U-turn on the mini budget - easy digest
The Chancellor announced a U-turn on many of the changes outlined in the mini-budget on Monday but what does this mean for you and your business? We have highlighted the main changes below.
Company Tax changes:
Corporation tax rate change:
In 2021 it was announced corporation tax rates were due to increase from 19% to 25% in April 2023. It was then announced in the mini-budget on 23rd September 2022 that the tax rate would remain at 19% for all companies. As part of the budget U-turn, however, the original plan to increase corporation tax rates has been reinstated and means that companies with a taxable annual profit of more than £250,000 will be subject to an additional 6% tax due on profits. This means for a company with a taxable profit of £300,000 the additional tax which will be due is approximately £18,000.
Example at 19%:
£300,000 taxable profits
£57,000 tax due at 19%
Example at 25%:
£300,000 taxable profits
£9,500 tax due at 19% on first £50,000 profits
£53,000 tax due at 26.5% (Marginal rate of tax) on profits between £50,001 and £250,000
£12,500 tax due at 25% on profits in excess of £250,000
£75,000 total tax due at higher rate of tax
The increase in the Annual Investment Allowance to £1 million, however, is still set to remain in place.
Personal Tax changes:
Income tax rates:
The basic rate of tax (on earnings from £12,571 to £50,270 for 2022/2023 tax year) was set to decrease from 20% to 19% from April 2023 following the mini-budget, however this has been scrapped as part of the U-turn meaning the rate will remain at 20%.
In addition, it was announced in the original mini-budget that the 45% additional higher rate of tax for those currently earning over £150,000 per annum would be scrapped and earnings in excess of £50,270 would be taxed at a single rate of 40%. However, this was scrapped on the 3rd October meaning those earning in excess of £150,000 will still be subject to the 45% additional higher rate of tax.
Dividend tax rates:
It was announced in the mini-budget that the dividend tax rates would be reduced back to pre-April 2022 rates from April 2023. However, this was reversed by the new chancellor on Monday meaning dividend tax rates remain at the following:
Basic rate (earnings between £12,571 and £50,270) – 8.75%
Higher rate (earnings between £50,271 and £150,000) - 33.75%
Additional rate (earnings over £150,000) – 39.35%
The proposed dividend tax cut would have meant that dividend tax rates would have decreased to the following:
Basic rate (earnings between £12,571 and £50,270) – 7.5%
Higher rate (earnings between £50,271 and £150,000) – 32.5%
Additional rate (earnings over £150,000) – 38.1%
National insurance rates:
The reversal of the 1.25% increase in national insurance will still go ahead from 6th November 2022 bringing national insurance rates back in line with previous national insurance rates.
Stamp Duty Land tax:
The plan to increase the threshold on which no Stamp Duty Land Tax is paid on a property is still going ahead meaning that no stamp duty is due on the first £250,000. This is along with the increase in the threshold for first-time buyers meaning they don’t start paying stamp duty for the first £425,000.
Other policy changes announced that maybe of interest:
Reforms to the Off-Payroll Working (OPW) rules introduced in the public and private sectors in 2017 and 2021 were set to be reformed from April 2023 in order for companies to no longer be responsible for ensuring contractors were paying the correct amount of tax. However, this has been reversed in the chancellor’s announcement meaning companies will remain responsible for ensuring contractors are paying the correct amount of tax.
The proposed freeze to Alcohol Duty rates from 1 February 2023 was also scrapped in the U-turn.
The plans to introduce a new VAT-free shopping scheme for non-UK visitors has also been scrapped.
If you require any advice or guidance on any of the changes please do not hesitate to contact the team at BSN.