Tax briefing autumn budget 2022.
INCOME TAX CUTS NEXT YEAR
In last week's Budget the Chancellor stunned his audience by announcing that both the
basic rate of tax and the highest 'additional' rate would be reduced from 6 April 2023.
Around 50% of taxpayers only pay tax at the basic rate and they will benefit from that rate being
reduced from 20% to 19%. This had been announced by the previous Chancellor but was not going to
be introduced until 2024. Moving this a year earlier has been done, we are told, to help with the cost
of living crisis.
The income threshold at which taxpayers start to pay tax at 40% and the personal allowance have both
been frozen for five years from April 2021 to April 2026. With inflation running at nearly 10% this will
reduce the real value of the tax-free personal allowance and drag more people into the higher rate tax
bracket.
Higher earning individuals will benefit the most from the Budget as the 45% additional rate of tax
that applies on income over £150,000 will be abolished from 6 April 2023. These taxpayers will also be
eligible to benefit from the £500 savings allowance for the first time from April 2023. The 40% rate will
simply continue to apply to all higher levels of income.
These tax cuts do not apply in Scotland as the Scottish Government sets its own income tax rates on
earnings and profits (not savings and dividends) which currently range from 19% to 46%. This may
change when the Scottish Budget for 2023-24 is announced later this year. The Welsh Government will
also have to decide whether to follow Westminster and apply tax cuts to match those in England from
2023.
In addition to cutting tax on earnings the Chancellor has chosen to cut the tax payable on dividend
income by 1.25 percentage points from 6 April 2023. This cut will apply across the whole of the UK.
From 6 April 2023 the rates of income tax in England and Northern Ireland will be:
| Earnings Band |
Earnings and Profit |
Dividends |
| Basic Rate: Up to £50,270 |
19% |
7.5% |
| Higher Rate: Over £50,270 |
40% |
32.50% |
| Additional Rate. |
Abolished |
Abolished |
SHARE SCHEMES EXPLAINED
Several investment schemes provide a basket
of tax reliefs to individuals who are prepared to
risk their money by subscribing for new shares in
small trading companies.
Two such schemes are the Enterprise Investment
Scheme (EIS) and the similar Seed Enterprise Investment Scheme (SEIS) for early
stage trading companies. These schemes were
due to end in 2025 but they will now be extended for an indefinite period. The amount that each
investor can invest under the SEIS will be doubled
to £200,000 per year from 6 April 2023.
The conditions for a company using the SEIS to
raise funds will also be relaxed so that it can raise
up to £250,000 and have assets of up to £300,000.
Currently such companies must be within two
years of starting their trade when they receive
funds under the SEIS and this will be extended to
three years.keep 45p
Employers can encourage their employees to take
a stake in the company by providing them with
share options. Under the Company Share Option
Plan (CSOP) employees can be granted share op-
tions with a market value of up to £30,000 and
the Chancellor has proposed doubling this cap to
£60,000 from April 2023. If you are looking to raise
money to start or develop a business, or simply
to motivate and retain staff, we can advise you on
the best schemes for your needs.
IR35: CONTRACTORS DELIGHTED BY CHANGES
The Chancellor has said that he will abolish the hugely
complicated off-payroll working rules from 6 April 2023.
These rules require large businesses
and public sector bodies to decide
whether the contractors that they engage act as employees (in tax terms)
and should be taxed as such under the
IR35 rules. Any agencies or intermediaries in the hiring chain are ignored for
this decision.
To be clear the underlying IR35 rules are not being abolished. The only change from 6 April 2023
is that the responsibility for deciding whether the
IR35 rules apply to a particular contract will revert
to the contractors and consultants who provide
their services through an intermediary such as
their own personal service company.
The risk of getting the IR35 decision wrong can be
huge for the individual contractors as HMRC will
demand penalties and interest on top of
any underpaid tax. HMRC can look back
many years to correct the tax position and
defending your decision in court can be
costly in terms of money, time and emotional strain.
However the tax savings from working through
your own company can be significant. If the IR35
rules do not apply you can take most of the profits
as dividends which are taxed at much lower rates
than earnings and do not carry employers' or employees' NIC.
We can help you understand whether IR35 applies
to your contracts but it is essential that the written
contract accurately reflects your working relationship with your engager.
We can help
you understand whether
IR35 applies to
your contracts
COMPANIES SPARED TAX RISE
Last year the Chancellor Rishi Sunak proposed increasing corporation tax rates
such that companies with annual profits of over £250,000 would pay tax at 25%.
Those with annual profits of less than £50,000
would continue to pay tax at 19% but a marginal
tax rate of around 26.5% would apply on profits
between £50,000 and £250,000.
The new Chancellor Kwasi Kwarteng has decided
to keep the main rate of corporation tax at 19%
at all profit levels. This will certainly keep corporation tax calculations simple and benefit profitable
companies with higher profits.
Companies can currently claim a super deduction of 130% of the cost of new equipment pur- chased before April 2023. This deduction
is likely to be modified or scrapped as it was introduced to encourage companies to invest before
the corporation tax rate increased to 25%.
Instead businesses will be encouraged to claim
under the annual investment allowance (AIA)
which gives 100% relief for the cost of any qualifying equipment whether it was purchased new or
second hand. The AIA can cover purchases totalling up to £1m per year and this cap will now be
kept at that level indefinitely.
HOME BUYERS TO PAY LESS STAMP DUTY
When buying a residential property in England or Northern Ireland
you have to pay stamp duty land tax (SDLT) if the purchase
price exceeds a minimum threshold set at £125,000 since 2006.
In last week's Budget the Chancellor announced that the entry threshold for
SDLT payable on residential properties would double to £250,000 for deals
completed on or after 23 September 2022.
Where none of the purchasers of the property has ever owned a property
they can take advantage of a first-time buyer minimum SDLT threshold of
£425,000 increased from £300,000. If the property costs more than £625,000 (previously £500,000) the
first-time buyer threshold does not apply.
The rates of SDLT were not changed in the Budget other than to remove the lowest rate. Tax is due at
the following rates:
| Property Value |
Only home |
Second home or investment buyer |
Non-resident buyer |
| Entry threshold: £925,000 |
5% |
8% |
10% |
| £925,000 - £1,500,000 |
10% |
13% |
15% |
| £1,500,000 plus |
12% |
15% |
17% |
When buying in Scotland or Wales you will pay the appropriate land taxes for those countries, which
have different rates and thresholds.
The entry threshold
for SDLT payable on
residential properties
will double
CRACK DOWN ON CLONED COMPANIES
The National Crime Agency estimates that £78m was lost in cloned companies scams
in 2020 and that is probably an underestimate as many frauds are not reported.
Criminals set up companies with
names that are nearly identical
to genuine trading or finance
companies and then approach
the customers of the genuine
companies asking them to pay
the fake company instead. With all transactions
and communications online this form of fraud is
easier to fall for.
The fraudsters will take great care to copy accurately the documentation and website of the real
company so that instructions to pay to a different
bank account appear genuine. If you are asked
to make payments to a different bank account,
always check by phoning your supplier on a number with which you are familiar.
The Government is finally tackling this issue by
giving the Companies House Register more pow- ers to challenge names of new companies. Any
name which could be used to
facilitate certain crimes will be
rejected.
The register will also have powers
to require existing companies to
change their names if the name
could be used for crime or suggests that the com- pany is connected to an international institution
or foreign government. Where the company fails
to comply, the disputed name will be removed
from the Companies House Register and replaced
by the company number.
When dealing with a new supplier always check
the Companies House Register (
https://www.gov.
uk/get-information-about-a-company) to see if
the details of its registered address, directors and
accounts are as you would expect.
If you are asked to make
payments to a different
bank account, always check
by phoning your supplier
TAX INCENTIVES IN INVESTMENT ZONES
The Government wants to designate up to 38 areas across England as investment
zones which will benefit from special tax reliefs and relaxed planning laws.
The tax reliefs will include:
- employers' Class 1 NIC at 0% on earnings of new
employees employed in the zone for at least 60%
of their working hours, capped at earnings of
£50,270 per person (normal employers' NIC will
apply to earnings above that level);
-
100% first year capital allowance on the cost of
equipment used in the zone;
- no SDLT payable on the acquisition of commercial buildings bought for use or development in
the zone;
- no SDLT on land or buildings acquired to build or
convert into new homes in the zone; and
- 100% relief from business rates on newly occupied buildings.
The local authorities for the proposed investment
zones need to give consent before the zone is
activated and in return they will receive all of the
additional business rates collected from within
the zone. However some control over planning
decisions within the zone will be lost.
Areas in Scotland, Wales and Northern Ireland
could also be designated as investment zones
if the devolved administrations for those areas
agree.
NIC CUT IN NOVEMBER
The Government has decided to reverse the 1.25 percentage point increases in
national insurance contribution (NIC) rates which were introduced from 6 April 2022.
The rates of Class 1 NIC are taken back to the levels that were in place on 5 April 2022 but only with
effect for pay periods beginning on and after 6
November 2022. The NIC thresholds which were
increased from 6 July 2022 are not being reversed.
The new rates will be:
Employees' Class 1 NIC
- 12% (was 13.25%) on earnings in the band:
£1,048 to £4,189 per month (£12,570 to £50,270
per year)
- 2% (was 3.25%) on earnings above £4,189 per
month (£50,270 per year)
Employers' Class 1 NIC
- 13.8% (was 15.05%) on earnings above £758 per
month (£9,100 per year).
This will be the third change in NIC rates or thresh- olds in this tax year but the Government is con- fident that software developers will be able to
amend their payroll programs in time for the November payroll run.
Where NIC is calculated over the full tax year, for
example on benefits or for a director who has an
annual pay period, the
rates for the year are
blended. Directors will
pay Class 1 NIC at 12.73%
on earnings between
£11,908 and £50,270
with 2.73% applying to
earnings over £50,270. The director's employer
will pay Class 1 NIC at 14.53%.
Where NIC is calculated over the full tax year, for
example on benefits or for a director who has an
annual pay period, the
rates for the year are
blended. Directors will
pay Class 1 NIC at 12.73%
on earnings between
£11,908 and £50,270
with 2.73% applying to
earnings over £50,270. The director's employer
will pay Class 1 NIC at 14.53%.
The self-employed pay Class 4 NIC, calculated as
a percentage of their annual profits, with the final
payment of income tax due for the year. The new
rates of Class 4 NIC for 2022-23 will be:
Employers' Class 1 NIC
- 9.73% on profits between £12,570 and £50,270
- 2.73% on profits above £50,270.
Some people may benefit from changing their
planned remuneration strategies, especially in
relation to timing of payments. We can help you
determine the most efficient way for you to be
paid or extract profits.
