Usually, people work as either a self-employed individual or an employee for a business. Nevertheless, there...
Basic Rate of Income Tax Cut to 19%
The new Chancellor Kwasi Kwarteng has brought forward by a year the cut in the basic rate of income tax to 19% from April 2023. The cut has been made one year earlier than planned with 31m people getting on average £170 more per year from the new tax year from 6 April 2023.
This measure is set to cost the Exchequer £5bn a year.
There will be a four-year transition period for Gift Aid relief to maintain the income tax basic rate relief at 20% until April 2027. This will support almost 70,000 charities and is worth over £300m.
In a widely expected move, Rishi Sunak’s pre-announced 1% reduction to basic rate income tax was brought forward to April 2023 – someone earning £40,000 will be £563 better-off next tax year (2023/24) compared to the current year.
45% Additional Tax Rate Abolished and Then Restored!
In a surprise move, on 23rd September 2022 the Chancellor had announced plans to abolish the additional 45% rate of income tax on annual income above £150,000 from 6 April 2023. Yet by 3rd October 2022, barely 10 days later, he has confirmed that the government has U-turned on its plans.
Someone earning £200,000 was due to be better-off by £4,333 next tax year. Removing the income tax additional rate was due to cut tax for around 660,000 individuals from April, with a £625m hit to the tax take in 2023-24.
Currently the 45% rate is higher than the top national rate of income tax for G7 countries like the US, Italy and Norway, the Chancellor Kwasi Kwarteng said.
The additional rate was reduced in 2013 to 45% after former Chancellor Gordon Brown temporarily increased the rate to 50% after the financial crash. Pre-April 2010, the top rate of income tax was 40%.
It remains to be seen whether the dividend additional rate will still be removed to align with the dividend upper rate, which is being reduced to 32.5% from 6 April 2023, or remain at 38.1% (currently 39.35%).
It also is unclear whether the from April 2023 additional rate taxpayers will also be given a personal savings allowance of £500, in line with higher rate taxpayers. This was not previously available to them. This gives them up to £500 tax free allowance on interest on savings.
Dividend Tax Rate Cut for Top Earners
In line with the decision to abolish the 45% additional tax rate, the government has also cut the dividend tax rate for the highest earners by 6.85%
Effectively this means that the upper rate of dividend tax will be cut by 6.85% from the current 39.35% to 32.5%.
The decision to cancel the rise in national insurance to fund the health and social care levy means that the ordinary and upper rates of dividend tax will be reduced to 2021-22 levels of 7.5% and 32.5% respectively.
In addition, the government will reverse the 1.25% increase in dividend tax rates from April 2023, which was implemented as part of the health and social care levy.
The reversal of the 1.25% increase in the dividend tax rate from 2023, designed to boost the supply side of the economy, will benefit any taxpayer receiving dividends and would have represented a double boost for any additional rate taxpayers who fall into that category.
The measure will benefit 2.6 million dividend taxpayers with an average saving of £345 in 2023-24 and additional rate taxpayers will further benefit from the abolition of the additional rate of dividend tax. This is designed to support entrepreneurs and investors across the UK to drive economic growth.
How Income Tax Cuts Affect Earners
In the mini Budget, the Chancellor set out plans to reduce the basic rate of income tax to 19% and at the same time, the 1.25% increase in national insurance for employees and employers has been cancelled, effective from 6 November.
Based on the announcements, here is a breakdown of the extent of tax cuts across various earning levels.
| Earnings | National insurance cut from 6 Nov | 19% base rate & NI from 6 April |
| £20,000 | £38 | £167 |
| £40,000 | £142 | £617 |
| £60,000 | £247 | £969 |
| £1000,000 | £455 | £1,469 |
| £200,000 | £976 | £5,220 |
Another area up for reform is the off payroll working rules which will be abolished from April 2023. This means that private and public sector employers will no longer be required to assess whether their contractors are bona fide freelance workers or should be employed on PAYE contracts.
There are suggestions that there could be reforms to the higher rate child benefit charge, which is seen as unfair tax as it does not take into account the total earnings of a household. In addition, the former Chancellor Rishi Sunak froze tax thresholds until 2026 which means more taxpayers are being dragged into higher rate tax band, known as fiscal drag, and it would seem like a reasonable area to review if Kwarteng is on a low tax mission.
However, in his statement the Chancellor did not tackle a number of the quirks that remain in the income tax, and indeed tax credit, system. These include the removal of the personal allowance, which occurs once individual income exceeds £100,000 resulting in 60% effective marginal tax rates, nor the perceived unfairness of the removal of child benefit where one parent earns more than £50,000 (rather than considering this on a household income basis).
SEIS Limit Raised to £250k
In a bid to drive investment in start-ups, the Chancellor announced that the level of tax-free investment in seed enterprise investment schemes (SEIS) will increase to £250,000, a two thirds increase.
To enable more companies to use SEIS, the gross asset limit will be increased to £350,000 and the age limit from two to three years. To support these increases, the annual investor limit will be doubled to £200,000. These changes will help over 2,000 companies a year that use the scheme to grow, the Treasury said.
The measure is likely to cost an estimated £45m a year from 2024.
The new government set out its agenda to encourage investment by making permanent the £1m annual investment allowance, extending the enterprise investment scheme and venture capital trust regime beyond 2025 and confirming that the limits for the seed enterprise investment scheme and tax advantaged share schemes would be increased, but there were no details on the latter.
Stamp Duty Land Tax Slashed
The threshold for stamp duty land tax (SDLT) has been doubled to £250,000 for all home purchases with immediate effect.
The current £125,000 nil rate threshold has been doubled to £250,000, bringing the figure close to the average UK house price. The change will come into force from 23 September.
At the same time, the threshold at which first-time buyers begin to pay SDLT will increase from £300,000 to £425,000, and the maximum value of a property on which first-time buyers’ relief can be claimed will also increase from £500,000 to £625,000.
This measure will cost £1.4bn in 2023-24, rising to £1.5bn in 2024-25.
Cuts to stamp duty will always play well with the electorate and may well incentivise those who have been putting off making big life decisions given cost of living and inflationary pressures. The challenge though is that recent history suggests that cutting stamp duty risks pushing up property prices, with buyers seeing little real terms benefit, or facing increased competition.
Off Payroll Working Rules to Be Abolished
The Chancellor has announced plans to abolish the IR35 off payroll working rules for the public and private sector from April 2023.
The measure will cost up to £1.1bn a year from 2023-24 tax year, rising to £2.6bn by 2026-27.
The off payroll working rules were introduced in 2017 for the public sector and 2020 for the private sector, cutting the number of people who could work on a contract basis and introducing a complex set of rules to identify whether an individual should be defined as self employed or paid on a PAYE basis.
The Chancellor’s commitment to simplification is certainly likely to be welcomed by individuals and businesses alike. The current IR35 rules were however implemented to tackle non-compliance with the old rules.
Today’s announcement effectively shifts the burden of policing compliance around assessing who is deemed as an ‘employee’ from employers, back to HMRC – as individual workers will assess their own status.
Annual Investment Allowance Fixed at £1m
In a welcome move for businesses, the Chancellor announced plans to set the annual investment allowance at £1m on a permanent basis, rather than reverting to £200,000 as was originally planned for April 2023, Kwasi Kwarteng confirmed.
This is a 100% capital allowance for qualifying expenditure on plant and machinery up to a specified annual limit and covers the investment needs of 99% of the UK’s businesses. This tax break will provide a £930m boost to business in 2023-24, rising to £1.3bn in 2024-25.
Share Option Scheme Doubled to £60k
The government announced two changes to the company share option plan (CSOP) scheme including doubling the share limit to be introduced on a permanent basis from 6 April 2023.
The maximum employee share option limit based on market value will be doubled to £60,000 from the current £30,000. This will affect any new options granted from 6 April 2023. Existing options are unaffected by this change, according to papers issued with the mini Budget last Friday.
There is currently a requirement that any shares used in the company share option plan (CSOP) scheme must be in a share class that is ‘worth having’, but these limitations will be removed.
Going forward, from 6 April 2023, shares will change so that they are either:
- ‘open market shares’ majority-held by outside investors;
- giving employees control of the company.
Legislation will be introduced in a future Finance Bill to support the changes. HMRC will provide further guidance before the rules come into effect.
Tax Breaks for Investment Zones Planned
The Chancellor has targeted 2.5% growth and to support this has announced the creation of investment zones, offering substantial tax breaks for businesses.
The government will work with the devolved administrations and local partners to introduce investment zones across the UK. These areas are designed to drive growth and encourage investment in housing.
Specified sites in England will benefit from a range of time-limited tax incentives over 10 years.
The tax incentives under consideration are:
• business rates – 100% relief from business rates on newly occupied business premises, and certain existing businesses where they expand in English investment zone tax sites. Councils hosting Investment Zones will receive 100% of the business rates growth in designated sites above an agreed baseline for 25 years;
• enhanced capital allowance – 100% first year allowance for companies’ qualifying expenditure on plant and machinery assets for use in tax sites; and
• 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;
• employer National Insurance contributions relief – zero-rate employer NICs on salaries of any new employee working in the tax site for at least 60% of their time, on earnings up to £50,270 per year, with employer NICs being charged at the usual rate above this level; and
• stamp duty land tax – a full SDLT relief for land and buildings bought for use or development for commercial purposes, and for purchases of land or buildings for new residential development.
HMRC Raises Late Payment Interest From 11 October
HMRC will raise interest rates on tax debt from 11 October following the 0.5% increase in the base rate, as
- late payment interest rate — 4.75% from 11 October 2022
- repayment interest rate — 1.25% from 11 October 2022
This is the highest rate since the height of the financial crisis in January 2009.
Charities: How to Deal With Crypto Donations
Living in a digital world has been a learning curve for many businesses and charities are no exception.
Charities may wish to consider whether and how they accept donations in the form of digital assets, as NFT and/or cryptocurrency donations, as such donations can present unfamiliar challenges and risks which many charities do not yet know how to navigate.
What is an Non-fungible Token (NFT)?
Under English law, NFTs are considered to be property in the same way works of art and other valuable assets are regarded.
A NFT is a digital asset linked to the ownership of unique physical or digital items which cannot be replicated or substituted in any way. The authenticity and ownership of NFTs is verified using blockchain technology, which allows for them to be traded.
What About Other Cryptocurrencies?
Most cryptocurrencies, however, are fungible. The Cambridge dictionary describes ‘fungible’ as something that is easy to exchange or trade for something else of the same type and value.
Bitcoin and ethereum, for example, are fungible. A fungible token can be exchanged for any other token of the same kind. These tokens are identical to one another. Therefore, they are interchangeable and not unique. They are easily traded, meaning that their ownership can change constantly, and they are not easily traceable.
Conclusion
The Charity Commission has published guidance advising trustees to think carefully before investing in cryptocurrency or accepting donations.
We would always advise trustees to carefully consider the due diligence they undertake before investing in or trading cryptocurrency, by evaluating the benefits and risks as they would do with regards to any important decisions. This should also include taking appropriate professional and legal advice.
