On Friday 23rd September 2022, the newly elected chancellor Kwasi Kwarteng announced his mini budget, which included a string of tax cuts. The announcement has drawn a lot of media attention but what does this mean for businesses?
National Insurance
The National Insurance increase will be reversed from 6th November as part of the government's "pro-growth agenda". A government statement says that 920,000 businesses are set to save almost £10,000 on average next year and will see a cut in National Insurance bills, with 20,000 taken out of paying National Insurance entirely due to the Employment Allowance, which rose in April 2022 from £4,000 to £5,000.
Many small and medium businesses (SMEs) — who employ over 13 million people in the UK — will see a cut to their National Insurance bills. Next year this will be worth £4,200 on average for small businesses and £21,700 for medium-sized firms who pay National Insurance. In total, the government said, 905,000 businesses will benefit from 2023–2024. The increase was introduced as a way of funding the Health and Social Care levy which sought to support the NHS after the pandemic. However, this will now be funded through government borrowing.
Energy Bills
The mini-budget may also expand on the Energy Bill Relief Scheme for businesses, designed to cut energy costs in half for companies by providing them with a discount on wholesale gas and electricity prices. Under the scheme, the government will provide a discount on wholesale gas and electricity prices for all UK businesses for a six-month period from 1st October 2022, which they say will be “less than half the wholesale prices anticipated this winter”. Businesses do not need to contact suppliers as the discount will automatically be applied to their bills.
Kate Shoesmith, deputy CEO, Recruitment & Employment Confederation said: “We greatly welcome the government’s Energy Relief Scheme which will cut prices for business as well as other non- domestic organisations for six months. This will provide a much-needed life line for many small businesses in particular. Although this is much needed relief, as we have said to the chancellor, Kwasi Kwarteng in our budget submission, businesses need longer-term stability at a time of economic uncertainty.”
This temporary six-month scheme will protect businesses and other nondomestic energy users, including charities and public sector organisations, from rising energy bills this winter by providing a discount on wholesale gas and electricity prices.
A parallel scheme will be established in Northern Ireland that will be based on the same criteria and offer comparable support, whilst recognising the different market fundamentals. The government said it will reduce barriers caused by unnecessary and excessive regulations to allow businesses to realise their potential. Later this autumn, the government will bring forward a set of regulatory changes to support higher economic growth.
IR35
IR35 is an off-payroll working rule that can apply to a worker (sometimes known as a contractor) that provides their services through their own limited company or another type of intermediary to the client.
The Chancellor announced a simplification to IR35, namely that the reforms made in 2017 and 2021 will be repealed from April 2023. Meaning, from April 2023, contractors will once again be responsible for determining their employment status and paying the right amount of tax.
In 2021, responsibility for working out IR35 status was shifted from the contractor to the client (for medium and large-sized businesses). The change in the private sector mirrored reforms that were introduced in the public sector in 2017. So once again become solely the responsibility of the contractor, not the engager, to determine whether or not their work comes under IR35. The contractor will determine if their work should be taxed as employment income and will be responsible for paying any additional tax and NI.
The chancellor said that the government is scrapping the off-payroll working reforms because they’ve “added unnecessary complexity and cost for many businesses”.
Corporation Tax
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. This will mean changes to calculations for the super-deduction, due to be announced at a later date. The super-deduction is the 130% first-year capital allowance for qualifying plant and machinery assets and 50% first-year allowance for qualifying special rate assets. Corporation tax will remain at the rate of 19 per cent.
Income Tax
The basic rate of income tax has been cut by 1p to the pound. As chancellor, Rishi Sunak had promised this by 2024, but today’s announcement brings this forward to April 2023. This means people will pay 19p (down from 20p) to the pound on everything they earn between £12,571 and £50,270. It’s the first time the basic rate of income tax has been reduced since 2008-09 and it’s estimated to be worth a combined £5 billion (or £170 each) to 31 million taxpayers.
The current top rate of Income Tax - the additional rate levied on income of £150,000 or higher at 45% in all parts of the UK except for Scotland where it is 46% - will be abolished from April 2023 in England, Wales and Northern Ireland. This means that the top rate of Income Tax after that date in those parts of the UK will be the higher rate of 40%.
It is unclear if a further autumn budget will be released in the coming months, but if so we will again provide a summation of the main headlines relating to UK businesses.
If you area business owner and feeling unsure about your future business plans and would like to speak to a finance specialist, contact us today by calling 0800 1695036 or make an enquiry here.