The mini-budget – immediate help for businesses, but many promises lack detail

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    Updated: September 26, 2022 at 12:49 pm
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      The Chancellor has completed his mini-budget announcement, wherein he will attempt to stimulate UK growth via a mix of tax cuts, the removal of green levies, new investment zones, and an energy costs support plan for businesses and households. However, many of the Chancellor’s promises lack detail and will need further clarification and inspection before being phased-in over the coming months.

      Here’s what we know now:


      Energy costs

      Concerned that the skyrocketing cost of gas and electricity will drive many UK companies into bankruptcy, the Government is limiting the cost of energy for businesses and households. For businesses, the support will:

      • Set a supported wholesale price – of 21.1p per kWh for electricity and 7.5p per kWh for gas. This is less than half the wholesale prices anticipated this winter.
      • The reduced pricing will apply to energy usage from 1st October 2022 to 31st March 2023, running for an initial 6 months period for all commercial energy users.
      • In addition to the price cap, green levies on energy to businesses are waived for the duration of the support period.
      • Estimates place the value of government energy support for businesses at £30bn over 6 months. The source of this cash is not yet provided, but most likely it will come from more Government borrowing.


      Corporation tax

      The planned rise of UK corporation tax from the current 19% to 25% has been scrapped. The rate will remain at 19% with immediate effect.


      Investment Zones

      To stimulate growth in regions where low productivity and prosperity are entrenched, the Government is launching new Investment Zones across the UK. Tees Valley, Norfolk, and the West Midlands are early candidates for these freewheeling economic areas. Manufacturing, construction, and businesses providing support services are likely to benefit most from this plan, but no start date has been given for the implementation of these Zones. Key features are said to include:

      • Lower taxes on businesses – again, details still to come.
      • Relaxed rules on construction and development for new commercial premises and homes for workers within the Zones. This probably means ‘anything goes’ and environmental protections will be low priority.
      • 100% tax relief on the cost of new plant and machinery.
      • No personal or business contribution to NIC on the first £50,000 of salary for new employees.
      • No business rates on commercial premises.
      • No stamp duty on homes purchased within the Zones.


      VAT

      No changes to current VAT other than the introduction of an ‘all-digital’ VAT reclamation scheme for tourists to the UK. No start date provided for this scheme or details on how its digital structure will function.


      IR35

      Freelancers and the self-employed have struggled with this punitive with-holding tax since its introduction. Now the government says the rules concerning IR35 will be ‘simplified’. But what does that mean? No figures or implementation date have been provided.


      National Insurance

      The recently introduced and highly unpopular 1.25% increase in employee National Insurance Contributions will be scrapped as of 6th November 2022. Higher paid workers will benefit most, as those with gross income of £100k p.a will save £1093 per year.  In comparison, workers earning £20k p.a, will save a meagre £93 per year.

      • The additional employer NIC paid by businesses is also scrapped.
      • The 1.25% Health and Social Care Le.vy will not come into force as a separate tax from 6 April 2023 as previously planned.
      • Key benefit – more money in the pocket of consumers.
      • Secondary benefit – less burden on businesses.


      Income Tax

      Highly paid workers will benefit again – as they will enjoy a reduction in the top rate of Income Tax. As of April 23rd 2023, the peak rate is being reduced from 45% to 40% on income above £150k per year. The basic rate of Income Tax, currently at 20%, will also fall to 19% as of 23/04/2023.

      • Key benefit – more money in the pockets of consumers.


      Annual Investment Allowance

      The Annual Investment Allowance (AIA) for businesses will be permanently set at its highest level of £1m from April 1 next year. This will give 100 per cent tax relief to businesses on their plant and machinery investments up to the level of £1m.


      EIS/VCT extended and SEIS fundraising limit raised

      The Seed Enterprise Investment Scheme (SEIS) has been widened, allowing firms to now raise £250,000 under the scheme — 66 per cent more funding than previously.


      Other business changes

      • Tax and duty rates on beer, cider, wine, and spirits will not undergo a planned increase, although there is no reduction in the current rates. Brewers, distillers, vineyards, hospitality, and the retailers of alcoholic drinks may view this move as a big ‘so what’, as it is unlikely to spur an increase in consumer purchases.
      • The company share option plan (CSOP) limit that allows businesses to offer employees share options is being raised from £30,000 to £60,000.


      Our view – wait and see

      Many of the Chancellor’s plans still lack detail and their total impact on UK businesses remain difficult to calculate. Rapidly increasing interest rates set by the Bank of England must also be factored in. Overall, many of the UK’s SMEs will wonder what the fuss was all about, as the value of so much of the Chancellor’s playbook is hard to judge today.

      Overall, the Chancellor’s changes will increase the disposable income for most and businesses should see a reduction on red tape and a rescue from crushing energy costs. However, the real test will come as we move into 2023 and more of Mr. Kwarteng’s promises will be fleshed out and become open to public scrutiny.

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