The Growth Plan
23rd SEPT ’22. Our Tax Partner Ian Kelly summarises today’s ‘mini budget’, including the main tax and NIC announcements of relevance to our clients:
- 1.25% NIC abolished effective date 6/11/2022 and 1.25% Health and Social Care levy due 6/4/2023 scrapped
- Basic rate of tax reduced from 20% to 19% from 6/4/2023
- Additional 45% higher rate scrapped from 6/4/2023
- Off payroll legislation from 2017 and 2020 abolished, IR35 to be subject to a review
- CT increase from 19% to 25% scrapped
- AIA £1m retained and which had been due to reduce to £200,000 on 1/4/2023
- Creation of Investment Zones with time-sensitive tax incentives
3rd OCT ’22
Today we have seen new announcements as follows:
- Reversed the 1.25% increase in National Insurance introduced on 6 April 2022 from 6 November 2022
- Reversed the proposed increase in the rate of Corporation Tax from 19% to 25%
- Reversed the proposed reduction in Annual Investment Allowances which now remains at £1 million
- Brought forward the reduction in the standard rate of Income Tax from 20% to 19% by one year. Now starts in April 2023
- Reversed the increase in the top rate of Income Tax back from 45% to 40% for those earning over £150k per annum. This decision has now been reversed after less than one month of the new leadership!
- Stamp Duty changes: Nil rate band now doubled from £125k to £250k. First time buyers nil rate band now £425k from £300k.
- Other changes announced retracting changes to IR35 and proposed changes to Universal Credit to encourage workers to earn more or risk losing benefits.
So, was it a mini-Budget as BBC News described it; a fiscal statement; a Chancellor’s Statement or The Growth Plan?
Whatever it’s true title, and HM Treasury seem keen on The Growth Plan, it certainly felt like a Budget and which delivery by the Chancellor of the Exchequer, Kwasi Kwarteng, formally started the Kwarteng-Liz Truss financial partnership and era.
At first glance it seemed a bit of a forced performance. There was limited animation on the Conservative front bench and Kwarteng, whilst speaking loudly and forcibly nevertheless didn’t deliver in a smooth manner, it was a bit of a jerky or broken feeling.
It was a speech delivered against a backdrop of murmurings and mutterings from the benches and which Speaker Lindsay Hoyle, somewhat surprisingly, allowed to continue unchecked. Kwarteng, interestingly, decided to speak over the hubbub rather than pause and start again.
There was nothing to suggest a main event Budget later in the year and, on balance, it would be difficult to add to what Kwarteng announced in the half hour his speech lasted. That begs the question as to if we might seem set for a return to March Budgets moving forward.
The cost of all of Kwarteng’s initiatives comes out at £161 billion over five years with the announcement, in advance, of the energy bailout costing £60 billion over six months from October.
Starting with the energy problem, Kwarteng said that the Energy Price Guarantee would mean the average household would pay no more than £2,500 per year for a period of two years from October 2022. Businesses, charities and public sector organisations would be similarly protected via the Energy Bill Relief Scheme over an initial six month’s period by way of providing a discount on wholesale gas and electricity prices.
Another ‘leaked’ announcement concerned the scrapping from 6 November 2022 of the increased 1.25% rate of National Insurance Contributions (NIC’s) introduced by Rishi Sunak and also the 1.25% Health and Social Care Levy that would replace the NIC’s from 6 April 2023 by way of a separate tax.
There was more to come on the personal tax side and Kwarteng started by announcing that Sunak’s target of a 1% cut in the basic rate of tax was actually being brought forward by a year and would now take effect from 6 April 2023.
Kwarteng then trumped that by his “rabbit out of a hat” moment of abolishing the additional higher rate of tax of 45% from the same date. I don’t think anyone saw this coming; there had been whisperings about an increase in the level of the personal allowance and maybe increasing the level at which the 40% higher rate tax starts but this was something else. There is a four-year transition period for Gift Aid tax relief to April 2027 to preserve the 20% tax relief for charities.
Buoyed by this, Kwarteng turned to Stamp Duty Land Tax (SDLT) and doubled from £125,000 to £250,000 the level at which SDLT begins to be paid and increased by the same amount the level at which first-time buyers start to pay SDLT to £425,000 and allowed first-time buyers to access this relief on property costing less than £625,000, up from £500,000.
This anticipated stimulus should help the housing market recover from the downturn inflation and the energy crisis has brought about to what had been a positive environment during the pandemic.
There was a surprise announcement concerning IR35 with news of the repealing of the off-payroll reforms for both the public and private sectors. After many years of perceived abuse of IR35 which required the “worker” who was providing his services through his or her own company to consider if caught by IR35, the off-payroll working gave the decision-making to the end client. Things have now gone full-circle and, once again, it is the worker who will be responsible for determining their own employment status. It remains to be seen if there is any further guidance on this and if HM Revenue and Customs will attempt to police this more aggressively than previously.
The proposed increase in the level of Corporation Tax (CT) from 19% to 25% had come under scrutiny during the Conservative leadership contest and had been on Truss’s hit list and Kwarteng duly cancelled the increase that had been planned from 6 April 2023 and is so doing reaffirmed that the UK’s CT rate was the lowest in the G7.
Business investment and growth would also, said Kwarteng, benefit from the retention of a £1 million Annual Investment Allowance that had been due to fall to £200,000 from 1 April 2023; the enhancements to the Seed Enterprise Investment Scheme and the Company Share Option Plan; the extension beyond 6 April 2025 of the Enterprise Investment Scheme and Venture Capital Trusts and the delivery of Investment Zones.
Kwarteng said that the Investment Zones would be a partnership between government and devolved administrations and local partners to drive growth and unlock housing and benefit from time-limited tax incentives over ten years including 100% relief from business rates on newly occupied business premises; a 100% first year allowance for companies’ qualifying expenditure; enhanced Structures and Buildings Allowance by reducing taxable profits by 20% of the cost of qualifying non-residential investment per year; full SDLT relief for land and buildings bought for use or development for commercial purposes and for purchases of land and buildings for new residential development and zero-rated employer NIC’s on salaries of new employees on earnings of up to £50,270. Locally, the Tees Valley Combined Authority is one of the 38 local authorities in discussions over an Investment Zone.
Examples of sites with the potential to be chosen include Teesside International Airport and the proposed Mayoral Development Corporation sites in Hartlepool and Middlesbrough.
Infrastructure projects locally in the form of the Middlesbrough and Darlington railway stations will be accelerated.
How should this first Kwarteng speech be viewed then?
For a first time out, Kwarteng filled his thirty minutes with as much as he could cram in. Talk of this being a roll of the dice or putting all of your stake on a single roulette number are, perhaps, unfair but it’s the direction Truss and Kwarteng have chosen to go down and there are some bold moves but which come at a cost. Sunak earned plaudits for his Covid-assistance programmes but the point was made at the time that anyone can spend other people’s money and Kwarteng, and Truss, could be accused of playing “follow the leader”.
There are some discussions to be had on business expenditure on plant and machinery and how to take advantage of the reduction of NIC’s on earnings and dividends and the reduction to one higher rate of tax of 40% from 6 April 2023.