The Chancellor Kwasi Kwarteng, unveiled major changes to tax and National Insurance in the mini-budget on 23 September 2022. In many respects the mini-budget was far from mini!  The announcements will pack a powerful punch for small business owners.

Here are the key changes:

National Insurance rate increase reversed

In April 2022 the rates of National Insurance (NI) increased by 1.25% for one year and the plan was to replace this increase with a Health and Social Care Levy from April 2023.

This 1.25% increase will be reversed from 6 November 2022 and the Health and Social Care Levy will no longer be introduced as planned.

This means that from 6 November 2022, NI rates will revert to:

•    Class 1 Employee’s NI (for most employees): 12% 
•    Class 1 Employer’s NI: 13.8%
•    Class 4 NI for the self-employed: 9%

Employees whose NI is calculated on a monthly basis will see the changes take effect from their first salary payment after 6 November. 

Increase in tax rate on dividends reversed

In April 2022, the rate of Income Tax charged on dividend income was also increased by 1.25%.

This will be reversed from April 2023, so that dividends will once again be taxed at 7.5% and 32.5% for basic-rate and higher-rate taxpayers respectively.

Cancellation of Corporation Tax rise

The rate of Corporation Tax was planned to increase to 25% from April 2023, but this rise has been cancelled. The rate of tax paid by limited companies on their profits will therefore remain at 19% for the foreseeable future.

Changes to Income Tax rates

The current top rate of Income Tax – the additional 45% rate levied on income of £150,000 or higher – will be abolished from April 2023. This means that all annual income above £50,270 will be taxed at 40%, the current higher rate of Income Tax.

The basic rate of Income Tax will also be cut from 20% to 19% from April 2023. 

Annual Investment Allowance permanent level set at £1m

From April 2023 the limit for the annual investment allowance was set to fall back to £250,000 a year but this will now be set permanently at £1m.

IR35 to be simplified

The Chancellor announced a simplification to IR35, namely that the reforms made in 2017 and 2021 will be repealed from April 2023. This means that it will once again become solely the responsibility of the contractor, not the engager, to determine whether or not their work comes under IR35. 

Summary

The reaction to this mini-budget has been mixed, with claims that over half of the cuts made by the Chancellor will only benefit the top five per cent of earners. However, for the majority of business owners, the changes will come as welcome relief within the landscape of high inflation, growing utility bills and ever-increasing interest rates.  The tax changes are aimed at generating sufficient growth to offset the tax the Chancellor has given up.  He has also hinted that there may be 
more tax reductions to come.

If you have any questions on what all this might mean for your business, please email us at enquiries@perrigoconsultants.co.uk