Reversal of tax cuts
The new Chancellor’s statement on 17 October 2022 cancels most of the tax changes that were announced in the mini budget. The Government had already cancelled measures to abolish the 45% additional rate of income tax and freeze the main rate of corporation tax at 19%.
Of the tax changes announced in the mini-budget, all that remain are:
- The reversal of the National Insurance contributions rates increase and cancellation of the Health and Social Care Levy.
- Cuts to Stamp Duty Land Tax.
- Permanently setting the Annual Investment Allowance (AIA) at £1 million from April 2023. The AIA is a capital tax allowance for certain investments in plant and machinery.
- Increases to Seed Enterprise Investment Scheme limits and reforms to Company Share Option Plan.
On 14 October, when the freeze to the main rate of corporation tax was cancelled, the Treasury said that the position on the bank surcharge would be set out in the medium-term fiscal plan on 31 October 2022. The surcharge is levied on top of corporation tax. The mini-budget said that the bank surcharge would remain at 8% when the corporation tax main rate was set to remain at 19%, so that the combined rate paid on profits by banks and building societies would be 27%. With corporation tax now increasing to 25% unless the surcharge is reduced the combined rate paid on profits by banks and building societies would be 33%.
The Treasury estimate that all together the decisions taken to cancel the mini budget’s tax policies are worth around £32 billion a year for the Treasury’s revenues.
The Chancellor’s 17 October statement means that:
- the basic rate of income tax will no longer be reduced from 20% to 19% in April 2023.
- dividends tax won’t be reduced by 1.25%-points in April 2023.
- reforms to off-payroll working rules will not be repealed.
- there won’t be a new VAT-free shopping scheme for non-UK visitors; alcohol duty rates won’t be frozen from February 2023 for a year. All of these policies had been announced in the mini budget.
- the Energy Price Guarantee (EPG) will now run until April 2023. A Treasury-led review will be launched to consider how to support households and businesses with energy bills after April 2023.
- An economic advisory council is being established, acting as a consultative forum for the government to be advised on economic matters and financial markets.
What it means for you?
The hope now is for some stability and certainty in the months ahead, which is what we all need to be able to plan and take decisions for the future.
This is what we can potentially rely on going forward:
- The cost of living crisis is going to bite hard over the winter.
- It is important to keep an eye on your business’s cash going forward.
- The cost of borrowing is going to increase as interest rates increase.
- It will be harder to get access to finance.
- The turmoil will bring opportunities for business owners who are managing their finances carefully and prepared to be bold and take good decisions.
The Chancellor said that there would be “more difficult decisions to take on both tax and spending”. More announcements are to come on 31 October, when the medium-term fiscal plan is published.
For full details please read our Reversal on Emergency Budget 2022 Factsheet. If you need any help or advice in the meantime, please contact us.