The mini-budget statement was today delivered to the House of Commons by Chancellor of The Exchequer, Kwasi Kwarteng. He pledged to “turn the vicious cycle of stagnation into a virtuous cycle of growth”. This growth plan is a key announcement for the new government which includes significant tax cuts and tens of billions of extra spending.
The cost of living and inflation remain real concerns for businesses and consumers alike, and the main aims of the mini-budget are to stimulate economic growth and reduce taxes.
Generally the changes are pro-business and are favourable for contractors and small business owners. We outline the key points below.
IR35 Reforms
In what is a very significant change that will impact contractors, Kwasi Kwarteng announced that IR35 off-payroll legislation will be simplified from 6th April 2023. The rules will revert to the 2016 position with the recent 2017 & 2021 reforms, which were largely unpopular, due to be repealed.
This means that contractors, rather than the employer, will once again have the responsibility of determining their own employment status and paying the correct amount of tax and NI contributions.
Ultimately this change removes complexity making it much easier for companies to hire contractors which will result in a significant uplift of people moving into – or returning to – self-employment.
Income Tax Additional Rate Scrapped
The 45% additional rate of income tax will be abolished. This was an unexpected change that, like many of the other changes, is intended to boost economic growth.
A single higher rate of income tax of 40% will be introduced which will simplify the tax system and incentivise economic growth.
The basic rate income tax threshold will also decrease from 20% to 19% with all changes coming into effect in April 2023. This is the biggest tax cutting package for half a century.
National Insurance Reduction
The recent increase in National insurance that has been in place since April 2022 will be reversed from 6th November. There will be a reduction of 1.25% on the rate of both employees and employers NI. The reduction will also apply to dividend tax rates.
Scrapping this rise will reduce tax for almost a million businesses by an average of nearly £10,000 per year as they will not have to pay a higher rate of employer national insurance.
Corporation Tax Remains At Lower Rate
The rise in corporation tax due to happen from April 2023 has now been scrapped. The corporation tax rate was scheduled to be increased next year to 25% for many businesses, but will now remain at the lower rate of 19%.
The chancellor has estimated that this will put £19bn back into the economy, and he indicated that further changes are likely as the tax system remains under review to make it simpler and more dynamic.
Other key changes include:
- A £2,500 cap on household energy bills will be implemented. This addresses a key concern for many as the cost of living continues to rise.
- In a move designed to stimulate the property sector, the tax free stamp duty threshold will increase from £125k to £250k for people that have previously purchased a property. For first time buyers, the threshold will increase from £300k to £425k. These changes come into effect today.
- Caps on bankers bonuses are due to be scrapped & VAT free shopping will be introduced for overseas customers.
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