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Not so ‘mini’ a mini-Budget

Major tax changes have been announced in last Friday’s fiscal event.  These changes will impact almost all individuals and businesses in the UK. 

The big headline grabbers are the reductions to income tax and National Insurance contributions.  However, the big (welcome) surprise of the day for many taxpayers will be the repeal of the off-payroll working (IR35) changes from 2017 and 2021.

The SDLT relief for residential development will be of particular interest to major housebuilders, as will the scrapping of the 2021 IR35 rules and the corporation tax rate cut. The major changes for corporate taxpayers are explained briefly below:

Cancellation of the planned increase in the rate of corporation tax

Corporation tax had been due to rise to 25% for most companies from 1 April 2023.  The government will now instead maintain the 19% rate.  This is with the aim of keeping the UK a competitive hub for investment, innovation, and economic growth.

A planned increase to the rate of diverted profits tax (DPT) has been abolished to retain a 6% rate differential between corporation tax and DPT.  In line with this, from 1 April 2023, banks and building societies were due to pay a reduced surcharge on profits, to take into account the higher rate of corporation tax.  This has also been scrapped.  The residential property developer tax remains at 4%.

Reduction in stamp duty land tax (SDLT)

From 23 September 2022, SDLT on residential house purchases in England and Northern Ireland will be reduced:

First time buyers

Previous threshold at which SDLT was payable New threshold at which SDLT is payable Previous maximum value of a property on which first-time buyers’ relief could be claimed New maximum value of a property on which first-time buyers’ relief could be claimed
£300,000 £425,000 £500,000 £625,000

Existing home-owners and businesses

Previous threshold at which SDLT was payable New threshold at which SDLT is payable
£125,000 £250,000

Reversing previous amendments to the off-payroll working rules

From 6 April 2023, changes introduced in 2017 and 2021 in relation to the off-payroll working rules (IR35) will be reversed. Those changes shifted responsibility for determining employment status to the organisations that engage contractors, first in relation to the public sector (in 2017) and more recently in relation to larger employers in the private sector (in 2021).

This means that workers providing their services via a personal services company or other intermediaries will again be responsible for determining their employment status, as well as paying the appropriate amount of tax and National Insurance Contributions.  This is a surprising move, but it will be welcomed by businesses and contractors alike. However, it is in some senses frustrating that it has only come now that many taxpayers have already incurred time and expense in adjusting their internal processes in order to comply with the recent changes.  These processes may need to be reviewed again in light of the upcoming repeal.

The annual investment allowance (AIA) remains at £1 million

Governments have tinkered with the level of the AIA many times in recent years, with the aim of stimulating investment by allowing for more generous tax relief than usual for certain types of capital expenditure.  The temporary £1 million level of the AIA was due to reduce to £200,000 but has instead been made permanent.

Extending tax schemes to encourage investment and employee incentivisation

The government has also announced that it is widening the availability of the Seed Enterprise Investment Scheme (SEIS) and Company Share Option Plans (CSOP), as well as committing to extending the EIS and VCT schemes beyond the “sunset” clauses that would otherwise take effect in 2025.

SEIS

From April 2023, the following changes will be implemented to extend SEIS:

  • companies will be able to raise up to £250,000 of SEIS investment;
  • the gross asset limit will be increased to £350,000 and the age limit from 2 to 3 years; and
  • the annual investor limit will be doubled to £200,000

CSOP

From April 2023, the following changes will be implemented to extend CSOP:

  • qualifying companies will be able to issue up to £60,000 of CSOP options to employees (this is double the current limit); and
  • the condition that share classes within CSOP must be “worth having” will be eased.  This brings the CSOP rules more in line with the enterprise management incentive (EMI) scheme rules.

Investment Zones

Investment zones (located in areas that the government aims to “Level Up” will benefit from extensive tax incentives for ten years to encourage local investment:

  • 100% relief from business rates on newly occupied business premises, and for the expansion of certain existing businesses in Investment Zone tax sites;
  • 100% first year allowances for qualifying expenditure on plant and machinery assets for use in tax sites;
  • enhanced structures and buildings allowance, allowing for deductions at a rate of 20% of the cost of qualifying non-residential investment per year against their taxable profits;
  • employer NICs relief on salaries of any new employee working in the tax site for at least 60% of their time, up to £50,270 per year;
  • full SDLT relief for land and buildings bought for use, development, or for commercial purposes; and
  • full SDLT relief for purchases of land or buildings for new residential development

Continued review of the Research and Development (R&D) tax reliefs

The government is continuing to review potential reforms to these valuable reliefs and further reforms may be announced in future Budgets.

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