Every week we take a look at what is trending in the accountancy and tax press and share items that we think will interest you. However, these are only outlines and where they relate to tax planning should not be acted upon without looking into them more completely as everyone’s circumstances are particular to them. You need to take specific advice appropriate to your own circumstances.
While every effort is made to deliver accurate, informative and balanced articles this content is general in nature and should not be used as the sole basis for making decisions.
Kwasi Kwatang (the name apparently means born on Sunday) set out his vision which includes a simpler tax system but more particularly scrapping the proposed increase in Corporation Tax to 25%/26.5% and scrapping many of the off-payroll working IR35 rules with effect from April 2023.
In order to simplify the tax system, he is ordering all tax policy officials in the Treasury to focus on simplifying the tax code and at the same time abolishing the OTS, the Office of Tax Simplification, which was not achieving anything material anyway because it was largely ignored by government.
From 6 April 2023, we will be back to the IR35 rules largely as they were introduced from 6 April 2000 with the focus on the Public Sector from 2017 and the Private Sector from 2021 reversed. So, probably no more high-profile court cases involving celebrity presenters falling foul of the IR35 rules.
Rishi Sunak had proposed increasing the rates of Corporation Tax so 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 CT at 19%, but marginal relief would apply between £50,000 and £250,000, giving an effective marginal tax rate of 26.5%. That marginal rate was going to hit a lot of small companies hard.
The Enterprise Investment Scheme (EIS), is being extended for an undefined period.
The similar seed enterprise investment scheme (SEIS) which provides tax relief for investment in small trading companies, unlike its big brother EIS, was not due to expire, but the annual investment caps (£100,000 per investor, £150,000 per company) will be increased from April 2023. Additionally, the gross asset limit will be increased to £350,000 and the age limit from two to three years. To support these increases, the annual investor limit will be doubled to £200,000.
The Annual Investment Allowance (AIA) provides a 100% tax deduction for up to £1m of plant and machinery purchased in a year. This cap was due to reduce to £200,000 on 1 April 2023 but will now be kept at £1m indefinitely.
The rates of super deductions will be adjusted from 1 April 2023 to take into account the corporation tax rate being maintained at 19%.
The 1.25 percentage point increase and the new statutory deduction (known as the Health and Social Care Levy) have been shelved, This would effectively have increased the percentage rate of National Insurance Contributions (NICs) by 1.25% for the following:
- Class 1 (Primary and Secondary), excluding people over State Pension age;
- Class 1A;
- Class 1B; and,
- Class 4.
Perhaps the least-debated topic is how this change will actually be enacted. So:
- Would we have to re-run payrolls going back to April 2022?
- Would there be a massive reduction in the NICs percentage from, say, January 2023 that would have the monetary effect of making it look as though the increase had never happened?
- Would HMRC make the repayments to employees and employers directly based upon the information they already hold.
You have to have sympathy for employers and software developers, as this will be the third change to National Insurance in one tax year.
Scrapping the rise will reduce tax for 920,000 businesses by nearly £10,000 on average next year as they will no longer pay a higher level of employer National Insurance
Other measures announced included:
- Setting up Investment Zones throughout the UK with a package of tax incentives and reduced red tape.
- A single higher rate of income tax of 40%, abolishing the 45p rate for those who earn over £150,000 from April 2023, but this does not apply in Scotland as the Scottish Government sets the rates of tax north of the border.
- Planned beer, wine, cider, and spirits duty rate increases cancelled
- The cap on bankers’ bonuses removed
- Sales tax-free shopping for overseas visitors
Kwarteng’s mini-Budget or fiscal event also known as the Growth Plan 2022, sets the country on a new course, with some commentators presenting the new Chancellor of the Exchequer and Prime Minister as high-rolling gamblers with this being the last roll of the Tory dice.
The big question is whether their economic strategy, intended to achieve annual growth of 2.5%, will produce the desired results. The proof of the pudding …
Businesses Energy Support Package
The wholesale price for all non-domestic customers has been fixed at £211 per MWh for electricity and £75 per MWh for gas for six months commencing on 1 October 2022.
The relief scheme will be available for all UK businesses, the voluntary sector and for schools and hospitals.
The new supported wholesale price also removes green levies paid by non-domestic customers.
After six months, the government will review the scheme and decide whether to provide any additional support.
The discount will be determined based on the date at which a firm signed a fixed contract, which would reflect market conditions at the time. Most will get the difference between their fixed price and the government discounted price.
Firms will receive support on fixed contracts agreed on or after 1 April 2022, as well as to deemed, variable and flexible tariffs and contracts, and it will automatically be applied to bills.
Businesses on a fixed contract signed before 1 April 2022 are excluded on the assumption that they will have fixed at a level below the government’s current support.
Bank of England – Interest Rate Increase
In a bid to curb stubbornly high inflationary pressures and weakening investor confidence in British business, the Bank of England (BoE) has once again increased borrowing costs from 1.75% to 2.25%, a 14-year high, but still quite low in the grand scheme of things.
Cracking down on fraud
The government has set out plans for a second economic crime bill to tighten up registration rules and give Companies House more powers as part of plans to tackle money laundering and economic crime
Anyone who registers a company in the UK will need to verify their identity, tackling the use of companies as a front for crime, either domestic or foreign.
Companies House will be given new powers to check and challenge incorrect or fraudulent information, making it a more active gatekeeper over company creation.
Their investigation and enforcement powers will also be upgraded, enabling the organisation to cross-check data with public and private partners and report suspicious activity to security agencies and law enforcement.
The Bill will also prevent the abuse of limited partnerships for money laundering etc by tightening registration and transparency requirements.
Increase in Living Wage by 10%
The living wage rate has been increased to £10.90 an hour from £9.90 across the UK, and £11.95 an hour in London. The increase has been brought forward due to the sharp increase in living costs over the past year.
The real Living Wage rates remain the only wage rates independently calculated based on what people need to live on. This year the rate increased by 10.1% in the UK, more than ever in the Living Wage Foundation’s 11-year history.
Over the past two years the living wage movement has continued to grow, with the number of living wage employers more than doubling.
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