A rose by any other name would smell as sweet – and the same could be said for certain taxpayers and would-be investors listening to what was perhaps, in all but name, a Budget this morning. Given the unusual timing and the lack of the usual accompanying technical papers, the government instead chose to gather this morning’s announcements under the title “Growth Plan 2022”, reflecting the current cabinet’s agenda to stimulate growth via tax cuts and investment incentives rather than (perhaps more traditionally) increasing public revenue via raising taxes and reducing reliefs.
On the other hand, despite the range of policy announcements, the signs that this was not a traditional Budget were apparent; the announcements were largely focused on straightforward tax rate reductions or increases in investment allowances or reliefs, rather than any nuanced technical amendments – the exception being the reversal of the IR35 reforms, which stands out as an unanticipated regime change.
The tax cuts announced are significant, both for companies and individuals, and may affect structuring decisions and, more generally, taxpayers’ appetite for investment, working or living in the UK. It remains to be seen whether headline tax cuts will increase the pressure upon HMRC to increase its focus on compliance activities, closing the gap between the amount of tax actually collected and official perceptions of the amount that ought to be collected.
Cancellation of planned corporation tax increase
The planned increase in UK corporation tax from 19% to 25% that was due to take place in April 2023 will not now go ahead. At 19% the UK corporation tax rate is lower than the rest of the G7 and the lowest in the G20.
The scheduled change to the rate of the bank corporation tax surcharge will be cancelled, to reflect the cancellation of the increase in the corporation tax rate. From April 2023 banks and building societies will continue to pay an additional 8% rate of tax on their profits, rather than the reduced 3% rate, leading to a combined rate of 27%.
Cancelling the increase in the rate of Diverted Profits Tax
The rate will now remain as 25%, in order to retain the 6% differential as compared to the corporation tax rate.
Lowering the basic rate of income tax and abolishing the additional rate
Cuts to the highest and lowest rates of personal income tax have been announced:
- the basic rate of income tax will be reduced from 20% to 19% from April 2023, one year earlier than planned by previous Chancellor Rishi Sunak; and
- the additional rate of income tax (45%) for taxpayers with an annual taxable income of over £150,000 will be abolished from April 2023. It has also been confirmed that former additional rate taxpayers will benefit from the £500 Personal Savings Allowance currently available for higher rate taxpayers.
Reversal of the Health and Social Care Levy
Class 1 and Class 4 NICs will be reduced by 1.25% from 6 November, therefore removing the temporary 1.25% increase for the rest of the 2022-23 tax year. The proposed introduction of the 1.25% Health and Care Levy as a separate tax from April 2023 has also been cancelled.
Reversal of the dividend tax increase
From 6 April 2023 the 1.25% increase in dividend tax rates will be reversed. (The ordinary and upper rates of dividend tax will be reduced to 7.5% and 32.5% respectively, with income that was previously chargeable at the additional rate now being chargeable at the upper rate).
Various SDLT changes will immediately be made, with the stated aim of reducing the tax burden on homebuyers (especially first-time buyers).
From the date of the announcement (23 September 2022), the 0% residential SDLT threshold will be doubled, from £125,000 to £250,000; for first time buyers of qualifying homes, the 0% threshold will increase from £350,000 to £400,000. The maximum value of a property on which first-time buyer’s relief can be claimed will increase from £500,000 to £625,000.
Alcohol duty reform
The duty rates for all categories will be frozen from 1 February 2023.
Adjusting super-deduction rules
Technical amendments will be made with a view to ensuring that super-deduction continues to operate as intended following the retention of the 19% corporation tax rate.
Annual Investment Allowance (AIA)
The ‘temporary’ increase in the AIA to £1 million has been made permanent, allowing businesses to deduct the full value of qualifying items up to that sum each year. The AIA was due to fall back to £200,000 on 31 March 2023.
Increasing access to the Seed Enterprise Investment Scheme (SEIS)
From April 2023, a package of measures will allow more companies to access the SEIS, and increase the funding available under the scheme:
- the investment limit for issuing companies will be raised from £150,000 to £250,000;
- the gross asset limit for issuing companies will be increased from £200,000 to £350,000;
- the age limit will be raised from 2 to 3 years; and
- the annual investor limit (on which investors may claim up to 50% income tax relief) will be doubled, from £100,000 to £200,000.
A more generous Company Share Option Plan (CSOP) regime
The limit on the value (determined at the date of grant) of options which an employee may hold under a CSOP will double from 1 April 2023, from £30,000 to £60,000.
The ‘worth having’ restriction on share classes which may be issued as part of a CSOP (which applies where a company has more than one class of share) will also be ‘eased’, in order to align the rules with those for the Enterprise Management Incentive scheme.
Introduction of new ‘investment zones’
As part of the Growth Plan’s ambition to ‘drive growth and unlock housing across the UK’, the government will introduce new investment zones across the UK, which will be granted certain tax benefits alongside other advantages related to planning and development.
Such tax benefits will be time limited, but have been confirmed to include the following, for businesses in designated areas within investment zones:
- 100% business rates relief on newly occupied and expanded premises;
- 100% SDLT relief on land bought for commercial or residential development;
- a zero rate for Employer NICs on new employee earnings, up to £50,270 per year;
- 100% first year enhanced capital allowance relief for plant and machinery used within designed sites;
- accelerated Enhanced Structures and Buildings Allowance relief of 20% per year.
This package of benefits is clearly inspired by those offered to ‘freeports’, which were introduced at the Budget in Autumn 2022.
Repealing off-payroll working reforms
In a surprising development, it has been announced that the 2017 and 2021 reforms to the off-payroll working rules (known as IR35) will be repealed from 6 April 2023. From that date, workers providing services via an intermediary, such as a personal service company, will again be responsible for determining their employment status and accounting for tax and NICs accordingly.
VAT free shopping
A new digital VAT free shopping scheme will be introduced, enabling non-UK visitors to Britain to obtain a VAT refund on goods bought in the high street, airports and other departure points and exported from the UK in their personal baggage.