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Mini budget changes – IR35 and tax cuts
The chancellor (Kwasi Kwarteng) announced the government’s mini-budget on 23d September 2022.
Mini-budget – Summary of Key changes
Here are some of the key changes from the mini budget announced on Friday and how they may impact you as a business owner and your clients:
Income Tax/ NI reduction
It was announced at the mini budget that the rate of income tax will be reduced by 1% a year ahead of schedule from April 2023. The reduction of 1% will mean the average worker will save a penny per pound earnt.
‘The 45% additional’ rate income tax bracket will also be abolished, so individuals earning above £150,000 will move down to a 40% tax rate, a 5% savings in income tax.
Kwasi Kwarteng confirmed the temporary NI increase of 1.25% that is currently in place is to discontinue from November 2022. The planned NI increase of 1.25% under the Health and Social Care Levy has also been scrapped.
The tax rates on dividends will also be adjusted as follows:
- Ordinary rate of 8.75% will reduce to 7.5%;
- Upper rate of 33.75% will reduce to 32.5%;
- Additional rate will be abolished.
This is a reversal of the 1.25% increase implemented earlier this year in April,
Dividend income is typically declared on a Self-Assessment tax return because it is distinct from what is earned through PAYE.
Effective: April 2023
Most business owners pay themselves a combination of salary and dividends. Thus, they are likely to benefit from the reduction in taxes.
Ex-Chancellor Rishi Sunak announced companies with larger profits will be taxed up to 25% from April 2023, an increase from the current 19%.
These proposed increases to corporation tax have also been reversed in the September 2022 mini budget. This is to incentivise investment and enterprise. To encourage businesses to create jobs and increase investment in the UK.
IR35 Legislation for Contractors
This is potentially where many HR consultancy businesses will benefit. The tightening of the IR35 legislation saw a 30% drop in income for some contractors. Businesses were responsible for determining whether contractors were within the scope of IR35 or outside of it. Most organisations brought consultancy work inside of scope of IR35 to simplify things and for the fear of breaking the rules.
However, with the repeal, Medium-Large sized companies are no longer obliged to conduct their own due diligence checks on employment status.
This is likely to boost the contract and consultancy markets significantly. However, the duty to ensure employment is not disguised under a Limited Company (a ‘Personal Service Company’) remains on the contractor himself.
The decision to reverse this responsibility on Medium-Large enterprises is to free up time and money to focus on business.
Effective: April 2023
Other news in the business sector
Start-up companies will now be able to raise up to £250,000 under the Seed Enterprise (SEIS) scheme that gives tax relief to investors. From April 2023 the criteria for entry has been widened, meaning more companies are eligible.
The amount of shares that can be optioned to employees under the Company Share Option Plan (CSOP) has been doubled from £30,000 to £60,000. This increase will be introduced from April 2023
Author: Mary Asante | HRi Director