The Prime Minister has announced that the Corporation Tax increase announced by the previous administration and then cancelled by the former Chancellor Kwasi Kwarteng will take place in April 2023.

What does the announcement mean?

Companies with profits of £250,000 or more

For companies with profits of £250,000 or more, the upper profits limit, the rate of Corporation Tax will rise from 19 per cent to 25 per cent.  

Companies with profits of £50,000 or less

For companies with profits of £50,000 or less, the ‘lower profits limit’, Corporation Tax will continue to be charged at 19 per cent.

Companies with profits between £50,000 and £250,000

Companies with profits between £50,000 and £250,000 will receive marginal relief so that the rate of Corporation Tax will rise incrementally until it reaches 25 per cent.

Companies with accounting periods of less than 12 months

The upper and lower profits limits will be reduced accordingly for companies with accounting periods of less than 12 months.

Groups and associated companies

Companies within groups or with associated companies will also see reductions in the upper and lower profits limits.

What should I do now?

The announcement by the Prime Minister means that the Corporation Tax rises that had been scheduled for April 2023 will take place as originally planned.

If you had already planned for the tax rise and had not changed your planning since the mini-Budget in September, you can stick with your existing plans.

If you have not planned for a tax rise, you should consider how you spread investments in your business over the coming years to maximise your tax efficiency.

Tax planning is complicated and comes with a vast array of permutations. Speak to us today for professional advice.

In his mini-Budget, Chancellor Kwasi Kwarteng announced plans for Tax-Free Investment Zones across England.

The Government says these new economic zones will drive growth by lowering taxes and freeing up planning to encourage development and business investment.

What are the benefits?

These zones will offer a number of advantages to the businesses that choose to operate in them, including:

• Companies within the zones will receive 100 per cent relief on business rates for newly occupied premises. The same will apply to existing businesses if they expand within the zone.
• Full Stamp Duty Land Tax (SDLT) relief will apply for land and property bought for commercial use or development or new residential developments.
• Employer National Insurance contributions will be rated at zero for new employees earning up to £50,270 per year.
• There will be a 100 per cent first-year enhanced capital allowance relief for plant and machinery to incentivise investment.

Partnership with local authorities

The scheme will involve agreeing with 38 Upper Tier Local Authorities and Mayoral Combined Authorities in England to develop dozens of Investment Zones.

They will be delivered in partnership with devolved administrations and local partners in Scotland, Wales and Northern Ireland.

The Government says it will set out further detail on Investment Zones in due course. However, a full list of local authorities working with the Government can be found here.

Link: Tax-Free Investment Zones

When Chancellor Kwasi Kwarteng announced his changes to the basic rate of Income Tax you may have wondered what it meant for you.

From 6 April next year, the basic rate of Income Tax will be reduced by one percentage point – from 20 per cent to 19 per cent.

This cut to Income Tax was first announced by former Chancellor Rishi Sunak but has now been brought forward a year in the new Government’s changes to taxation.

• Non-savings, non-dividend income for taxpayers in England, Wales and Northern Ireland
• The savings basic rate which applies to savings income for taxpayers across the UK
• The default basic rate which applies to non-savings and non-dividend income of any taxpayer that is not subject to either the main rates or the Scottish rates of Income Tax.

Link: Income Tax factsheet

The IR35 and off-payroll working rules, which affect how contractors operating through a personal service company (PSC) are classed and taxed, will be repealed in April 2023.

Under the most recent reforms, IR35 in the private sector limited the way that contractors and freelancers could work in medium and large companies as employees through an intermediary PSC, which would typically be their own private companies.

When was the legislation introduced?

The off-payroll working rules came into effect for contractors working in the public sector in April 2000.

The rules were introduced by HM Revenue & Customs (HMRC) to try to prevent disguised employment and to determine whether a non-payroll worker should be classed and treated as a contractor or employee.

It was designed to ensure that an individual who works like an employee, but through their own limited company, pays broadly the same Income Tax and National Insurance contributions (NIC) as an employee on the payroll.

In 2017, HMRC transferred responsibility for assessing whether someone was acting as an employee in the public sector from the individual contractor to the organisation that engaged their services.

Similar rules were then applied to the private sector in April 2021 to medium and large businesses.

The impact of IR35

This rule change resulted in many businesses reducing their use of contractors or applying blanket determinations to all contractors to ensure they were compliant.

As a result, two things happened, the number of contractors shrunk and many of the remaining contractors increased their fees to account for the changes in taxation and National Insurance where they were deemed to be inside IR35.

What the repealing of IR35 means for contractors

The repeal of these rules means that the contractor will, from April next year, be responsible for determining their status and ensuring that they pay the correct amount of tax and NIC for the services provided.

Link: Growth Plan 2022

From 11 October, the interest rates on late tax payments rise again in line with the Bank of England’s (BoE) latest base rate increase.

The BoE increased the base rate by 0.5 per cent to 2.25 per cent in September, as a result of inflation.

Due to this, the late payment and repayment interest rates applied to tax debts will rise to:

• Late payment interest rate — 4.75 per cent
• Repayment interest rate — 1.25 per cent

HMRC interest rates are set in legislation and linked directly to the base rate, so the latest rise has been automatically triggered by these changes.

The late payment rate last increased to 4.25 per cent on 23 August – the highest rate since January 2009.

This interest is due on late tax bills for:

• Income Tax
• National Insurance Contributions
• Capital Gains Tax
• Stamp Duty Land Tax

The file and pay rate for Corporation Tax increases to 4.75 per cent with effect from 11 October.

Meanwhile, the interest charged on underpaid quarterly instalment payments increase to 3.25 per cent and the interest paid on overpaid quarterly instalment payments and on early payments of Corporation Tax not due by instalments rose to two per cent from 3 October 2022.

You should be aware that any further increases in the BoE base rate could further drive-up these rates and increase the cost of tax debts.

Link: HMRC interest rates for late and early payments

Sterling’s fall to close to parity with the dollar means that the cost of investing in UK businesses is lower than ever, especially for businesses and individuals based in the US or otherwise primarily trading in dollars.

Simply put, their dollars are now worth more pounds, meaning they get more bang for their (literal) buck.

For UK businesses and their owners seeking investors or buyers, this is potentially good news, because it means they may have the opportunity to seek a higher price than they would previously have been able to command.

It could also open the door to a new group of prospective buyers who might not previously have considered international investments or purchases.

Marketing your business for sale or seeking investment is not a straightforward undertaking and needs to be approached strategically.

That means you need to be clear in advance on what you want to achieve, what you feasibly can achieve and the steps you can take to obtain the best deal.

The precise timing of marketing your business and securing a deal for sale or investment is more of a tactical consideration that needs to fit within this broader framework.

It is neither feasible nor desirable to seek an immediate sale to or investment from dollar-based businesses or individuals.

However, with the pound currently at historically low levels and few experts expecting any significant upward swing in the short to medium term, now may be a good time to start the strategic process that needs to underpin the sale of your business.

With a new King at the Palace and a new Prime Minister at Number 10, it was no surprise that the new Chancellor at Number 11 used his first statement to the House of Commons to signal a “new era” for fiscal policy.

It turned out to be a striking change of direction, as the Chancellor opened his speech, saying: “We will be bold and unashamed in pursuing growth, even where that means taking difficult decisions”.

Gone was the Sunak era’s post-Covid emphasis on fiscal responsibility. Instead, in what the Government dubbed its ‘Plan for Growth’, Kwasi Kwarteng set out an approach prioritising tax cuts for individuals and businesses over immediate repairs to the public finances.

The Chancellor’s assumption is that cutting tax rates will boost economic growth and so increase the overall tax take.

This was Mr Kwarteng’s first real test as Chancellor, 18 days into the job, with inflation sitting at 9.9 per cent and energy prices spiking, interest rates rising, a weakened pound, plus the economic recovery from Covid by no means complete.

Only a day earlier, the Bank of England's Monetary Policy Committee had raised interest rates sharply by half a percentage point to 2.25 per cent – the highest level in eight years – in a bid to stave off spiking inflation.

Despite being a Fiscal Statement rather than a Budget, the policies trailed in the days and weeks running up to the speech suggested that it might prove to be more significant an event than many full Budgets.

• Income Tax
• National Insurance Contributions/ Health and Social Care Levy
• IR35 off-payroll working rules
• Corporation Tax
• Stamp Duty Land Tax (SDLT)
• Annual Investment Allowance (AIA) and SEIS
• Investment Zones
• Energy Bills
• Conclusion

Income Tax

In a speech full of significant announcements, perhaps the most notable related to Income Tax.

The Chancellor announced that the Additional Rate of Income Tax, which is currently 45 per cent on income over £150,000 will be scrapped entirely.

He then moved to bring forward the cut in the Basic Rate of Income Tax to 19 per cent planned for April 2024 to April 2023.

National Insurance Contributions/ Health and Social Care Levy

Another landmark policy of the Johnson Government was the 1.25 per cent Health and Social Care Levy paid by employees and employers to help meet the cost of social care.

The current tax year is a transitional year in which the increase has been applied to National Insurance Contributions and it was to have become a standalone tax from April 2023.

Now, the Chancellor has announced that the charge will be scrapped and will no longer apply from 6 November 2022.

He said the reason for the move was to support smaller businesses, help households and boost economic growth.

IR35 off-payroll working rules

In an unexpected move, the Chancellor announced that the reforms to the IR35 off-payroll working rules in 2017 and 2021 for individual contractors operating via personal service companies in the public and private sectors respectively would be scrapped.

The change means that it will no longer be the responsibility of the organisation engaging contractors’ services to determine whether a contractor should pay tax on the same basis as an employee. Instead, that responsibility will revert to the contractor, as was the case previously.

Cancellation of planned Corporation Tax increase

The last Chancellor but one, Rishi Sunak, had announced a plan to increase the rate of Corporation Tax from 19 per cent to 25 per cent from April 2023 for companies with profits of more than £250,000. Those with profits of between £50,000 and £250,000 would have benefitted from tapered relief, while there would have been no increase for those with profits of £50,000 or less.

In a striking change from the previous Government’s policy, and consistent with the Prime Minister's leadership campaign pledge, Mr Kwarteng announced that the planned increase will no longer go ahead and Corporation Tax rates will remain at 19 per cent.

He said that the rationale for the change is to encourage the investment needed to help the economy grow.

Stamp Duty Land Tax (SDLT)

In what might prove to become a tug of war between the Treasury and the Bank of England, just a day after many homeowners learned of a painful interest rate rise, the Chancellor offered substantial consolation in the form of a cut to Stamp Duty Land Tax (SDLT).

Indeed, just yesterday, the Governor of the Bank of England wrote to the Chancellor to warn him that tax cuts might mean even sharper interest rate rises.

Undeterred, the Chancellor pressed ahead with a move to double the SDLT threshold from £125,000 to £250,000 with immediate effect. For first-time buyers, the threshold will rise to £425,000 on properties of up to £625,000. The measure will apply permanently.

Annual Investment Allowance (AIA) and SEIS

In another surprise move, the Chancellor announced that the Annual Investment Allowance (AIA) would not fall back to £200,000 in 2023 but would instead remain at its current £1 million level permanently.

Meanwhile, he said there would be a two-thirds increase in the amount companies can raise through the Seed Enterprise Investment Scheme (SEIS) to £250,000 from April 2023. At the same time, the Annual Investor Limit will rise to £200,000.

Investment Zones

The Chancellor also announced the launch of up to 40 Investment Zones. In England, he said the Government is considering time-limited tax incentives for 10 years, including 100 per cent Business Rates relief, 100 per cent first-year allowances for qualifying expenditure of plant and machinery and an enhanced Structures and Buildings Allowance.

He said the Government is also considering zero-rate Employer National Insurance Contributions (NICs) on salaries of new employees in Investment Zones up to £50,270 a year, as well as full Stamp Duty Land Tax (SDLT) relief on land and building bought for commercial or new residential development.

The Chancellor said he will work with the Devolved Administrations to offer similar incentives in Investment Zones across the UK.  

Energy Bills

Following on from the Prime Minister’s announcement on 8 September of the Energy Price Guarantee and the Secretary of State for Business, Energy, Innovation and Skills in relation to business energy costs, the Chancellor reiterated the support being offered.

He said that the Energy Price Guarantee, alongside the £400 credit already announced will cut bills by around £1,400 for a typical household in comparison to the levels they were expected to reach without Government action.

Meanwhile, he confirmed that businesses, charities and public sector organisations will benefit from equivalent relief if they had not locked into a fixed-rate tariff by April 2022. That measure will last for six months from 1 October 2022.

The Chancellor said that the Government’s intervention will reduce inflation by around five percentage points.

Conclusion

The speech was a dramatic statement of the fiscal philosophy being pursued by the new occupants of Number 10 and Number 11 Downing Street. They hope that by reining in energy bills and cutting taxes, consumers will be prompted to spend and businesses will be more likely to invest, ultimately benefitting the public finances through increased tax receipts.

Whether that's likely to be the case will be a point of serious contention amongst economists and various factions of the Conservative Party, especially given rising inflation and the possible impact on interest rates. Many will see the measures as a serious gamble.

What is certain, however, is that businesses will be more interested in what actually comes to pass than any abstract debate about whether the Government is taking the best course of action.

Link: The Growth Plan 2022

The UK has seen a boom in the ownership of Furnished Holiday Lets thanks to the increase in staycations.

As the summer holidays draw to a close many of us may be considering purchasing a holiday let to boost our income, but there are some very specific tax reliefs to consider when doing so.

What is a Furnished Holiday Let?

These types of properties are considered separate from other residential and commercial properties by HM Revenue & Customs (HMRC) and are classified as trading businesses.

To qualify for the tax benefits that come with this, your holiday let must be actively promoted and let commercially, be furnished for normal occupation and be operated with the intent of making a profit.

It must also:

• Be available for commercial holiday letting to guests and holidaymakers for at least 210 days (30 weeks) per year; and
• Not be rented out by the same person for more than 31 days: and
• There shouldn’t be more than 155 days (+22 weeks) of this type of ‘long-term’ occupation per year; and
• It must be rented out as holiday accommodation to the public for at least 105 days (15 weeks) of the 210 days you have made it available.

If you or your family use the property this doesn’t count towards this total.

How are Furnished Holiday Lets taxed?

They are taxed in the same way as any other trading business and offer several tax benefits as a result, including being taxed on profits rather than an individual income, when set up as a limited company.

This can allow owners to enjoy a lower rate of Corporation Tax and mean that income is treated as tax-free earnings for pension purposes.

Capital Gains Tax (CGT) reliefs can also be applied when a property is sold or transferred, including:

• Rollover Relief
• Gift Relief
• Business Asset Disposal Relief

Owners of Furnished Holiday Lets can also benefit from some capital allowances, such as the Annual Investment Allowance, on certain assets used and fixtures inherent in the property, such as heating, lighting, ventilation, data and power installations.

This expenditure can be deducted from the profits of the business for Corporation Tax purposes.

Owners can also benefit from profit sharing and no National Insurance contributions on income from their Furnished Holiday Let.

Links: Furnished Holiday Lettings