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Tax Bite - The "Mini-Budget"

Tax Bite - The "Mini-Budget"

The "mini-Budget" of 23 September, or Growth Plan as it was badged, was less mini than most had been anticipating in terms of tax announcements.

The reversal of the 1.25% increase in national insurance contributions was very much expected, and will take effect from 6 November this year. This will be joined in April 2023 by a 1% reduction in the basic rate of income tax (to 19%) on earned income and savings (one year earlier than planned), and an abolition of the additional rate of income tax (45%), meaning the highest rate of income tax for earnings and savings will be back at 40% for the first time since 2010. Similar cuts will take effect for dividends, with the abolition (from 6 April 2023) of the additional rate for dividends and the reversal of the 1.25% increase in dividend tax that accompanied the NIC increase. This will lower the highest rate of dividend tax from 39.35% to 32.5%

With tax cuts seemingly firmly on the government’s agenda, for the time being the prospect of a capital gains tax rate increase seems unlikely. Even with the income tax cuts there is still a significant difference between income tax at 40% (plus 2% employee NICs) versus 20% CGT or even 10% where business asset disposal relief applies.

There were a couple of announcements relevant to share plans and investment reliefs:

• For Company Share Option Plan (CSOP) options, the individual limit is being increased from £30,000 to £60,000 from April 2023 and there will be a relaxation around the classes of shares to which CSOP options can relate. CSOPs are (and will remain) less attractive than EMI options. They are often considered as an alternative to EMI options for companies who are not eligible for EMI, but the restrictions on share classes and the limits have often been an issue which means they are rarely a practical alternative – this is therefore a welcome change particularly if it means that growth shares can be used, which would further help with the limits. As ever the devil will be in the detail and we will keep you updated.
• The Seed Enterprise Investment Scheme (SEIS) limit on amounts companies can raise will increase from £150,000 to £250,000 from April 2023, as well as increases in the gross asset and age limits for the company, and the individual investor limit will increase to £200,000. As the income tax relief for SEIS investment is 50% (vs 30% for EIS), both investors and potential investee companies will have an eye on the relaxations taking effect from next April.

For businesses, the cancellation of the planned corporation tax rise in April 2023 (meaning corporation will stay at the current rate of 19%) was again expected. The permanent extension of the £1m capital allowances annual investment allowance (which was scheduled to drop to £200,000 from April 2023) will also be welcomed by businesses.

Finally in the category of things that most people (we think) were not expecting:

• The changes to the IR35 (off-payroll working) rules, which were introduced in the private sector only as recently as last year, are to be repealed from April 2023. There will be a mixture of relief and frustration for end-clients who will have incurred huge amounts of time and cost in ensuring compliance with the new rules.
• In a bid to step up its efforts to simplify the tax system, the government is to…abolish the Office of Tax Simplification.