On 23rd September 2022 Kwasi Kwarteng, the new Chancellor, delivered a ‘mini’ Budget with some quite significant changes to the tax system. There have been a lot of changes in respect of tax increases announced by the previous Chancellor (& Prime Minister). The following is a summary of the changes which impact small business.
National Insurance – Drop in Rate
As was announced the previous day, the 1.25% increase in National Insurance (NI) will be reversed from 6 November 2022. Also, the Health and Social Care Levy was going to be introduced from 6 April 2023, but this will now not happen.
The increase in dividend tax rate followed the increase in NI, but the drop back to previous rates won’t take place until 6 April 2023. Therefore, the dividend tax rate for normal rate taxpayers for 2022/23 will be 8.75% and 33.75% for higher rate taxpayers.
Income Tax – Drop in Basic Rate
The basic rate of tax is 20% and this was due to drop to 19% from 2024. However, this reduction has been accelerated by a year, and will take place from 6 April 2023.
The drop in the rate of income tax will have a detrimental effect on charities, as donations will attract a lower amount of Gift Aid. In order to support charities, the reduction will be phased in over 4 years.
Income Tax – Abolition of Additional Rate Band
The additional rate band of income tax, payable on income over £150,000 (at a rate of 45%), will be abolished from 6 April 2023.
Corporation Tax – Planned Increase Scrapped
From April 2023, the main rate of corporation tax was due to increase to 25%. This has now been scrapped.
Currently, tax relief of 100% under the Annual Investment Allowance is available in respect of the first £1m of capital expenditure, and this level was due to drop to £200k from 1 April 2023. However, the £1m limit has been made permanent.
The changes announced over the last 5 years to IR35 in respect of the public sector (2017) and the private sector (2021) will be repealed from April 2023.
Further details on the Mini Budget can be found here.