Mini-budget 2022 – The Chancellor’s plan for growth

The chancellor Kwasi Kwarteng has revealed a growth plan setting out a new approach for the economy built around 3 core priorities. In this article we cover the key points.

The Chancellor has unveiled his Growth Plan to release the huge potential in the British economy by tackling high energy costs and inflation and delivering higher productivity and wages.

“We want businesses to invest in the UK, we want the brightest and the best to work here and we want better living standards for everyone.”

The new growth plan based on 3 core priorities includes:

• Reforming the supply-side of the economy.
• Maintaining a responsible approach to public finances
• Cutting taxes to boost growth.

National Insurance increase cancelled

The increase in Employer National Insurance Contributions and dividends tax to pay for a Health and Social Care Levy has been cancelled. And the interim increase in the National Insurance rate, brought in for this tax year will also be cancelled. This cut will take effect from November 6th 2022.

Income Tax

The basic rate of income tax will be cut to 19% in April 2023. This is one year earlier than planned, with 31 million people getting on average £170 more per year.

Corporation Tax rise cancelled

Corporation tax rise has been cancelled, keeping it at 19% as government sets sights on 2.5% trend rate of growth.

Reversing the tax rise will put £19bn a year back into the economy.

“Every additional tax on business is ultimately passed on to families through higher prices, lower pay or lower return on savings. We will have the lowest rate of corporation tax in the G20. Companies will be able to use this to reinvest, create jobs, raise wages, or pay dividends which support our pensions”

Dividends

In October 2021, legislation introduced in the Finance Bill 2021-22 to raise the rates of income tax applicable to dividend income by 1.25 per cent.

The dividend ordinary rate was set at 8.75 per cent, the dividend upper rate was set at 33.75 per cent and the dividend additional rate will be set at 39.35 per cent.

From April 2023:

• The dividend ordinary rate of 8.75% will reduce to 7.5%
• The dividend upper rate of 33.75% will reduce to 32.5% and…
• The dividend additional rate will be abolished.

As corporation tax due on directors’ overdrawn loan accounts is paid at the dividend upper rate, it will also reduce to a 32.5% charge for loans made on or after 6 April 2023.

These changes will also apply in Scotland as the rules on dividends apply to the whole of the UK.

Company Share Option Plan

From April 2023, qualifying companies will be able to issue up to £60,000 of Company Share Option Plan (CSOP) options to employees, twice the current £30,000 limit.

The ‘worth having’ restriction on share classes within CSOP will be eased, better aligning the scheme rules with the rules in the Enterprise Management Incentive scheme and widening access to CSOP for growth companies.

Annual investment Allowance

Companies investing in qualifying new plant and machinery are able to benefit from capital allowances, generally referred to as ‘super-deductions’. These reliefs are not available for unincorporated businesses.

The Chancellor also announced further relief for businesses by making the Annual Investment Allowance (AIA) £1 million permanently, rather than returning to £200,000 in March 2023.

This gives 100% tax relief to businesses on their plant and machinery investments up to the higher £1 million limit.

Seed Investment Enterprise Scheme

The Seed Enterprise Investment Scheme (SEIS) offers great tax efficient benefits to investors in return for investment in small and early stage startup businesses in the UK.

The scheme has been widened, including allowing firms to now raise £250,000 under the scheme, 66% per cent more funding than previously.

Driving economic growth through Investment Zones

As part of the government’s plan to drive economic growth and encourage development the Chancellor confirmed that Investment Zones will be established across the UK.

These zones will benefit from lower taxes and liberalised planning frameworks to encourage business investment.

The government is already in discussions with 38 local authorities to establish investment zones in England. In addition, it says it will work closely with the devolved administrations to offer the same opportunities in Scotland, Wales and Northern Ireland.

Businesses in designated areas in investment zones will benefit from 100% business rates relief on newly occupied and expanded premises.

In addition, businesses will receive full Stamp Duty Land Tax relief on land bought for commercial or residential development and a zero rate for employer NICs on new employee earnings up to £50,270 per year.

There will also be a 100% first year enhanced capital allowance relief for plant and machinery used within designated sites and accelerated Enhanced Structures and Buildings Allowance relief of 20% per year.

In addition to the time-limited tax benefits there will be designated development sites that will release more land for housing and commercial development in the zones. This is expected to reduce the need for planning applications.

Plans to help cut energy bills for businesses

On 21 September 2022 the government announced a new scheme, the Energy Bill Relief Scheme, which is designed to cut energy prices for non-domestic energy customers, such as businesses, charities and public sector organisations. The new scheme is in addition to the recently announced Energy Price Guarantee for households.

The scheme will apply to fixed contracts agreed on or after 1 April 2022 in addition to deemed, variable and flexible tariffs and contracts. Running for an initial six-month period, the scheme will apply to energy usage from 1 October 2022 to 31 March 2023.

Savings are expected to be first be seen in businesses’ October bills. Businesses are not required to take action or apply for the scheme, support will be automatically applied to bills.

The scheme will be reviewed in 3 months to reveal:

• How effective it has been in giving support to vulnerable, non-domestic customers.
• Which groups of non-domestic customers remain vulnerable to energy price rises.
• The extent to which the scheme could either be extended or further targeted.

Stamp Duty

Setting out the first steps towards growth, Kwasi Kwarteng revealed a package of major cuts to Stamp Duty Land Tax, with the changes expected to increase additional residential investment, boost spending on household goods and support the hundreds of thousands of jobs in the property industry from removals companies to decorators.

The nil rate band will be doubled from £125,000 to £250,000, meaning that 200,000 more people every year will be able to buy a home without paying any Stamp Duty at all.

The standard buyer in England will save £2,500, meaning a typical family moving into a semi-detached property will save £2,500 on stamp duty and £1,150 on energy bills – and if they have a combined income of £50,000 around an additional £560 on tax. This is around £4,200 in total.

The Government is going even further to support first time buyers, who will now pay no stamp duty up to £425,000, and increasing the value of the property on which first time buyers can claim relief, from £500,000 to £625,000.

This tax cut took effect from midnight today (Friday 23 Sept 2022). The Chancellor also announced that he will further support homebuyers by increasing the disposal of surplus government land to build new homes, increasing supply.

Residential rates may be increased by 3% where further residential properties are acquired. There is no change here.

“Cuts to stamp duty will get the housing market moving and support first-time buyers to put down roots. New Investment Zones will bring business investment and release land for new homes in communities across the country. And we’re accelerating new road, rail and energy projects by removing restrictions that have slowed down progress for too long.

Support for pubs & hospitality

Kwasi Kwarteng outlined sector specific support for pubs and hospitality, freezing alcohol duty for another year.

Reforms to modernise alcohol duties will also be taken forward and the government will publish a consultation on these plans. The new measures backing business come on top of the government’s Energy Bill Relief Scheme for businesses to cap costs per unit, which will protect them from soaring energy costs this winter by providing a discount on wholesale gas and electricity prices.

VAT-free shopping areas

The government will introduce a modern, digital, VAT-free shopping scheme with the aim of providing a boost to the high street and creating jobs in the retail and tourism sectors.

• Non-UK visitors to Great Britain will be able 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.
• The scheme will aim of providing a boost to the high street and creating jobs in the retail and tourism sectors.
• The delivery will include modernising the scheme that currently operates in Northern Ireland and introducing a new digital scheme in Great Britain.
• A consultation will gather views on the approach and design of the scheme, to be delivered as soon as possible.

Summary

The pound has fallen to a record low against the dollar as markets react to the UK’s biggest tax cuts in 50 years. Sterling fell close to $1.03 early on Monday before regaining some ground to stand at $1.08.

The Chancellor has promised more tax cuts on top of a £45bn package he announced on Friday amid expectations borrowing will surge.

Over the next few weeks, the Government will set out further details of plans to speed up digital infrastructure, reform business regulation, increase housing supply, improve our immigration system, make childcare cheaper, improve farming productivity and back our financial services.

Many are predicting that the Bank of England will call an emergency meeting to raise rates and calm high inflation.