The Chancellor, Kwasi Kwarteng, unveiled his Growth Plan today (23 September 2022) which he states will help tackle the energy crisis, inflation and deliver higher productivity.
Below is a summary of the key measures and announcements:
For many individuals and businesses, the package offered to reduce the pressure from rising energy prices will be of particular interest.
For individuals, we know that the energy price cap will increase from its current level of £1,971 to £2,500. However, immediately this should have minimal impact on individuals because the payments previously announced by Rishi Sunak (of £400 to each household) should still be awarded. This £2,500 level for the price cap should remain for the next two years. For those on oil heating, however, the picture is less clear and currently the only assistance announced is a £100 payment to assist with oil costs.
For businesses, it is unclear just how the cap will work. Currently, it is suggested there will be help provided for six months and will cap energy costs at £211 per megawatt hour for electricity and £75 per megawatt hour for gas. Currently, it is expected that the wholesale costs will rise to £600 per megawatt hour and £180 per megawatt hour. The savings should apply to most businesses and voluntary organisations whether in a fixed contract or not.
Corporation Tax rate increase cancelled
The rate of Corporation Tax was due to increase from 19% to 25% from April 2023 for those companies with taxable profits of more than £250,000 (and companies with profits between £50,000 and £250,000 suffering an effective tax rate on that marginal band of 26.5%).
This planned increase has now been cancelled and the rate is set to remain at 19% regardless of a company’s level of taxable profits.
Annual Investment Allowance
The Annual Investment Allowance is a first year capital allowance that allows a deduction from taxable profits at rate of 100% on expenditure on plant and machinery of up to £1m per annum.
This limit was set to decrease to £200,000 from April 2023, but this has now been set at a permanent level of £1m.
In addition to the annual investment allowance, companies can also currently claim a 130% ‘super deduction’ on certain plant and machinery, but this is due to expire on 31 March 2023. The detail behind today’s announcements states that there will be an amendment to the super deduction ‘technical provisions’ to ensure the relief continues to operate as intended.
It will be interesting to hear more about these amendments in due course, bearing in mind the super deduction was introduced as a short-term measure presumably to avoid businesses deferring capital expenditure until the higher rate of Corporation Tax relief of 25% came in.
Stamp Duty Land Tax
Individuals buying residential properties currently pay 0% on the first £125,000 of purchase price. From today, this threshold has been increased to £250,000.
Additionally, there will be support for first time buyers who will now be able to purchase a house worth up to £425,000 and pay no Stamp Duty Land Tax (SDLT). In addition, the maximum value of a property on which first time buyers relief can be claimed will increase from £500,000 to £625,000.
IR35 off-payroll working reforms
The off-payroll working rules will be changed so that it is again the contractor that must determine their employment status. This therefore un-winds the change that came into effect from April 2021 for medium and large businesses that needed to assess whether contractors were caught by IR35 and had to be run through the payroll.
Seed Enterprise Investment Scheme
The Seed Enterprise Investment Scheme (SEIS) provides generous tax reliefs for individuals investing in new and growing companies, including Income Tax relief on up to 50% of the sum invested.
From April 2023, companies will be able to raise up to £250,000 under SEIS (currently £150,000). Also, to make this accessible to more companies, the gross asset limit will be increased to £350,000 (currently £200,000) and the age limit for a qualifying company will be increased from two to three years.
Additionally, investors will be able to benefit from tax relief on up to £200,000 of SEIS investments (currently £100,000).
Company Share Option Plan
Company Share Option Plans (CSOPs) are a HMRC approved employee share incentive scheme. From April 2023, qualifying companies will be able to grant options to employees worth £60,000, which is double the current limit.
The restrictions on the type of share classes that can be used in the scheme are set to ease, which aims to align the scheme rules with the Enterprise Management Incentive (EMI) scheme and make the scheme more attractive to growth companies.
The recent National Insurance increase (1.25% for both employees and employers) will be removed from 6 November 2022.
The Health and Social Care Levy (due to replace the national insurance increase in 2023, but broadly mirrors the cost) will be scrapped. The uplift in the level at which people start paying national insurance will remain at an increased level to £12,570 (previously £9,100).
The basic rate of Income Tax (currently 20%) will be cut to 19% from April 2023. Currently, the basic rate band applies to income between £12,570 and £50,270 and so the saving could be worth £377 per year to someone earning £50,270 or more.
Further, the additional rate of Income Tax will be scrapped. This is a 45% rate on all income above £150,000. Instead, taxpayers earning this amount will pay a flat 40% on all earnings above £50,270. An added benefit of this for additional rate taxpayers is that they will become eligible for the savings allowance of £500, meaning the first £500 of savings income will be tax-free.
The rate of tax on dividends was previously increased by the same amount as the national insurance uplift. These increases are also being removed, meaning that dividend tax rates will fall back to 7.5% and 32.5% for basic and higher rate taxpayers. The additional rate of 38.1% will be scrapped in line with the removal of the additional rate for non-dividend income. This will come into effect from April 2023.
The government has announced new, tax efficient investment zones, which will be selected from various interested local authorities. Essex County Council and Southend Council have both expressed their interest. Whether they are selected or not remains to be seen, but if they are, then there may be tax benefits such as no employer’s national insurance on the first £50,270 of an employee’s earnings, a structures and buildings allowance at a flat 20% deduction year on year for new buildings, no SDLT on the purchase of new commercial buildings and a lower Corporation Tax rate.
VAT free shopping for overseas visitors (re)introduced
A digital system to allow individuals living outside the UK to buy goods whilst visiting Great Britain then export when they leave and be repaid the VAT will be introduced “as soon as possible”, following consultation with the relevant business sectors.
Abolishing the Office of Tax Simplification
The Office of Tax Simplification is an independent body advising the government on simplifying the UK tax system. The chancellor announced that this body will be wound down, and instead tax simplification will be imbedded within government
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