2022 Mini Budget Review

For a mini-budget, there was an awful lot of big changes announced by the chancellor on Friday, mostly involving tax cuts on a grand scale. What the long term macro-economic impact of this remarkable change in direction only time will tell. However, you certainly can’t criticise Liz for not following through on her tax cutting campaign promises.  

I’m going to run through the main points that are relevant to small businesses. However, it’s worth noting that with the personal allowance remaining frozen, and inflation heading towards 10%, anyone not currently earning over £150,000 isn’t going to see a big drop in their tax burden. Overall it’s clear that very high earning are the real winners here with the rest of us seeing little if any significant drop in their overall tax.

Company Tax

Two big changes here to simply taxation for businesses.

1. The removal of the off-payroll rules for public and private sector from April 2023. This is the much-maligned IR35 rules that made it difficult for one-person companies to work for larger businesses. Accountants and contractors will be delighted to see the back of this one as it was incredibly cumbersome to administer. IR35 will still exist, however the regime will revert to the much simpler rules that were in place before 2017.

• Corporation tax rates frozen at 19%, rather than increasing to 25% in April 2023 as planned. It’s worth noting here that for small businesses with profits of less than £50,000 the rate was going to remain at 19% with a gradual increase in rates from £50,000 up to £250,000 at an effective rate of 26.5%. Therefore, for very small businesses this rate freeze won’t make a huge difference to their corporation tax bill. But if your company is making profits significantly about £50,000 then it represents a very significantly tax cut.

Personal tax

1. The headline grabber here was the 1% reduction in the basic rate of personal tax to 19%. However, the dividend rate stays unchanged at 7.5% so for most owner directors of small companies this tax cut won’t make a great deal of difference overall.

• The 45% additional rate for earnings over £150,000 has been abolished.

• Planned 1.25% increases to National insurance rates have been cancelled. I’d comment here that most single director companies don’t pay national insurance anyway so no gain for them.

• Personal allowances, the point at which you must start paying tax, remains frozen. As previously noted, with inflation at 10% this does effectively act as a covert tax increase. Inflation pushes more of our income over the tax threshold as pay rises to keep up with rising costs.

Stamp Duty

Finally stamp duty for first time buyers increases from £125,000 to £250,000 or £425,000 if you are a first-time buyer.

As usual let me know if you have any specific questions or concerns in relation to any of the points raised. We are expecting a full budget sometime before the end of the year, so if this is what the new government call a mini-budget goodness knows what they have planned for the full one.