget.
FIRST TIME HOME OWNERS
With inflation rising so rapidly, rumoured interest rate rises, the effect of fears about heating large buildings inevitable, and perhaps general world instability, the price for the average house price fell by 1.3% in August. The first drop this year after rapidly rising prices caused by people trying to move on fixed rates before interest rates rise.
The drop has had people talking of a property crash and perhaps to offset this the Chancellor has announced, with immediate effect, a doubling of the nil rate band to £250,000. And an immediate increase in First Time Buyers’ Relief from £300,000 to £425,000. First-time buyers will also see the maximum value of qualifying property increase to £625,000. Which just shows how much house prices have inflated over the last couple of years.
National Insurance was increased in April to pay into a pot called The Health and Social Care Levy to bolster the NHS. So it’s anyone’s guess what that means long term.
However, what we do know is that from 6th November, the 1.25% rates rise which was implemented since April 2022 will be scrapped.
The rates will then be:
- Employees’ Class 1 (primary) – 12% and 2%
- Employers’ Class 1 (secondary) – 13.8%
Note for high earners. Additional NI payable by employees earning over the upper earnings limit of £4,189 per month (£50,270 per year) will also be reduced by 1.25% to 2% from 6 November.
We imagine the software developers at xero will be working overtime to get this implemented.
Self-employed taxpayers will pay composite rates of Class 4 NI for 2022/23. The rates will be 9.73% on profits between £11,909 and £50,270 and 2.73% on profits above the upper limit. For taxpayers with annual earnings periods, e.g. directors, the rates will be 12.73% on earnings between £11,909 and £50,270, and 2.73% on higher earnings.
OFF PAYROLL WORKING – IR35 CHANGES S FOR SELF EMPLOYED/CONTRACTORS
In a big move, which will be a great relief for many we imagine, the highly complicated procedure for determining whether someone is employed or self employed AND MORE IMPORTANTLY, WHO IS RESPONSIBLE FOR IT’S DETERMINATION has shifted back to the individual worker, not the employer. We can only imagine it was very cumbersome to implement, not to mention the shift in working patterns this necessitated to minimise the risk for employers. So basically it’s ‘as you were’. The same rules apply for determination but it’s up to the contractor or self employed to prove their point if contested. This will probably see a rise in the use of contract and non payroll staff which may come as a relief for many. This comes into effect from 6th April 2023.
The basic rate of income tax will fall to 19% from April 2023, one year earlier than previously planned. At the same time, the additional highest rate of 45% will be scrapped altogether, leaving 40% from April 2023.
TAX ON DIVIDENDS FOR LIMITED COMPANY DIRECTORS
Good news for tax on dividends paid on or after 6 April 2023. The additional rate of 39.35% will be scrapped leaving dividends for basic rate taxpayers chargeable at 7.5% and the higher rate at 32.5%.
The increase in the main rate of corporation tax to 25%, due to apply from April 2023, has been cancelled. The main rate will remain at 19%.
The tax rate by companies who lend money to shareholders which was linked to the 1.25% NI rise in April 2022 will also be reduced.
The temporary increase to the annual investment allowance has been made permanent, meaning it will remain at £1 million and not revert to £200,000 in April 2023.
The Chancellor also confirmed the creation of low-tax Investment Zones across 38 local and combined authorities in England – an extension of the 2021 freeports policy – as a means of ‘levelling up’ economic growth. He also talked of liberalising planning rules and new legislation to speed up the delivery of around 100 major infrastructure projects across the UK. So if you’ve got a piece of land that has been refused planning permission, you may find your luck is about to change?
However it looks like the ‘super deduction’ of 130% is still ending in April 2023, so perhaps have a look at our piece on this here if you want to take advantage of the last few months of this business tax break.
Kwasi Kwarteng said: “Growth is not as high as it needs to be, which has made it harder to pay for public services, requiring taxes to rise. This cycle of stagnation has led to the tax burden being forecast to reach the highest levels since the late 1940s.
“We are determined to break that cycle. We need a new approach for a new era focused on growth.
“That is how we will deliver higher wages, greater opportunities and sufficient revenue to fund our public services, now and into the future. That is how we will compete successfully with dynamic economies around the world.”
Let’s hope he’s right.
If you’d like to talk to us about any of this – or something completely different to do with your figures or business planning, please get in touch with David via phone – 01763 257882 or email, firstname.lastname@example.org or of course drop by the office. Cakes always welcome!