October 2022

On 23 September 2022, Kwasi Kwarteng, the new Chancellor (the fifth in as many years) delivered a Tax Cutting “Fiscal Event” or Mini-Budget to help boost economic growth. This was in line with promises made by the new Prime Minister Liz Truss when she was campaigning to be elected as new leader of the Conservative Party. 

However, many commentators are concerned that the cost of the growth measures will add significantly to Government borrowing, which will have to be paid for by tax increases in the future.

The headline announcements were:

• The abolition of the 1.25% Health and Social Care Levy.

• A reversal of the planned increase in corporation tax.

• A reduction in the basic rate of income tax.

• The abolition of the top rate of incomes tax (which has subsequently been cancelled).

The Government’s bold strategy seeks to stimulate economic recovery and save jobs. Many European countries have introduced windfall taxes on energy companies to help fund support for energy costs. Liz Truss has, however, categorically rejected such a measure in the UK.

It was on 7 September 2021 that we first heard about a new 1.25% Health and Social Care Levy, imposed on employers, employees and the self-employed, coming in from 2023/24. Furthermore, this was to be effectively accelerated into 2022/23 by a 1.25 percentage point rise in National Insurance contributions (NICs). As expected, and despite changes to thresholds earlier this year, the increased NIC rates have resulted in a reduction in take home pay for many individuals.

The Health and Social Care Levy has now been abolished and will not come in next April. Also, the Government is removing the associated 1.25 percentage point increase in NICs from 6 November 2022.

Employers will need to make sure that they update their payroll software in time for this third change in NIC rates and bandings in 2022/23!

In the case of NIC rates which apply annually, transitional rates will apply to deal with the mid tax-year change. In particular,

• Class 1 employee NIC rates that apply annually (including for company directors) will be set at a main rate of 12.73% and an additional rate of 2.73% for 2022/23.

• Class 1A NICs on taxable benefits and expenses (if not paid monthly through the payroll) will be set at 14.53% for 2022/23. The same applies to Class 1B NICs for PAYE Settlement Agreements.

• Class 4 NICs paid by self-employed individuals will be set at a main rate of 9.73% and an additional rate of 2.73% for 2022/23.

In the March 2021 Budget, Rishi Sunak announced that the rate of corporation tax would increase to 25% from 1 April 2023 where a company’s profits exceeded £250,000 a year, with the current 19% rate continuing to apply where profits were no more than £50,000 a year. There was also scheduled to be an effective 26.5% rate on profits between £50,000 and £250,000 a year.

The UK would still have had a very competitive rate compared to other major trading countries as many of those are also increasing corporate tax rates.

Nevertheless, the planned increase will not now go ahead in line with the promises made by Liz Truss in her campaign to be Conservative Party leader and Prime Minister.

All companies currently paying corporation tax at 19% will continue to do so.

The Government is in discussion with 38 local authority areas in England to set up ‘Investment Zones’ in specific sites within their area.

Each Investment Zone (IZ) will offer generous, targeted and time limited tax cuts for businesses along with liberalised planning rules to release more land for housing and commercial development. These will be hubs for growth, encouraging investment in new shopping centres, restaurants, apartments and offices, and creating thriving new communities. The tax incentives under consideration are:

1. 100% Business Rates Relief - on newly occupied or expanded business premises in IZs.

2. 100% first year allowance - for companies with qualifying expenditure on assets for use in IZs.

3. Enhanced Structures and Buildings Allowance - to allow businesses to reduce their taxable profits by 20% of the cost of qualifying non-residential investment per year, relieving 100% of their cost of investment over 5 years.

4. Zero-rate employer NIC - on salaries of any new employee working in the IZ for at least 60% of their time, on earnings up to £50,270 per year, with Employer NICs being charged at the usual rate above this level.

5. Full Stamp Duty Land Tax (SDLT) relief - for land and buildings bought for use or development for commercial purposes, and for purchases of land or buildings for residential developers.

A list of the 38 local authorities taking part in discussions can be viewed in this factsheet - www.gov.uk/government/publications/the-growth-plan-2022-factsheet-on-investment-zones