Fiscal Event Update
Published: 23/09/2022 17:59
On 23 September 2022 Chancellor of the Exchequer, Kwasi Kwarteng, held a fiscal event where he announced his new Growth Plan for the UK.1 The Institute of Fiscal Studies have said the measures announced represent the biggest tax cut of any budget since 1972.2 Some of the measures will have immediate effect, some take effect in November and others will take effect from 6 April 2023.
Of relevance to individuals and small business owners the changes announced were as follows:
- The higher rate of income tax at 45% will be reduced to 40% from April 2023.3 As the lower rate will only take effect from April, we may see some employers deferring employee bonuses to April to enable the employees to benefit from the lower rate. This would mirror what we saw when the rate dropped from 50% to 45% in 2013/14. The Office of National Statistics found that the finance and insurance industries paid a total of £1.3bn in bonuses in April 2013 compared with 0.6bn a year earlier.4 If bonuses are being deferred then the income for the year may look lower than the reality.
- Also of note is that Scotland are devolved for taxes and their top rate of income tax is 46%. At the time of writing the Scottish government had not confirmed if they would be lowering their tax rates in line with the Chancellors announcement.
- The basic rate of income tax will be reduced from 20% to 19%5 from April 2023. Again the same comments apply regarding Scotland.
- National insurance contributions.6 The NIC rates had been increased by 1.25% for employees and this will be reversed from November 2023. This means employees will receive slightly higher pay from November onwards. There was a planned employer NIC increase of 1.25% from April 2023, this will be reversed.
- Dividend Tax. The planned 1.25% increase in dividend tax rates from April 2023 will be reversed.
- Corporation Tax Rate.7 This was due to increase to 25% from April 2023 (for companies with profits of over £250,000). This will remain at 19%.
- IR35. These rules will be repealed from 6 April 2023. This means that for individuals working as contractors it will once again be the individual who is responsible for determining their employment status and not the end company. This may see more individuals undertaking work as self employed rather than employed to benefit from the tax savings available.
- Stamp duty land tax.8 Effective from 23 September 2022 the SDLT threshold will be £250,000. First time buyers will only pay SDLT on property purchases over £450,000. Note this is for England and Northern Ireland. Scotland and Wales are devolved for stamp duty land tax.
- Bankers bonus cap. The cap on bankers bonuses will be removed.
Conclusions relating to family breakdown
The clearest observation to be made about these changes is that income projections for divorcing couples for April 2023 onwards will need to be updated. There may also need to be some considerations given to potential creative accounting in the deferral of bonuses. Additionally the costs for housing needs will need adjusting to reflect the higher stamp duty land tax thresholds.