There have been lots of announcements about changing tax rates recently, many of which have a direct impact on small businesses, sole traders, and contractors.

Kwasi Kwarteng’s mini budget on Friday 23rd September was shortly followed by a subsequent announcement from Jeremy Hunt in his role as the new Chancellor on 17th October. He released his full Autumn Statement on 17th November 2022, giving more detail to the government’s financial plans.

 
The changes cover a wide range of areas including income tax and National Insurance, as well as Corporation Tax for limited companies. With all the confusion, we thought it was well worth a recap of where everything’s up to, and what it means for your business. We also recently published a guide with tips and advice for small businesses dealing with rising costs.

What do the income tax changes mean?

The mini budget put forward changes to UK income tax which would have taken effect from April 2023, but subsequent announcements mean these are no longer going ahead:

• The basic rate of income tax was to fall from 20% to 19%. The new Chancellor has now confirmed that the basic rate will stay at 20% indefinitely.
• The additional rate is the highest rate of income tax, paid at a rate of 45% on earnings more than £150,000. Originally announcing this was to be scrapped and that the highest rate of income tax would be 40%, the government went on to reverse this decision so the additional 45% tax rate will remain.

This doesn’t affect the Personal Allowance (the amount of income you can earn before you start to pay income tax on it).

Scrapping the Health and Social Care Levy

The Health & Social Care Levy was introduced from April 2022 as a temporary 1.25% increase to some types of National Insurance. It was set to become a standalone charge the following year which, unlike NI, would have been payable by those over State Pension age. It also affected dividend tax, adding 1.25% to the tax rate.

The government’s mini budget of September 2022 announced that this was no longer going ahead. Hunt’s announcement confirmed that the government are still planning to scrap the levy, and that some types of National Insurance (NI) will change in November 2022, but the increase will stay in place for dividend tax.

What the latest changes mean for National Insurance

• The 1.25% increase to National Insurance will be reversed from 6th November 2022.
• The levy will not be introduced in April 2023, which also means that taxpayers older than State Pension age won’t need to worry about it.

What do the NI changes mean for director’s salaries?

The changes to NI don’t actually impact the optimum salary that directors can take to remain tax efficient, because this doesn’t incur National Insurance.

Will the NI rate reversal affect the National Insurance threshold?

In short, no. The National Insurance thresholds which were increased in July 2022 won’t be lowered when the NI rate is – these are separate.
 

What do the changes mean for dividend tax?

Although the government’s original announcement to scrap the levy included dividend tax, this is no longer the case. This means that the additional 1.25% of dividend tax which was introduced in April will remain in place, even though National Insurance rates will return to their previous levels.

• The 1.25% increase to dividend tax will not be removed from April 2023.

The changes to Corporation Tax

The plans for next year’s Corporation Tax have also been through a few revisions recently. First the government’s Autumn 2021 budget announced that rates were going up, then September’s mini-budget scrapped the idea, and now the increase is going ahead after all.

• From 1st April 2023 Corporation Tax will increase to 25% for companies reporting profits over £250,000
• Companies with profits up to £50,000 will continue to pay Corporation Tax at 19%, with marginal relief offering a gradual increase for those falling between the two.

What are the latest IR35 changes?

Plans to repeal reforms to IR35 have now been scrapped – but what exactly does that mean? Well, in September the government announced that they were planning to change who has responsibility for determining IR35 status. In October this was changed back – basically everything is staying as it is.

A permanent increase to the Annual Investment Allowance

The Annual Investment Allowance (AIA) is a type of capital allowance. These are allowances which businesses can use to claim tax relief when they invest in long-term assets that they expect to stay in the business for longer than 12 months.

With AIA, you can deduct all of an asset’s value from your profits before tax (which means you’ll pay less tax) in the financial period that you bought the item.

You could previously only claim the AIA up to a maximum limit of £200,000 in a year, which was temporarily increased to £1 million as part of the Covid recovery plan. Expected to stay in place until 31st March 2023, the AIA threshold has now been permanently increased to £1,000,000 and the limit will not be reduced in March as planned.

Changes to Stamp Duty Land Tax

Jeremy Hunt’s speech confirmed that changes previously announced in September increasing the threshold for paying Stamp Duty Land Tax will continue.

As of 23rd September 2022 the point at which you start paying SDLT on the purchase of a residential property increased:

• From £125,000 to £250,000
• From £300,000 to £425,000 for first-time buyers (up to a maximum property value of £625,000)

An important point to note though, is that Stamp Duty Land Tax only applies in England and Northern Ireland. In Wales this has been replaced by the Land Transaction Tax, and in Scotland it’s the Land and Buildings Transaction Tax.

The devolved Welsh and Scottish governments will receive funding to allocate, although the details of what each government will do with this are not yet available.

The introduction of new UK investment zones

The mini budget also included support to stimulate growth in specific areas of the UK, and Hunt’s subsequent speech said that these were going ahead. The zones are expected to include a range of tax allowances and incentives over a 10-year period, such as:

• 100% business rates relief
• Enhanced Capital Allowances – a 100% first year allowance for companies investing in plant and machinery for use in the designated investment zone.
• A full Stamp Duty Land Tax relief on land and buildings bought for commercial use or development, and on the purchase of land or buildings for new residential development.
• To stimulate employment in these zones, employers will also receive relief on their National Insurance Contributions (NICs). This means they’ll make zero-rate employer NICs on the salaries of new employees who work on the tax site for at least 60% of their time. Relief will be given on earnings up to £50,270 per year, after which point employers will be charged NICs as normal.

Other changes announced in the mini budget – staying or going?

Kwasi Kwarteng’s long list of changes included other key announcements impacting businesses in the UK, although some of these are no longer going ahead. Those that are staying include:

• Changes to the Seed Enterprise Investment Scheme (SEIS) designed to help UK start-ups get access to finance. This includes an increase to the current annual investor limit from £100,000 to £200,000, as well as an increase to the gross asset limit to £350,000, both of which will come into effect from 6th April 2023.
• An increase to the share option limit in place for Company Share Option plan (CSOP) schemes, from £30,000 to £60,000.

Whereas those that are going include:

• A digital VAT-free shopping scheme for overseas visitors to be introduced as soon as possible.

 
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