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Kwarteng’s turbulent mini-budget

With the backdrop of economic gloom, rising inflation and the reality that virtually all households will get poorer next year, the new Chancellor, Kwasi Kwarteng, delivered his mini-budget on Friday 23 September. By 5 October, the government announced a U-turn in one of the more eye-catching parts of the fiscal statement- the abolition of the 45p tax rate. With more U-turns expected before the comprehensive budget on 31 October, here is a summary of the current mini-budget measures still in:


Income tax and NI

The Government is bringing forward the 1 percentage point cut to the basic rate of income tax to April 2023, reducing the rate from 20% to 19% 12 months earlier than planned.


Employees earning between £1,048.01 and £4,189 a month will see their NICs reduce from 13.25% to 12% from November, while earnings above £4,189 will revert to from 3.25% to 2%.


Dividends

From 6 April 2023, the Government is also reversing the recently implemented 1.25 percentage point increase in dividend tax rates, applied UK wide. The basic and higher rates of dividend tax will be reduced to the 2021/22 levels of 7.5% and 32.5% respectively.


Corporation Tax

The UK’s corporation tax rate will remain at 19% for all UK companies which had previously been planned to rise to 25% for companies with profits of more than £250,000.


Capital allowances

The Chancellor said the Government will make the temporary cap of £1m for the annual investment allowance (AIA) permanent.


IR35 rules repealed

In his speech, the Chancellor announced that the IR35 rules introduced in 2017 and 2021 would be repealed, helping to simplify off-payroll working, which has added extra costs for businesses that use contractors and subcontractors.

This means that it is no longer the responsibility of the employer to decide whether an employee is inside or outside IR35. Instead, the onus will be on the employee to declare and pay their tax obligations to HMRC, directly after invoicing the company.


Stamp duty

From 23 September 2022, the 0% band has been doubled to £250,000 – and £425,000 for first-time buyers.


Universal credit

The administrative earnings threshold (AET) will increase to 15 hours a week at the national living wage from January 2023 for universal credit (UC) claimants.


Low-tax investment zones

Currently in discussion with 38 areas of England, including Teesside, Norfolk and the West Midlands, the plan would see tax breaks to encourage businesses to set up and develop in these regions. In these specific areas, newly occupied business premises will benefit from a 100% business rates cut, zero-rate employer NICs on salaries of any new employees up £50,270 and enhanced capital allowances.


Energy support

The Energy Price Guarantee for households

The guarantee, which will last for two years, will mean the typical household – using 12,000 kWh of gas and 2,900 kWh of electricity – will pay no more than £2,500 a year (though this is dependent on usage).


The Government will also offer a one-off £400 fuel bill discount to all households this winter.


Energy Bill Relief Scheme

The scheme, aimed at supporting businesses (which aren’t covered by the energy price cap), will cap wholesale energy prices for six months from 1 October for all organisations. It will apply to all non-domestic energy customers in England, Scotland and Wales. The cap will limit prices to 7.5p per kWh for gas and 21.1p per kWh for electricity.


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