Chancellor’s not so mini-budget - tax and NICs cuts, IR35 changes and more

Chancellor introduces mini-budget

New Chancellor, Kwasi Kwarteng, delivered his mini-budget on Friday 23 September, announcing, wide-ranging tax reforms, IR35 changes, removal of the current cap on bankers’ bonuses and more. Some of these changes include:

Income tax and NICs cuts

The 1.25% increase in National Insurance Contributions which took effect in April is to be reversed from 6 November 2022. This affects employers, employees and the self-employed. The Government will also cancel the introduction of the 1.25% Health and Social Care Levy which was due to take effect in April 2023, at which point NIC rates were set to return their 2021-2022 levels.   

The planned 1% reduction in the basic rate of income tax to 19% has been brought forward a year and will now take effect from 6 April 2023. Although the Chancellor announced that the additional 45% rate of income tax on earnings over £150,000 was to be scrapped at the same time, on 3 October he confirmed that the Government had now decided against this. The 45% additional rate of income tax will therefore remain in place. 

IR35 changes reversed

Changes to the off payroll working rules will be reversed from 6 April 2023. As a result, large and medium sized clients will no longer be responsible for determining the tax status of contractors who provide their services through an intermediary, such as a personal service company, and for operating PAYE. Instead, the individual contractor and their personal service company will be responsible for determining their tax status and for paying the appropriate income tax and NICs.

Bankers’ bonus cap

The Prudential Regulation Authority will remove the current cap on bankers’ bonuses. Bonuses are currently capped at 100% of fixed pay, or 200% with shareholder approval. It is unclear when the cap will be removed but a consultation is expected to be launched this autumn.  

Industrial action

On industrial action, the Government intends to introduce legislation

• Requiring trade unions to put pay offers from employers to a vote of members to ensure that strikes can only be called once negotiations have genuinely broken down
• To ensure Minimum Service Levels can be put in place for transport services to reduce the impact of industrial action   

Company Share Option Plans and the Seed Enterprise Investment Scheme (SEIS)

The Chancellor is making changes designed to improve the ability of British companies to raise money, attract talent and ultimately grow and succeed.

From April 2023:

• Companies will be able to raise up to £250,000 of SEIS investment, a £100,000 increase from the previous limit of £150,000. In addition, to enable more companies to use SEIS, the maximum gross asset limit will be increased from £200,000 to £350,000 and the age limit, which requires a company to have been trading for less than two years, has now increased to three years. To support these increases, the annual investor limit will be also be doubled to £200,000.
• Qualifying companies will be able to issue up to £60,000 of CSOP options to employees, double the current maximum of £30,000. The qualification requirements for a company to be able to offer CSOPs will also be eased, better aligning CSOP rules with rules for more generous enterprise management incentive schemes.

In further step to support business investment, the £1 million level of the Annual Investment Allowance will be made permanent, instead of letting it fall to £200,000 after 31 March 2023, as previously planned.

Corporation tax increase reversed

Corporation tax is to remain at 19% and the previously announced increase to 25% from April 2023 has been reversed.

Pensions

On pensions, the biggest change announced in the mini budget is the proposed removal of performance fees from the charges cap applied to defined contribution (DC) pension schemes. Currently, any performance based fees payable to investment managers who generate high returns on their portfolio are limited to the total annual charges cap of 0.75% of the value of an individual’s DC fund – in other words, performance based fees have often not proven viable as a means of driving high returns in private pensions portfolios. However,  the Government has now indicated that it wishes to remove performance fees on certain asset classes from the scope of the charges cap – particularly to help drive investment in the science and tech start up sectors, as well as promoting growth in “illiquid” asset classes, such as infrastructure and renewable energy. The Government will of course argue that facilitating schemes in targeting new channels of investment is a laudable objective, but from a pension trustee and saver’s perspective, the most important question should remain whether particular asset classes are an appropriate investment at all, rather than whether investment managers can be incentivised to use them to maximise returns. Draft regulations are expected to follow in short order, and it will be interesting to see how the Government can pursue this policy objective whilst also retaining appropriate protections for members against risky investment behaviours and high and unfair membership charges.

Immigration

Recent changes, including the introduction of Global Talent, High Potential Individual, Scaleup Worker and Global Business Mobility visa routes, were designed to ensure the immigration system works for business and encourages highly skilled people and high growth businesses to choose to locate and invest in the UK . The Government’s Plan for Growth indicates that it will set out a plan in the coming weeks to ensure the immigration system supports growth whilst maintaining control.

Investment zones

The Government also plans to introduce Investment Zones which, in England, will benefit from tax incentives including:

• Zero-rate employer NICs on salaries of any new employee working in the tax site for at least 60% of their time.  This will apply on earnings up to £50,270 per year, with employer NICs being charged at the usual rate above this level
• 100% relief from business rates on newly occupied business premises and on certain existing businesses where they expand in Investment Zone tax sites
• An enhanced Capital Allowance – 100% first year allowance for companies’ qualifying expenditure on plant and machinery assets for use in tax sites
• An enhanced Structures and Buildings Allowance – accelerated relief to allow businesses to reduce their taxable profits by 20% of the cost of qualifying non-residential investment per year, relieving 100% of their cost of investment over five years
• Full Stamp Duty Land Tax relief for land and buildings bought for use or development for commercial purposes, and for purchases of land or buildings for new residential development.

The Government says it also remains committed to the progress of the Freeports programme and will work with those involved in current and prospective Freeports to consider whether and how Investment Zones can help to support their objectives. This is intended to ensure that both programmes complement one another.

Further information can be found in The Growth Plan 2022 and associated documents which sets out the Government’s plans for growing the economy.