Kwasi Kwarteng, the new Chancellor of Exchequer, delivered his first budget announcement that cut Income Tax, National Insurance, Corporation Tax, and Stamp Duty.
Prime Minister Liz Truss and three other conservative MP's published a booklet back in 2010 titled ‘Britain Unchained’ that set out their vision for the UK to be a leading player in the world economy.
The cuts outlined below may be the beginning of their vision as set out over 10 years ago when they became newly elected MP’s.
Income Tax
The basic rate will be cut from 20% to 19% from April 2023, as opposed to April 2024. In addition, from April 2023 there will now only be the higher rate of tax of 40% rather than having an additional rate for earnings over £150,000 of 45%.
This is good news for individuals who have earned in excess of £150,000.
In addition, it would appear that a knock-on effect of the removal of the additional rate of tax, is that the personal savings allowance increases by £500.
Unfortunately, unless rates are altered Scotland will still have 5 rates of tax with the basic remaining at 20% and an intermediate rate of 21% with the additional rate at 46%.
The reduction of tax for the rest of the UK does mean (from our understanding) that the block grant from the Treasury to Scotland, will increase, allowing Holyrood to alter rates in Scotland or to be applied for other purposes.
National Insurance
The Health and Social Care Levy of 1.25% that applied to National Insurance will be removed on 6 November 2022. This means Employer and Employee National Insurance will be reduced by 1.25%.
The increase of 1.25% that applied to Dividend tax rates that started in April 2022 will no longer be an additional tax rate from April 2023.
For Dividends across all of the UK, including Scotland, this does mean that in conjunction with the reversal of the health levy of 1.25%, the upper rate of tax applied to Dividends will be 32.5% from April 2023, as opposed to 39.35% for this year.
This will be important in determining any extraction of funds for those of you with Companies.
Corporation Tax
For many of you with Limited Companies, the intended increase in Corporation Tax (increasing in stages from 19% to 25% depending on the level of profits), will no longer be applied.
This is good news for investment companies that, irrespective of their level of profits, were to be taxed at 25% as opposed to the tiered rates for trading companies.
This is important as some of you have looked at investment companies to place funds to shield savings from inflation.
Stamp Duty
For England and Northern Ireland only, the rates of Stamp Duty Land Tax will be reduced. Scotland and Wales have separate and devolved legislation covering Land Transaction Tax.
The threshold for residential properties before Stamp Duty applies, will be increased from £125,000 to £250,000 and additional assistance by way of increased thresholds for first time buyers.
Off-Payroll Working
The off-payroll working rules introduced for public and private sector bodies in 2017 and 2021 respectively, have been reversed back to the rules that came into existence in 2000.
This is good news for GP practices that engaged locums as Limited Companies and allows more GP’s opportunities to use Limited Companies for outside activities as there is less bureaucratic red tape for the organisation engaging the Company to consider.
For consultants you will recall that private hospitals undertook a huge exercise to determine your status for tax based on the rules introduced in 2021.
Thankfully, these rules are now disapplied, but the old rules still had some ambiguity in determining one’s status for tax.
Inflation
On Thursday 22 September 2022 the Bank of England increased the base rate for lending to 2.25%, a measure intended to curb the rise in inflation.
Many commentators have expressed concern that the above cuts could actually fuel inflation. We may see their views tamed to some extent, when the majority of the measures announced above come into effect in April 2023.
Any cut in taxes is welcome by all, but its possible interaction with inflationary pressures will hopefully be eased by the time the majority of the measures are implemented.
