What Does the Government’s “Growth Strategy” Imply for Your Finances?

Many of us were eager to see what Chancellor Kwasi Kwarteng revealed in his Emergency Mini-Budget on Friday 23rd September 2022, following his recent appointment as Chancellor. The support to help relieve the country’s cost-of-living and energy crises, which have impacted many households and businesses across the UK, was among the initiatives that were unveiled.

Here we look at some of the most important talking points and what they mean for your business and personal finances.

The Growth Plan outlined a new approach to the economy, focused on three central priorities:

• Reforming the supply-side of the economy
• Maintaining a responsible approach to public finances
• Cutting taxes to boost growth

National Insurance Contributions

The government published its proposals for new investment in health and social care in England in September 2021. The proposals were meant to result in permanent increases in spending, not only in England but also by the devolved governments.

To fund the investment, the government imposed a 1.25% Health and Social Care Levy across the UK, modelled after the National Insurance Contributions (NICs) system but earmarked for health and social care. For 2022/23, the Health and Social Care Levy Act included a temporary 1.25% increase in both the main and additional rates of Class 1, Class 1A, Class 1B, and Class 4 NICs.

The NIC rates were supposed to revert to 2021/22 levels in April 2023, to be replaced by a new 1.25% Health and Social Care Levy.

However, the new Chancellor has decided to reverse the temporary increase in NICs that went into effect in November and cancel the Health and Social Care Levy entirely.

The Health and Social Care Levy was expected to raise around £13 billion per year to fund health and social care, and the Chancellor has confirmed that funding will remain at the same level as it would have been if the Levy had been in place, funded through general taxation.

Although the government anticipates that the majority of workers would receive the NICs decrease in their November payslips directly from their employers’ payrolls, some may have to wait until December or January, depending on how complicated their employer’s payroll processing is.

Income Tax

The government had previously announced that the basic rate of income tax would be reduced from 20% to 19% beginning in April 2024. This is being accelerated so that it comes into effect in April 2023. According to the government, this reduction is worth more than £5 billion to workers, savers, and pensioners. In addition, 31 million taxpayers will benefit in 2023/24, with a £170 average gain.

These changes have a number of tax implications. One of them is the amount of tax relief provided at the point of contribution for pension contributions and Gift Aid donations. This is currently provided at a base rate of 20%. According to the government, there will be a four-year transition period for Gift Aid relief to keep the income tax basic rate relief at 20% until April 2027. This will benefit nearly 70,000 charities and is worth more than £300 million. However, there was little discussion of pension contributions other than the fact that there will be a one-year transition period for Relief at Source pension schemes to continue claiming 20% tax relief.

Beginning in April 2023, the dividend ordinary rate of 8.75% will be reduced to 7.5%, the dividend upper rate will be reduced from 33.75% to 32.5%, and the dividend additional rate will be eliminated.

The charge for loans taken on or after April 6, 2023, will be decreased to 32.5% since corporation tax on directors’ overdrawn loan accounts is paid at the dividend higher rate. These changes will be implemented in Scotland because dividend rules apply to the entire United Kingdom.

Business Corporation Tax Rates

The corporation tax rate for many businesses was announced to rise to 25% in April 2023. This change will no longer be implemented, leaving the corporate tax rate at 19% for the vast majority of businesses.

Capital Allowances

Up to specified financial thresholds each calendar year, the Annual Investment Allowance (AIA) allows for a 100% write-off of certain types of plants and machinery, including zero-emission vehicles. The cap has been set at £1 million for a while, but it was supposed to drop to £200,000 starting in April 2023. The temporary AIA level of £1 million will be made permanent, and the intended cut will not take place, according to the government’s latest announcement.

Companies investing in qualifying new plants and machinery up to 31 March 2023 are eligible to take advantage of capital allowances, also known as “super-deductions.” Unincorporated enterprises are not eligible for these reliefs. The scheduled withdrawal of these exemptions looks to take place in 2023, which is interesting because seldom about them was discussed, save from small changes to the existing rules.

IR35 and Off-Payrolling

In an effort to address “disguised employment,” the tax system has undergone various adjustments over the past 20 years, raising higher tax and NICs as a result. The government has announced that the off payroll working regulations would be eliminated starting on 6 April 2023. From this point forward, employees who provide their services through an intermediary will once again oversee identifying their employment status and paying the proper amount of tax and NICs.

Government Plans to Cut Energy Bills for Businesses

The government announced a new scheme, the Energy Bill Relief Scheme, on 21st September 2022, with the goal of lowering energy prices for non-domestic energy customers such as businesses, charities, and public sector organisations. The new programme complements the recently announced Energy Price Guarantee for households.

The scheme will cover fixed contracts signed on or after 1st April 1 2022, as well as deemed, variable, and flexible tariffs and contracts. The scheme will apply to energy usage from 1st October 2022 to 31st March 2023 for an initial six-month period. According to the government, savings will be visible in businesses’ October bills.

Businesses are not required to take any action or apply for the programme; support will be applied automatically to bills. In three months, the government plans to undertake an assessment of the programme to see whether it has been successful in assisting vulnerable, non-domestic clients.

Energy Price Guarantee Plan Caps Household Bills

On 8th September 2022, Prime Minister Liz Truss announced the Energy Price Guarantee (EPG) for households, which will go into effect in early October 2022. According to the EPG, the average household will pay no more than £2,500 per year for the next two years. It supplements the £400 Energy Bill Support Scheme and saves the average household at least £1,000.

The EPG sets a cap on the amount suppliers can charge customers for energy supplies. This includes the temporary removal of green levies worth around £150 from household bills. The guarantee will take the place of the current energy price cap.

Households that do not pay directly for mains gas and electricity, such as those living in park homes or on heat networks, will be no worse off under the plan and will receive assistance from a new fund.

According to government projections, the EPG will have a significant positive impact on the economy, spurring growth and reducing inflation by four to five percentage points, which will lower the cost of servicing the national debt.

The difference between this new, lower price and what energy retailers would otherwise charge their customers would be paid by the government to energy suppliers. The government will also continue to fund programmes that were previously supported by green levies for the duration of these two years to ensure the UK’s investment in domestic, secure renewable technologies.

How can Hysons help?

Hysons, Chartered Accountants provides individuals, charities, and businesses with a wide range of accounting services. Our knowledgeable staff can answer any questions you have about the Mini-Budget and how to maintain financial stability. Contact our experienced accounting team and let us help you make sense of it all.