The growth plan 2022 – what you need to know

The main basic rate of income tax will be cut from 20% to 19% from 6 April 2023, 12 months earlier than previously announced.

And in a surprise move, the additional rate of income tax – which applies on incomes above £150,000 – will be abolished from 6 April 2023. The highest rate of income tax will now therefore be 40%, and current additional rate taxpayers will benefit from the personal savings allowance of £500.

The 1.25% increase in dividend tax rates in 2022/23 will be reversed from 6 April 2023. Given the abolition of the additional rate of income tax, this will reduce the dividend tax rates to a basic rate of 7.5% and a higher rate of 32.5%.

There will be a four-year transition period for Gift Aid purposes to maintain income tax relief on charitable donations at 20% until April 2027. There will also be a one-year transitional period to allow pension schemes to continue to claim tax relief at 20% on contributions paid by members.

Moore Kingston Smith comment

The reduction in the basic rate of income tax will provide a welcome annual saving for many. However, as income tax thresholds are currently frozen until 2026 fiscal drag will offset the benefits of this and mean an increasing number of people will be pushed into the higher-rate tax band.

The removal of the additional income tax rate will deliver significant tax savings to the highest earners and ultimately is intended to encourage growth throughout the economy. Those who take dividends – and others who can control the timing of their earnings – will now be considering the merits of delaying income until 6 April 2023 to benefit from these changes.

Employees and employers

The rates of employee’s and employer’s national insurance contributions (NICs) were increased by 1.25% in April 2022, ostensibly to fund health and social care. The rates were due to return to 2021/22 levels from April 2023, at which point a new 1.25% health and social care levy (which was also due to apply to individuals working above state pension age) was due to take effect.

The government has now announced that the increases will be reversed from 6 November 2022. In addition, the new health and social care levy has been cancelled. The primary threshold for NICs was increased in July 2022, and this increase will remain in place.

For an employee earning £30,000 per annum, this cut is worth approximately £18 per month, whilst an employee earning £100,000 per annum will save around £91 per month.

NICs paid on benefits in kind and expenses will, in 2022/23, be at a blended rate of 14.53%. Company directors are assessed to NICs on an annual basis, and blended rates will also be used in calculating their liabilities.

Self-employed

The rates of class 4 NICs, which apply to self-employed workers, had also been increased by 1.25% from the 2022/23, to 10.25% and 3.25%. These rates will now be amended to 9.73% and 2.73%.

Moore Kingston Smith comment

These changes are good news for employees, employers and self-employed individuals alike. Employers will want to review their reward strategy – including the timing of bonus payments for employees – in light of these changes. They will also need to make sure that their payroll software can be properly updated in time for their November 2022 payroll runs.

The Chancellor announced the following immediate changes to stamp duty land tax (SDLT) on the purchase of residential property:

• The threshold above which SDLT first becomes payable on standard residential property transactions (i.e. where first-time buyer’s relief is not available, where neither the 3% surcharge for additional properties nor the 2% surcharge for non-resident purchasers apply etc.) has increased from £125,000 to £250,000. From now on, where these standard rates apply, the first £250,000 of chargeable consideration will be free of SDLT, with the rate on consideration between £250,000 and £925,000 remaining at 5%.
• The maximum property value on which first-time buyer’s relief is available has increased from £500,000 to £625,000. Where this relief is available, the threshold above which SDLT first becomes payable has increased from £300,000 to £425,000, with anything above this amount attracting SDLT at 5%.

Moore Kingston Smith comment

This measure will, on the face of it, benefit practically all purchasers of residential property. Over time, these changes may well be reflected in property prices but, for now, there will be savings for any purchasers of residential property costing more than £125,000. Those subject to the various surcharges that apply to SDLT on residential property will also benefit from the reductions, meaning that in all cases the SDLT liability on a purchase costing more than £250,000 will fall by at least £2,500.

First-time buyers will benefit to a greater extent. Those buying a property for £500,000 will see their SDLT liability fall from £10,000 to £3,750, whilst those buying a property for £625,000 will now qualify for relief for the first time and will see their SDLT liability fall from £21,250 to £10,000.

The current off-payroll working rules were introduced in 2017 for public sector organisations and in 2021 for medium and large private sector organisations. Organisations subject to the rules are responsible for determining the employment status of contractors that provide services to them through personal service companies and – if these contractors are working as if they were employees – for ensuring PAYE and NICs are accounted for on this basis.

The rules entail various onerous administrative requirements, including those relating to communicating status decisions and dealing with status disputes. From 6 April 2023, these rules will be repealed, and once again the personal service companies will be responsible for determining employment status and for ensuring they pay the correct amount of tax to HMRC.

Moore Kingston Smith comment

This announcement will be welcome news amongst organisations that rely on a contractor workforce, for whom the rules have presented a significant challenge over the past few years. The burden of compliance is now back with the contractors and their personal service companies. This may well lead to an increase in the use of contractors by organisations seeking a flexible workforce, given the burden of tax risk has shifted away from them (although they will need to bear in mind their responsibility not to facilitate tax evasion). The change will make it more difficult for HMRC to enforce compliance (which was one of the main reasons for the introduction of the off-payroll working rules in the first place).

Organisations subject to the off-payroll working rules will need to continue to apply the rules until 5 April 2023.

The Chancellor confirmed rumours that the planned increase in the rate of corporation tax from 19% to 25% from 1 April 2023 will be cancelled. This increase was due to apply to companies making profits of more than £250,000 but the current single rate of 19% will be retained. Companies that have reflected the increase in calculating their deferred tax assets or liabilities in their financial statements will need to reverse this at the appropriate time.

In line with this, the surcharge on banking companies will remain at 8% and will not be reduced to 3% as planned, meaning their corporate tax rate will remain at 27%. The proposed increase in the banking surcharge allowance from £25m to £100m will go ahead as planned. The rate of diverted profits tax was due to increase from 25% to 31% but will now remain at 25%.

Moore Kingston Smith comment

This will be welcome news for many businesses that were concerned about the proposed increase. It also keeps things simple by maintaining one single rate of corporation tax. This measure keeps the UK’s rate of corporation tax at the historic low at which it has been since 2017. It is comfortably the lowest rate in the G7 and also the lowest in the G20.

You can view our downloadable Tax Facts 23/24 document here.

The annual investment allowance (AIA) – which gives businesses a 100% first-year write-down for qualifying capital expenditure – is currently set at £1 million. This was due to fall to the ‘permanent’ level of £200,000 from 1 April 2023. However, the Chancellor has announced that it will remain at £1 million, which is to become the new permanent level for this allowance.

Moore Kingston Smith comment

The ability for businesses to claim 100% relief on up to £1 million of qualifying expenditure on a recurring annual basis is welcomed, particularly as the current temporary 130% super-deduction for qualifying expenditure will no longer be applicable after 31 March 2023. This measure, in conjunction with the cancellation of the corporation tax increase, should provide businesses with increased certainty and facilitate planning for investment and growth as intended. In particular, this measure should reduce the pressure on businesses to stretch budgets and cash flow to advance capital expenditure before 31 March 2023 in order to maximise tax relief.

The government is in discussions with 38 local authorities to establish investment zones. These will aim to drive rapid development and business investment in particular areas through a package of benefits.

The following tax incentives are intended to be available to businesses operating within investment zones in England (with work being done to achieve similar incentives elsewhere in the UK):

• 100% relief from business rates for newly occupied premises.
• Full SDLT relief for land acquired for development or for commercial use.
• 100% first-year capital allowances on the acquisition of qualifying plant and machinery.
• An annual 20% rate of structures and buildings allowance (in contrast to the standard rate of 3%) for the cost of qualifying non-residential structures and buildings.
• Relief from employer’s national insurance contributions for earnings of up to £50,270 per annum for new employees working for at least 60% of their time in the area.

Moore Kingston Smith comment

These measures are similar to those introduced for Freeports in the March 2021 Budget.  Whilst the positive impact of the Freeport measures has yet to be proven, it is hoped that the new incentives being introduced for the designated investment zones will drive the intended economic activity and thereby create essential housing and new commercial development.

The Chancellor has confirmed that the government remains supportive of the enterprise investment scheme (EIS) and venture capital trusts (VCT).  Under the legislation as it currently stands, the tax reliefs associated with these schemes will come to an end in 2025. Although we do not yet have the full details, we now know that the Chancellor sees value in extending them in the future.

Moore Kingston Smith comment

The EIS and VCT schemes provide tax incentives to those that make certain types of investment. Many businesses and individuals will be relieved to know that the future of these is assured. With promises from the Chancellor that he will support companies to raise money and attract talent, it could be that these schemes are extended. Any moves that enable more businesses to benefit will be welcomed.

From April 2023, the amount that can be invested in qualifying companies under the seed enterprise investment scheme (SEIS) will be increased by £100,000 to £250,000. Some of the qualifying conditions will also be relaxed, with the gross asset limit for qualifying companies being increased from £200,000 to £350,000 and the maximum age limit being stretched from two to three years.

Individuals will now be able to invest up to £200,000 in SEIS companies each year, being double the current limit, and providing an income tax reduction under the scheme of up to £100,000.

Moore Kingston Smith comment

The SEIS regime was introduced in 2012 to provide generous tax reliefs for investors in very early-stage companies, recognising the difficulties such companies have in raising finance. These changes reflect the first increases in certain limits in ten years and are to be welcomed. Government figures suggest 2,000 new businesses a year use the scheme to grow and, for those that qualify, it is a very valuable tool to attract investment.

The Chancellor announced a doubling of the current limit in the value of share options which can be granted to employees under the HMRC-approved CSOP scheme.  Previously, qualifying companies could issue options with a value of up to £30,000, but this will be increased to £60,000 from April 2023. A general widening of the CSOP rules has also been promised, to better align these with those of other tax-favoured share reward schemes.

Moore Kingston Smith comment

The complexity of the CSOP regime and the relatively low limit on the value of qualifying share options have meant that granting share incentives under a CSOP has not often been felt a particularly attractive option. However, for businesses which are not eligible for the more favourable EMI scheme, it is hoped that the changes to the CSOP rules will make this scheme a more viable way of incentivising employees and attracting new talent.

The government has announced its intention to introduce a new digital scheme to allow for VAT-free shopping by visitors to the UK. The scheme will allow visitors to the UK to obtain a VAT refund on purchases of goods made in UK high streets, airports and other departure points from the UK, which are then exported by the visitor in their own personal baggage. The government intends to issue a consultation as soon as possible to gather views on how the scheme should be structured and implemented.

A version of this scheme is currently in operation in Northern Ireland, and the government intends to modernise that scheme as part of this process.

Moore Kingston Smith comment

The government is effectively going to bring in a version of the retail export scheme that operated in the UK for many years. The old scheme involved the visitor getting a form stamped by UK customs at the point of departure, and then returning it to the retailer. In line with the increasing move towards digitalisation, it is hoped that the new scheme will be simpler and less labour-intensive.

Throughout his speech, the Chancellor was keen to stress the importance of a simple tax system. The Office of Tax Simplification has been in place since 2010, as a source of independent advice to the government on simplifying the tax system. Over the past 12 years, it has published good-quality and considered reports. This body is now to be abolished and, instead, the government wants to “embed tax simplification into the institutions of government”, giving both HM Treasury and HMRC a mandate to focus on simplifying the tax code.

Moore Kingston Smith comment

The Office of Tax Simplification has become widely respected within the tax community. It has focused on making the tax system easier for individuals and smaller businesses, and it has achieved a number of successes over the past decade. But the tax code has continued to increase in length and complexity, and new difficulties in engaging with the tax system have taken the place of old ones. Time will tell whether this new approach to simplification will be more successful.