The newly appointed chancellor Jeremy Hunt, who replaces Kwasi Kwateng, has announced a number of changes to the mini-budget.
Latest Mini-Budget Reforms
On 17 October Mr Hunt announced a package of changes to the mini-budget, which was first announced by Mr Kwateng on 23 September. A fiscal statement is planned for 31 October. However this announcement was added ahead of schedule in an effort to restore confidence in public finances and steady volatile markets. These are the latest mini-budget reforms and what they mean for you.
The Energy Price Guarantee, which limits the price that suppliers can charge you for each unit of energy, was expected to be in place for two years. This has now been limited to six months. So now these measures will only cover this winter. The Treasury will review the future of energy support packages from April. Mr Hunt said there would be “a new approach” targeting those in the most need. It is speculated that only households with the lowest incomes will receive ongoing support. There will also be more incentives for energy efficient households.
Income Tax Cut Cancelled
In Mr Hunt’s statement he has cancelled the cut to the basic rate of income tax. Mr Sunak pledged last spring to reduce the basic rate of income tax by 1p in the pound, before the end of the Parliament in 2024. Mr Kwarteng‘s mini budget announced that this would be brought forward to April 2023. This tax cut has now been postponed indefinitely. The potential for this tax cut to reappear on the agenda, depends upon how the economy fairs in coming months. For now Jeremy Hunt has said the basic rate of income tax will remain at 20%. This means that your income tax rates will remain the same as they are. The risk here is that some people will be drawn into paying higher income tax bands, because of this freeze. Make sure you plan ahead for a higher tax bill if this applies to you, and evaluate your tax efficiency where possible. Talk to Prestige Business Management about tax advice and planning.
45% Tax Rate Will Remain
The 45% additional rate of tax, which is paid by people who earn more than £150,000 a year, will remain. Mr Kwateng’s mini budget on 23 September announced that this additional income tax band would be removed. But the decision was quickly reversed, and it has been confirmed that the 45% tax rate will remain in place.
Dividend tax rates will remain at their current level. The tax rates on dividend income over £2,000 were increased in the spring to correspond to the increases in National Insurance Contributions and the planned Health and Social Care Levy. This will now remain. Mr Kwateng’s budget would have seen these reversed with effect from April 2023. However this reversal has been cancelled by Mr Hunt. Leaving rates at their present level.
Mortgage Rates Not Dropping
Mortgage rates have been rising. This trend accelerated following Mr Kwateng’s mini-budget. However it is predicted that Mr Hunt’s latest mini-budget reforms will not immediately affect the rate of mortgages rising. This is due to lenders remaining wary and waiting to see how the markets respond. They will also watch out for what the Bank of England does with interest rates. If a lender were to drop their rates now, they risk being over-stretched by demand. With inflation remaining high, the Bank may approach this with higher interest rates. Average interest rates have remained steady in recent days.
Planned increases in the duty rates for beer, cider, wine and spirits will go ahead. Mr Kwateng’s mini-budget would have had these increases cancelled, freezing the rates of duty. Now duty rates will not be frozen in the latest budget reforms. More details on this are due to be announced in the fiscal statement on 31 October.
IR35 to Remain
Mr Kwateng’s mini-budget was due to repeal the changes to the rules on off-payroll working, known as IR35. However these regulations will now go ahead as planned.
These measures make businesses responsible for ensuring contractors are correctly categorised and paid accordingly. This is to eradicate a specific type of tax avoidance.
Stamp Duty Land Tax (SDLT)
The increase in the stamp duty threshold remains. The threshold over which SDLT is payable has doubled from £125,000 to £250,000. In addition the thresholds for first time buyers will be increased from £300,000 to £425,000 and the maximum value of a property that a first time buyer can claim relief on has risen from £500,000 to £625,000.
Increases to National Insurance Contributions, which were introduced by Mr Sunak are still due to be removed in November. Recent increases in National Insurance Contributions (NI) are still due to be reversed, as per Mr Kwateng’s mini budget.
The cancellation of the planned increase to corporation tax due to take effect from 1 April 2023 has been reversed. Meaning that the rate of corporation tax will increase from 19 per cent to 25 per cent for companies with profits exceeding £250,000, and there will also be an incremental increase for companies with profits between £50,000 and £250,000.
Fiscal Statement Due 31 October
Jeremy Hunt says there are more measures to be announced in his fiscal statement due on 31 October. Stating that “more difficult decisions on both tax and spending” are yet to come.
At Prestige Business Management we can help your Business
Prestige Business Management can help you understand how these adjustments will affect your business. Call us today on 0203 773 2927.