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The Office for Budgetary Responsibility usually publishes fiscal outlooks twice a year, alongside the Autumn Budget and Spring Statement. As reported in yesterday’s media, the new chancellor has prevented them from publishing their latest outlook off the back of this morning’s speech in Parliament. Perhaps that’s why the red book was a blue folder, why the Wednesday lunchtime slot became a Friday morning slot, or why the title evolved over the last three weeks from Emergency Budget, to Fiscal Event, and settled on Plan for Growth statement. No budget, no OBR report.
Speaking to a Treasury Select Committee earlier this week, Torsten Bell, head of the Resolution Foundation think tank, warned against major tax cuts without an independent economic forecast. And in the BBC studio immediately after the Chancellor’s announcement, ‘gamble’ seemed to be the common word coming from the panellists:
Simon Jack, focussing the question on whether business tax cuts will result in investment in new plant and machinery as well as in skills training for employees.
Faisal Islam called it a kitchen sink budget before concluding “we’ve got the tax cut plan, now where’s the growth plan”
And Paul Johnson taking a similar view on tax cuts, that economic growth “takes so much more than that”, referring to trade with the EU, state stability, and skills training and development.
So let’s take a look at the headline tax announcements in what is quickly becoming referred to as the biggest tax cut Budget since 1972:
- Corporation tax will not increase to 25% as planned, but will remain indefinitely at its current 19% level.
- First year tax relief on plant and machinery purchases, via the Annual Investment Allowance, will not reduce to a £200,000 threshold as planed but will remain at £1m indefinitely.
- Up to 40 new investment Zones will be created, with stamp duty land tax, business rates and national insurance reliefs available for newly purchased / occupied business property and newly created employments.
There’s no doubt that businesses will welcome these announcements, especially those in the owner managed and SME areas of the economy.
- The 1.25% increase to National Insurance (for both employees and employers) is to be reversed from 6 November 2022, by way of an in-year adjustment to rates.
- IR35 rules obliging public sector bodies (from 2017) and larger private sector bodies (from 2021) to determine the employment status of off payroll workers will be scrapped from April 2023.
- Company share ownership plan thresholds will be increased, enabling wider participation in this form of tax favoured employee share ownership scheme.
Despite a lot of press coverage on higher and lower paid workers, perhaps the biggest winners from both the NI and IR35 changes will be employers / engagers.
The scrapping of the IR35 changes will be welcomed by those businesses currently required to make the assessment, but appears to do nothing to resolve the underlying uncertainty over employment status which the 2017 and 2021 changes were (admittedly failed) attempts at addressing. Whilst there’s a tax gap between employees and the self- employed, these status issues seem destined to continue.
- From April 2023 the top rate of income tax (45%) will be abolished and the basic rate of income tax (20%) will be reduced to 19%.
- EIS and VCT rules, which allow tax favoured investment in smaller companies, require renewing on a periodic basis. It was announced that both will endure beyond the next review date of 2025.
- SEIS, which provides even more generous relief to investors in even smaller companies, will enjoy an uplift in thresholds to make it more widely available.
- Stamp Duty Land Tax cuts were announced with immediate effect:
- The normal residential 0% band doubling from £125,000 to £250,000
- The first- time buyer 0% band increasing from £300,000 to £425,000, and
- The value cap for first time buyer relief increasing from £500,000 to £625,000.
There’s no doubt that the more affluent individuals and families in society are the winners from these announcements. Less tax on earnings, better relief on investing those earnings, and better tax relief on the bank of Mum and Dad funding a house purchase.
“New era” (Kwasi Kwarteng) or “Back to the future” (Rachel Reeves), you decide. Whichever it is there’s plenty in this morning’s announcements to get businesses and individuals revisiting their finances and their plans.
Furthermore, for a full and detailed summary of the Chancellor's announcement on 23 September, click here. To discuss how the issues announced this morning affect you or your business please get in touch with your usual UHY contact.