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How Does the Mini Budget 2022 Affect You?

Kwasi Kwarteng, the Chancellor of the Exchequer has today (Friday 23rd September, 2022) delivered his “mini-budget” against the back drop of the spiralling cost of living and a struggling economy. Announcing the Government’s Growth Plan for higher productivity, the Chancellor has some good news for contractors and small business owners.

IR35

Unexpectedly the Government have announced that the 2017 and 2021 reforms to the off payroll working rules (also known as IR35) will be repealed from 6 April 2023. From this date, workers across the UK providing their services via an intermediary, such as a personal service company, will once again be responsible for determining their employment status and paying the appropriate amount of tax and NICs.

The changes to IR35 were designed to ensure better compliance and application of the rules by making end clients responsible. In reality, many end clients shied away from making the decision and stopped using Limited Company contractors, a tactic that has damaged their business and the temporary workforce.

Whether the repeal is a full reversal to pre-April 2017 is yet to be seen with no further detail having been shared. We will have to wait and see if further guidance will be issued to assist individual workers making their IR35 assessments.

National Insurance

The introduction of the Health & Social Care levy from April 2023 has been scrapped. This also means that the 1.25% percentage point increase in National Insurance which took effect from April 2022 is also being reversed, from November 2022. This change is good news for individuals, but payroll software companies will now have to work quickly to make changes.

The government has already increased the National Insurance contributions (NICs) Primary Threshold and Lower Profits Limit (from July 2022 onwards), to align the point at which employees start to pay NICs with income tax, at £12,570 and these are not changing following today’s statement.

Self employed people will also benefit as Class 4 NI contributions are also being reduced by 1.25% points from April 2023.

Personal Tax

A reduction in the basic rate of Income Tax from 20% to 19% had been planned for April 2024. This will now happen in April 2023. there will be a single higher rate of Income Tax of 40%.

More good news for Contractors and small business owners is the reduction in the rate of Dividend Tax from April 2023.

Dividend tax rates were increased in line with the NI hikes that came in early this year but from April 2023 they return to previous levels. Dividends earned in the basic rate tax bracket will attract 7.5% and those in the higher rate 32.5%.

Corporation Tax

The previously announced plans to increase the rate of Corporation Tax to 25% from April 2023 where profits where in excess of £250,000. These plans have now been cancelled and the rate will remain at 19% regardless of profit levels.

Further support will be given to UK businesses by making the temporary £1 million level of Annual Investment Allowance permanent, instead of it reducing back to £200,000 after March 2023.

Stamp Duty

For anyone purchasing a new home, the Government from today have increased the threshold above which Stamp Duty is paid from £125,000 to £250,000. The rate at which first time buyers start to pay Stamp Duty will also increase from £300,000 to £425,000 with immediate effect. The maximum value of a property on which a first-time buyer can claim relief rises from £500,000 to £625,000.

Other measures

Aside from these tax cuts the Chancellor also announced the abolition of duty on beer, wine and spirits along with the much-publicised support for rising energy costs. To provide immediate support for households, an Energy Price Guarantee (EPG) will cap the unit price that consumers pay for electricity and gas.

This will mean the average household will pay no more than £2,500 per year for a period of two years from October 2022, and is expected to save at least £1,000 a year, although savings for individual households will vary according to their energy use. The government will deliver £150 of the saving by covering the environmental and social costs, including green levies, currently included in domestic energy bills for two years. This will be in addition to the £400 support all households will receive from the Energy Bills Support Scheme (EBSS) over the coming winter.

Businesses will receive support for energy costs via the Energy Bill Relief Scheme (EBRS) which is a temporary six-month scheme that will protect businesses and other nondomestic energy users, including charities and public sector organisations, from rising energy bills this winter by providing a discount on wholesale gas and electricity prices.

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