Mini-budget analysis: How to save money on your tax bill

Budget 2022

The United Kingdom is currently facing a recession due to the cost of living crisis, soaring inflation, and climbing interest rates. As the economy is slowing down, the new government has set up a mini-budget as a part of the government’s growth plan of achieving 2.5% economic grow rate. The announcement of the budget by the Chancellor offering the biggest tax cuts since 1970. This mini-budget indicate the government intension of a radical tax reformation on income tax, national insurance, corporation tax and stamp duty. 

This article provide the summary and in-depth analysis of mini-budget 2022

Mini-budget 2023 Summary

1. Income tax basic rate band to reduce to 19% from April 2023

2. The highest rate of Income-tax (45%) has been removed completely as well

3. Corporation Tax increases have also been removed, keeping the one rate at 19% going forward

4. Stamp duty thresholds have been increased to £250,000, and for first-time buyers to £425,000

5. IR35 rules will be removed from April 2023.

New Tax Rates and Allowances

 

2022/23

2021/22

Income tax rates – England and Wales (non-dividend income)

0% lower rate tax – savings rate only

Up to £5,000

Up to £5,000

20% basic rate tax

£12,571 to £50,270

£12,571 to £50,270

40% higher rate tax

£50,271 to £150,000

£50,271 to £150,000

45% additional rate tax

Above £150,000

Above £150,000

Scottish income tax rates (non-dividend income)

19% starting rate tax

£12,571 to £14,732

£12,571 to £14,667

20% basic rate tax

£14,733 to £25,688

£14,668 to £25,296

21% intermediate rate tax

£25,688 to £43,662

£25,297 to £43,662

41% higher rate tax

£43,663 to £150,000

£43,663 to £150,000

46% top rate

Above £150,000

Above £150,000

Personal allowance

Personal allowance

£12,570

£12,570

Mini Budget 202-2023- New Tax Rate and Allowances. Source: ACCA

New National Insurance Rate

NI Category

2022-23

2021-22

Employee’s primary class 1 rate between primary threshold and upper earnings limit (up to 5 November 2022)

From 6 November 2022

13.25%

 

12%

12%

Employee’s primary class 1 rate above upper earnings limit

From 6 November 2022

3.25%

2%

2%

Employer’s secondary class 1 rate above secondary threshold

From 6 November 2022

15.05%

13.80%

13.80%

Class 4 rate between lower profits limit and upper profits limit

From 6 November 2022

10.25%

9%

9%

Class 4 rate above upper profits limit

From 6 November 2022

3.25%

2%

2%

National insurance

2022/23

2021/22

Lower earnings limit, primary class 1 (per week)

£123

£120

Upper earnings limit, primary class 1 (per week)

£967

£967

Apprentice upper secondary threshold (AUST) for under 21s/25s

£967

£967

Primary threshold (per week)

£190 up to 5 July 2022;

£242 from 6 July 2022 onwards (see below)  

£184

Secondary threshold (per week)

£175

£170

Class 2 small profits threshold (per year)

£6,725

£6,515

Class 4 lower profits limit

£11,908

£9,568

Class 4 upper profits limit

£50,270

£50,270

New National Insurance Rate. Source: ACCA

Budget news for contractors

The key winners of this budget are the contractors. If you are contractors then it is time for you to say goodbye to the umbrella companies. From April 2023, the end client no longer requires to assess IR 35 rule. Therefore, you can set up a limited company and receive payment through your limited company. TaxCare is setting up a special team to offer contractor accounting services at a fixed fee of £50 per month. 

Budget news for Landlords

There was a risk of a property market crash due to the higher interest rate and lower affordability. However, the government has offered stamp duty tax cuts 

Residential properties: 23 September 2022 onwards

Property value

UK Residents

Non-UK Residents

 

Only property

Additional property

Only property

Additional property

Up to £250,000

Nil

3%

  2%

5%

Next portion from £250,001 to £925,000

 5%

8%

  7%

10%

Next portion from £925,001 to £1,500,000

10%

13%

12%

15%

Remaining amount above £1,500,000

12%

15%

14%

17%

Budget news for Limited Company Directors

The corporation tax rate will remain at 19%, irrespective of the profit levels. The chancellor scrapped the increase in corporation tax rates which was due to take place from April 2023.

 

S.455 tax rate on directors’ overdrawn loan accounts will remain at 32.5%.

Dividend allowance

The tax-free dividend allowance is unchanged at £2,000. The increase in dividend tax rates which was due to be applicable from April 2023 is scrapped.

 

Dividend tax rates

2022/23

2021/22

Dividend ordinary rate (for dividends within basic rate band)

7.5%

7.5%

Dividend upper rate (for dividends within higher rate band)

32.5%

32.5%

Dividend additional rate (for dividends above higher rate band)

38.1%

38.1%

 

 

The government is reversing the 1.25% increase in dividend tax rates applying UK-wide from 6 April 2023. Alongside the reversal of the Health and Social Care Levy, the ordinary and upper rates of dividend tax will be reduced to 2021-22 levels of 7.5% and 32.5% respectively. Due to the abolition of the additional rate of income tax, income that was previously charged at the additional rate, will now be charged at the upper rate of 32.5%. The reduction of all rates by 1.25% will benefit 2.6 million taxpayers with an average benefit of £345 in 2023-24; and additional rate payers will further benefit from the abolition of the additional rate of dividend tax.

 

Annual Investment Allowance (AIA)

The Chancellor has announced that the £1 million level of AIA (which was due to end on 31 March 2023) has been made permanent. This means businesses can deduct 100% of the costs of qualifying plant and machinery up to £1 million in the first year.

Budget for HNWI

If you are earning more than £150,000 you are no longer required to pay 45% tax on earnings. You can also get tax relief on investment by using various schemes such as your personal Investment allowances (EIS, VCT, SEIS, CSOP). 

Critical Analysis of The Budget

The Chancellor Mr Kwarteng doubled down on ending 45% top tax rate. Said “it was a tough choice but the right choice”. In our opinion, the tax cut should have been focused more for the small business owners who are the driving force of the economy. However, this emergency mini budget is about reversing a lot of Rishi Sunak’s budget.

➡️The planned corporation tax rate increase from 19 per cent to 25 per cent, due to take effect from 1 April 2023, has been scrapped. A reversal.

➡️ From 6 April 2023, the basic rate of income tax will reduce from 20% to 19%.

➡️ Reversal of Health & Social Care Levy of 1.25% on national insurance contributions effective from 6 November 2022.

➡️ But the reversal of the similar charge on dividends will not come in until April 2023.

➡️ The additional rate of income tax of 45% and dividend tax of 38.1% to be abolished from 6 April 2023. This means that timing of future dividends should be considered.

➡️Annual investment Allowance remains at £1 million. Another reversal.

*️⃣ Off payroll working (IR35) measures introduced in 2017 and 2021 repealed, moving the compliance obligations back to personal service companies. Another reversal.

➡️ Alcohol duty to be frozen from February 2023 with future reform planned. Another reversal.

Energy – This is welcomed!

➡️As announced a couple of weeks back, the Government is to cap household energy bills at £2,500 for two years from 1 October 2022. This cap is said to equate to an average household saving of £1,000 a year.

➡️ A zero rate of stamp duty land tax (SDLT) on land bought for commercial or residential development.

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