Mini-Budget update: Which measures were scrapped and which remain?

Mini-Budget update: Which measures were scrapped and which remain?

The government has announced a series of changes to its previously announced mini-Budget.

The new Chancellor, Jeremy Hunt’s update statement was in two parts: firstly, a pre-emptive media statement in the morning, then an official statement to the House of Commons in the afternoon. He announced what amounts to a near total unwinding of Kwasi Kwarteng’s announcements made on 23 September.

We have detailed which measures were scrapped and which remain, with our commentary below. Please click to expand each point.

Measures revoked

  • No cut to the income tax rate

    • The cut to 19% in the basic rate of tax (outside Scotland) from 2023/24 will not take place. Instead, basic rate will remain at 20% “indefinitely”, meaning that even Rishi Sunak’s 2024/25 scheduled 1% cut has been dropped.
    • The government had already announced that it has scrapped its initial plan to abolish the 45% additional rate of income tax and additional dividend rate from April 2023.

  • Corporation tax rise to go ahead from April 2023

    • It had been previously announced that the expected increase in the rate of corporation tax for many companies from April 2023 to 25% would not go ahead. However the government announced on 14 October that this increase will now proceed.
    • This means that, from April 2023, the rate will increase to 25% for companies with profits over £250,000. The 19% rate will become a small profits rate payable by companies with profits of £50,000 or less. Companies with profits between £50,001 and £250,000 will pay tax at the main rate reduced by a marginal relief, providing a gradual increase in the effective corporation tax rate.

  • IR35 rules to remain

    • The off payroll working rules in the public and private sectors (often referred to as IR35) will remain in place, reversing their removal at the start of the next tax year.

  • No cut to dividend rate

    • The government has also confirmed that, from April 2023, the 1.25% proposed reduction in rates of taxation will not proceed, meaning that the rates will stay as follows:
      • the dividend ordinary rate – 8.75%
      • the dividend upper rate – 33.75%
      • the dividend additional rate – 39.35%.
    • As corporation tax due on directors’ overdrawn loan accounts is paid at the dividend upper rate, this will also remain at 33.75%.
    • These changes will apply in Scotland and Wales as the rules on dividends apply to the whole of the UK.

  • No VAT-free shopping for overseas visitors

    • VAT-free shopping for overseas visitors will not be re-introduced.

  • No freeze on alcohol duty

    • There will now be no freeze on alcohol duty for one year from February 2023.

Measures under review

  • Energy cap scaled back to last until April 2023

    • The Energy Price Guarantee (EPG), which was due to cap average domestic bills at £2,500 a year for two years from the start of October, will be scaled back to last only until April 2023. In the meantime, the Treasury will design “a new approach that will cost the taxpayer significantly less than planned whilst ensuring enough support for those in need”. Any support for businesses from April 2023 “will be targeted to those most affected”.

Measures retained

  • Reverse in recent 1.25p in the pound rise in National Insurance (NI) from 6 November

    • The reduction in national insurance contributions, which reached its third reading in the House of Lords on 17 October, will go ahead. According to the government, it will help almost 28 million people across the UK save £330 on average in 2023/24, with an additional saving of around £135 on average this year.
    • The changes take effect for payments of earnings made on or after 6 November 2022, so for employers, secondary Class 1 NICs will reduce from 15.05% to 13.8%. For employees, primary Class 1 NICs will generally reduce from 13.25% to 12% and 3.25% to 2%.
    • The effect on Class 1A (payable by employers on taxable benefits in kind) and Class 1B (payable by employers on PAYE Settlement Agreements) NICs will effectively be averaged over the 2022/23 tax year, so that the rate will generally be 14.53%.
    • The government hopes that most employees will receive the NICs reduction directly via the payroll in their November pay but acknowledges that some will have to wait until December or January, depending on the complexity of their employer’s payroll software.

  • Stamp duty land tax cut to remain

    • A number of changes are made to the Stamp Duty Land Tax (SDLT) regime. Generally, the changes increase the amount that a purchaser can pay for residential property before they become liable for SDLT.
    • The residential nil rate tax threshold is increased from £125,000 to £250,000.
      The nil rate threshold for First Time Buyers’ Relief is increased from £300,000 to £425,000 and the maximum amount that an individual can pay while remaining eligible for First Time Buyers’ Relief is increased to £625,000.
    • The changes apply to transactions with effective dates on and after 23 September 2022 in England and Northern Ireland. These changes do not apply to Scotland or Wales which operate their own land transactions taxes.
    • There are no changes in relation to purchases of non-residential property.
    Residential Band (£) Rate (%) Non-residential Band (£) Rate (%)
    0 – 250,000 0 0 – 150,000 0
    250,001 – 925,000 5 150,001 – 250,000 2
    925,001 – 1,500,000 10 Over 250,000 5
    Over 1,500,000 12

  • Annual investment allowance to remain at £1 million

    • The extension of the £1 million annual investment allowance beyond March 2023 remains.
    • The Annual Investment Allowance (AIA) gives a 100% write-off on certain types of plant and machinery, including cars with zero emissions, up to certain financial limits per 12-month period. The limit has been £1 million for some time but was scheduled to reduce to £200,000 from April 2023. The government has announced that the temporary £1 million level of the AIA will become permanent and the proposed reduction will not occur.
    • Up to 31 March 2023, companies investing in qualifying new plant and machinery are able to benefit from capital allowances, generally referred to as ‘super-deductions’. These reliefs are not available for unincorporated businesses. Interestingly, these allowances were not mentioned, other than minor amendments to the current rules, so it appears the scheduled withdrawal of them will occur in 2023.
    • Businesses incurring expenditure on plant and machinery should carefully consider the timing of their acquisitions to optimise their cashflow.

  • New and start-up companies can raise up to £250,000 under scheme giving tax relief to investors.

    • From April 2023, companies will be able to raise up to £250,000 of Seed Enterprise Investment Scheme (SEIS) investment, 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.

  • Share options for employees doubled from £30,000 to £60,000

    • From April 2023, qualifying companies will be able to issue up to £60,000 of Company Share Option Plan (CSOP) options to employees, twice the current £30,000 limit. The ‘worth having’ restriction on share classes within CSOP will be eased, better aligning the scheme rules with the rules in the Enterprise Management Incentive scheme and widening access to CSOP for growth companies.

Financing

The measures now unwound account for about £11 billion of the extra £45 bn of borrowing by 2026/27 created by the 23 September ‘fiscal event’. The U-turn on abolishing the top 45% rate of tax (outside Scotland) and Friday’s decision to keep the already legislated for corporation tax increases were worth about £21 bn, implying that over 70% of Kwasi Kwarteng’s planned borrowing spree has now disappeared.

Based on recent analysis by the Institute for Fiscal Studies, the 2026/27 financing black hole that remains after all the unwinding is about £32 bn, although press rumours at the weekend suggested that the Office for Budget Responsibility (OBR) could add another
£10 bn to the IFS’s debt projection.

The Chancellor stated that there will be “more difficult decisions” to come on both tax and spending. Government departments will be asked to find efficiencies within their budgets. In his initial statement Mr Hunt also said, “Some areas of spending will need to be cut.”

Further changes to fiscal policy to put the public finances on a sustainable footing will be announced on 31 October alongside the publication of the OBR’s Economic and Fiscal Outlook.

We hope that you enjoy reading our highlights and commentary, and as always, if you have any questions on how any of these measures affect you, please contact us.
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Rouse Partners

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This information has been produced by Rouse Partners LLP for general interest. No responsibility for loss occasioned to any person acting or refraining from action as a result of this information is accepted by Rouse Partners LLP. In all cases appropriate advice should be sought before making a decision.

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