Initial Budget Comments

Our expert Julia Clarke has made some initial comments on today’s mini budget. More information to follow.

Help for businesses

The social care levy has been scrapped, together with the temporary increase in national insurance that was put in place to collect this amount in 2022/23.  The employer contribution rate will drop from 15.05% back to 13.8% which was the rate in 2021/22.

Additionally, many businesses were adversely affected by the IR35 reforms in 2021, which made it the end user’s responsibility to determine whether a worker was self-employed or employed.  This could result in costly reviews up-front or costly enquiries down the line, as the rules were complex and their application not always clear. There will now be a return to the system where the individual offering their services must determine whether they are truly self-employed.

If your business operates through a company and profits regularly exceed £50,000 you will be pleased to learn that the planned increase to the main rate of corporation tax to 25% has been scrapped, so the rate of 19% which companies have paid since 2017 will continue in place regardless of profit levels.  Although the 25% rate was planned to apply to profits over £250,000, any company with profits over £50,000 would have had an effective rate of more than 19%.

There are planned improvements to the Seed Enterprise Investment scheme and Company Share Option Plan, but we will need to wait for the details to see who can benefit.

Mini budget changes for individuals

In the mini budget two tax cuts hit the headlines. The basic rate of income tax is to be reduced from 20% to 19% from April 2023.  The chancellor estimated that this would give 31 million people an average of £170 more per year in their pocket. Although this tax cut was already planned, bringing it forward will be a welcome surprise for many. Gift Aid relief will remain at 20% until April 2027.

The additional tax rate of 45% currently payable on taxable income over £150,000 is to be scrapped. This will mean that former additional rate payers will also be able to benefit from the personal savings allowance of £500 available to higher rate taxpayers.

The additional rate on dividends will also go from April 2023, meaning that the top rate of tax on dividends will become 32.5% compared to a total of 39.35% being the rate of 38.1% plus the 1.25% increase for social care.

The health and social care levy which in the current year has been collected by way of an additional 1.25% on national insurance and dividends is set to go from November 6^th, which the chancellor described as the earliest possible moment.