Client Update October 2022

The government has abandoned its plan to abolish the 45% top rate of Income Tax due to the negative reaction it has received.

Chancellor Kwasi Kwarteng first announced the policy in the Mini Budget on 23 September.

He has now confirmed that it will not go ahead in a statement on the social media platform Twitter. It has not yet been confirmed whether the same reversal applies to the top rate of Income Tax on dividends.

In a Tweet, Mr Kwarteng said: 

‘From supporting British business to lowering the tax burden for the lowest paid, our Growth Plan sets out a new approach to build a more prosperous economy.

‘However, it is clear that the abolition of the 45p tax rate has become a distraction from our overriding mission to tackle the challenges facing our country.

‘As a result, I’m announcing we are not proceeding with the abolition of the 45p tax rate. We get it, and we have listened.

‘This will allow us to focus on delivering the major parts of our growth package.’

Internet links: Twitter

Chancellor Kwasi Kwarteng used the 2022 Mini Budget to announce a series of tax cuts for businesses and individuals.

The Chancellor confirmed that the 1.25% rise in National Insurance contributions (NICs) that came in this year will be reversed from 6 November, while the Health and Social Care Levy has been cancelled.

The planned rise in Corporation Tax to 25% will be scrapped and the rate maintained at the current 19%. The basic rate of Income Tax will be cut to 19p in April 2023, a year ahead of schedule.

Additionally, the level at which homebuyers will start to pay Stamp Duty Land Tax (SDLT) in England and Northern Ireland has been doubled from £125,000 to £250,000. First-time homebuyers will pay no SDLT on homes worth up to £425,000, up from the previous price of £300,000.

For businesses, Investment Zones will be established across the UK that benefit from lower taxes and liberalised planning frameworks to encourage business investment.

The cap on bankers’ bonuses, which limited rewards to twice the salary level, will be axed.

The Chancellor also committed to repealing the off-payroll legislation. The IR35 reforms, which rolled into the public and private sectors in 2017 and 2021 respectively, will no longer apply from April 2023 and responsibility for determining employment status where a personal service company is used will return to the worker.

Mr Kwarteng said:

‘Growth is not as high as it needs to be, which has made it harder to pay for public services, requiring taxes to rise. This cycle of stagnation has led to the tax burden being forecast to reach the highest levels since the late 1940s.

‘We are determined to break that cycle. We need a new approach for a new era focused on growth.’

Internet links: GOV.UK

The International Monetary Fund (IMF) warned the UK government against ‘large and untargeted fiscal packages’ following the Mini Budget.

The IMF stated that tax measures announced by Chancellor Kwasi Kwarteng in the recent Mini Budget are likely to increase inequality.

On 23 September, the Chancellor used the Mini Budget to announce tax cuts worth over £40 billion. Amongst the measures unveiled was a reduction in the basic rate of Income Tax; the reversal of the 1.25% rise in National Insurance contributions (NICs) that came in this year; and the scrapping of the planned rise in Corporation Tax to 25%.

The IMF stated that whilst it understands that the measures are intended to boost economic growth, it has concerns that the UK’s fiscal and monetary policies are working at ‘cross purposes’.

Commenting on the IMF’s warning, Lord Frost, Minister of State at the Cabinet Office, said:

‘The IMF has consistently advocated highly conventional economic policies. It is following this approach that has produced years of slow growth and weak productivity.

‘The only way forward for Britain is lower taxes, spending restraint, and significant economic reform.’

Internet link: IMF website

Wholesale energy prices for businesses will be capped at ‘less than half’ of the anticipated winter levels under the government’s support package.

The Energy Bill Relief Scheme offers discounts for all firms for six months from 1 October.

Hospitals, schools and other settings such as community halls and churches will also get help.

Under the scheme, revealed by the Department for Business, Energy and Industry (BEIS), wholesale prices are expected to be fixed for all non-domestic energy customers at £211 per MWh for electricity and £75 per MWh for gas.

Firms do not need to contact suppliers as the discount will automatically be applied to bills.

The scheme applies to fixed contracts agreed on or after 1 April and variable and flexible tariffs and contracts.

Kate Nicholls, CEO of UKHospitality, said:

‘This intervention is unprecedented and it is extremely welcome that government has listened to hospitality businesses facing an uncertain winter. We particularly welcome its inclusiveness – from the smallest companies to the largest – all of which combine to provide a huge number of jobs, which are now much more secure.

‘The government has recognised the vulnerability of hospitality as a sector, and we will continue to work with the government, to ensure that there is no cliff edge when these measures fall away.’

The announcement followed the launch of the Energy Price Guarantee for households. This will also cap the unit price of energy so that the typical UK household will now pay up to an average £2,500 a year on their energy bill for the next two years.

Speaking at the Mini Budget, Chancellor Kwarteng confirmed that the two schemes would cost a combined £60 billion for six months.

Internet link: BEIS website

HMRC is reminding businesses that they will no longer be able to use their existing Value Added Tax (VAT) online account to submit VAT returns from 1 November.

By law, all VAT-registered businesses must now sign up to Making Tax Digital (MTD) and use compatible software to keep their VAT records and file their returns.

According to HMRC, more than 1.8 million businesses are already using the MTD for VAT service. Over 19 million returns have been successfully submitted through MTD-compatible software so far, the tax authority adds.

From November, businesses who file their VAT returns on a quarterly and monthly basis will no longer be able to submit them using their existing VAT online account, unless HMRC has agreed they are exempt from MTD.

If businesses do not file their VAT returns through MTD-compatible software, they may have to pay a penalty. Even if a business currently keeps digital records, they must check their software is MTD compatible and sign up for MTD before filing their next return.

Richard Fuller, Economic Secretary to the Treasury, said:

‘MTD can help businesses get their tax right first time, which cuts the administration burden and frees up time for them to get on with what matters most to them – growing their business.’

Internet link: HMRC press release

Eight in ten small businesses are finding it difficult to recruit staff, according to a report published by the Federation of Small Businesses (FSB).

The FSB’s ‘Scaling up Skills’ report found that over 80% of small firms are flagging a lack of relevant qualifications, skills and experience among candidates as a problem, while 60% say a lack of applicants is also an issue.

More positively, five in six small employers provided training for themselves and/or their staff in the previous 12 months, with seven days of training and development per staff member on average.

Though critical to future sustainable growth, only a quarter of small employers say they have undertaken leadership and management training over the same period.

FSB Policy Chair, Tina McKenzie, said:

‘Our members tell us their growth potential is being held back by a lack of appropriately skilled staff, with vital roles going unfilled, ultimately harming the economy.

‘This skills and training deficit is a perennial issue, but far from an insoluble one. Our report sets out a roadmap for change on every level, from schools to apprenticeships to workplaces.’

Internet link: FSB website

HMRC will raise interest rates on tax debt from 11 October following the 0.5% increase in the base rate.

This means that the late payment interest rate will increase to 4.75% from 11 October 2022. The rate last increased to 4.25% on 23 August. This is the highest rate since the height of the financial crisis in January 2009.

Late payment interest is payable on late tax bills covering Income Tax, National Insurance contributions (NICs), Capital Gains Tax (CGT), Stamp Duty Land Tax (SDLT) and Stamp Duty Reserve Tax (SDRT). The Corporation Tax self assessment rate also increases to 4.75%.

The repayment interest rate will also be increased from the current 0.75% repayment interest rate to 1.25%.

Corporation Tax self assessment interest rates relating to interest charged on underpaid quarterly instalment payments rise to 3.25%, up from 2.75% from 3 October 2022 (with the higher rate above applying from the normal due date).

The interest paid on overpaid quarterly instalment payments and on early payments of Corporation Tax not due by instalments rises to 2% from 1.5% from 3 October 2022.

Internet link: GOV.UK

Action Fraud has warned that criminals are using the ongoing cost-of-living crisis to target the public with energy rebate scams.

Action Fraud revealed that more than 1,500 reports have been filed with the National Fraud Intelligence Bureau (NFIB) regarding scam emails purporting to be from energy regulator Ofgem, offering customers energy rebates.

In order to protect themselves from scams, Action Fraud has advised individuals to contact an organisation directly if they have doubts about an email; refrain from using numbers or addresses in the message and instead use the details on the company’s official website; and forward suspicious communications to report@phishing.gov.uk.

A spokesperson for Ofgem said:

‘Protecting consumers is our top priority and it is alarming that vulnerable customers are being preyed upon in this way when people are already struggling so much.

‘That’s why, as energy regulator, on top of issuing our own warnings and advice, we have asked all energy suppliers to ensure clear and up to date information on scams is easily accessible on their websites.’

Internet link: Action Fraud website