How could the mini-Budget affect SMEs?

The new Chancellor Kwasi Kwarteng announced today that he was ushering in a ‘new era’ as he unveiled tax cuts in his ‘mini-Budget’ that will affect small and medium sized entities  and owner managed businesses.

We will need to see more detail from HM Treasury before we can have more in depth conversations with clients, but at first sight there appears to be plenty in this mini-Budget for businesses to mull over.

While some of the headlines today will probably focus on the removal of the additional top rate of income tax at 45% and the repeal of the 2017 and 2021 rulings on IR35, there are other candidates to take the top spot – Stamp Duty Land Tax (SDLT) reforms; the abolition with effect from 6 November 2022 of the 1.25% National Insurance increase introduced in April 2022 for employers and employees; and retaining the Corporation Tax at 19% rather than the planned increase to 25%.

Expanding on the above – among the key measures announced:

  • The Treasury announced the scrapping of the 1.25% National Insurance increase that was introduced in April of this year. This benefits both the employer and employee (along with self-employed individuals). This will come into effect from 6 November 2022, to give payroll providers time to effect the change. The additional dividend rate of 1.25% will be scrapped from 6 April 2023. Therefore, for the remainder of the current tax year dividend rates are 8.75%, 33.75% and 39.35%. Dividend rates with effect from 6 April 2023 are shown in the table below.*
  • The basic rate of income tax will be reduced from 20% to 19% from 6 April 2023. The additional rate of income tax (45%) will be scrapped, meaning that the higher rate of income tax will be 40%. We have yet to see if there are any changes to the tax free annual personal allowance and income tax bands. Originally Rishi Sunak said these would be frozen until 2026, however there may be further announcements before the new tax year.
6 April 2023 rates Non-savings Savings Dividend rate
Basic rate 19% 19% 7.5%
Higher rate 40% 40% 32.5%
  • Corporation Tax will stay at 19% (reversing the planned increase to 25%).
  • The Annual Investment Allowance will remain at £1 million, this will allow businesses to claim 100% tax relief on plant and machinery expenditure of up to that level.
  • The changes made in 2017 and 2021 to IR35 off-payroll works will be scrapped as from 6 April 2023. This means that workers using a personal service company to supply services to Businesses will once again be responsible for determining their employment status under the original IR35 rules. This means that the personal service company will not have to deal with any administration going forwards, however the rules around determining whether your contract falls into IR35 or not remains as the same as when the rules were originally introduced.
  • SDLT is cut from today (23rd September 2022). SDLT will not be paid on the first £250,000 (instead of £125,000). First time buyers will also benefit from additional relief for the first £425,000 (increased from £350,000), and this will apply to house purchases worth up to £625,000 (increasing from £500,000).
  • The Seed Enterprise Investment Scheme will be enhanced to allow small start-up businesses to raise up to £250,000 of SEIS investment from 6 April 2023. Investors will be allowed to invest £200,000 annually into qualifying SEIS companies (increased from £100,000) and benefit from the various tax reliefs available.
  • Investment Zones – We are yet to know where these will be. However, we know there will be tax incentives over ten years in these areas for businesses. The details have not been finalised, however expect support with Business Rates, Enhanced Capital Allowances/Buildings Allowances, relief for Employer NIC and SDLT relief.
  • The Company Share Option Plan will be improved, allowing qualifying companies to issue shares worth up to £60,000 to employees, doubling the limit. No changes however have been announced for Enterprise Management Incentive (EMI) share option schemes, which are geared towards small and medium sized business and owner managed businesses.

The Chancellor has said there will be a Budget towards the end of the year.