“U-turn if you want to.”

Peter Rayney provides a useful guide to recently announced tax proposals and the subsequent abandonment of a number of them.

With recent extraordinary U-turns in tax proposals, it is difficult to know what has been dropped by successive Chancellors, and what has survived.

Many tax advisers will tell you that devouring and understanding tax rules is a full-time affair. However, in recent weeks, I have witnessed many of these same tax aficionados struggling to keep up with the latest tax proposals. Such has been the speed of the ‘chopping and changing’ with important aspects of our tax regime. I have a strong feeling that if Margaret Thatcher was still with us, she would certainly not have approved of so many U-turns!

Accessible guide to recent tax charges

All this gave me the idea to provide a quick, accessible guide for taxpayers and tax professionals about the current status of the various tax proposals, particularly as they affect owner-managers and their businesses.

Budget 2021

Spring Statement 2022

Mini-Budget/Growth Plan 2022

Subsequent

announcements

Date

27 October 2021

23 March 2022

23 September 2022

October

2022

Chancellor

Rishi Sunak

Kwasi Kwarteng

Kwasi Kwarteng/

Jeremy Hunt

BUSINESS TAX

Corporation tax (CT)

CT to rise for most companies to 25% from April 2023. Fully legislated in FA 2021 including the (re)introduction of the previous ‘associated companies’ and marginal rate rules. However, small profits rate only available where profits less than £250,000.

Planned CT increase to 25% shelved.

Announced that the CT increase to 25% will go ahead from April 2023 (assuming that the relevant FA 2021 provisions will apply as originally proposed).

Annual investment allowance (AIA)

Temporary AIA limit of £1m extended to 31 March 2023.

AIA increase to £1m made permanent.

IR35 and off-payroll working (OPW) and personal service companies (PSCs)

The OPW rules would be abolished from April 2023. This meant that all PSCs will be subject to the original IR35 rules from April 2023.

The proposed abolition of the OPW rules is cancelled. Thus, private large/medium-sized engagers and all public sector ones must continue to account for PAYE/National Insurance contributions (NICs) on all deemed employment engagements.

Sole trader/partner Class 4 NICs

As previously announced, Class 4 NICs increase to 10.25%.

From 6 July 2022, Class 4 NICs-free threshold is aligned with the income tax personal allowance.

Reversal of Class 4 NICs increase. Since this is an annual levy, a blended rate of 9.73% (main rate) and 2.73% (additional rate) applies for 2022/23. This represents the final position.

Company share option plans

The £30,000 limit on the current market value of CSOP shares increases to £60,000 from April 2023. This increases the attraction of CSOPs where enterprise management incentives schemes are not available.

PERSONAL TAX

Personal allowance (PA)

PA for 2022/23 is £12,570

Employment NICs

As previously announced, Class 1 Employers’ and Employees’ NICs rates each increased by 1.25%. Class 1A NICs on benefits also increased by 1.25% to 15.05%.

From 6 July 2022, employees’ NICs threshold aligned with the income tax PA of £12,570.

From 6 November 2022, the earlier 1.25% increase in NICs rates is reversed and pre-6 April 2022 rates are reinstated.

Importantly, blended NICs annual rates apply for company directors (within the relevant thresholds)

Employer’s NICs

14.53%

Employees’ NICs –

Main rate
Additional rate

12.73%

2.73%

of 12.73% (main rate) and 2.73% (additional rate) apply to company directors.

No further changes to NICs.

Income tax rates (excluding dividend tax)

Proposal to cut the basic tax rate from 20% to 19% from 2024/25.

Highest income tax rate of 45% to be abolished from 6 April 2023. This would mean a new top rate of 40%.

Basic rate reduction to 19% brought forward to 2023/24.

Announcement in a major U-turn (on 3 October) that the 45% rate will not be abolished and will continue after 6 April 2023.

Proposed reduction in basic rate of 19% scrapped. Current 20% basic rate remains ‘indefinitely’.

Dividend tax rates

The Sept 2021 statement announced that all dividend tax rates would temporarily increase by 1.25% for 2022/23, thus:

Ordinary rate	8.75%
Upper rate	33.75%
Additional rate	39.35%

Despite abolition of the HSCL, the 1.25% dividend tax increases remain for 2022/23 but would revert to their original pre-6 April 2022 rates from 2023/24.

Jeremy Hunt confirmed that earlier proposal to reduce dividend tax rates by 1.25% has been dropped. Therefore, from 6 April 2023, the current dividend rates will continue at 8.75%, 33.75% and 39.35%, respectively.

Health & social care levy (HSCL)

Sept. 2021 announcement that a 1.25% HSCL will apply to most forms of income, including earnings and dividends from April 2023.

HSCL abolished and will not apply from April 2023.

Seed enterprise investment relief (SEIS)

From April 2023, increased availability and scope of SEIS with age limit for SEIS company increased to three years. SEIS company total funding limit increases to £250,000 (and gross assets limit rises to £350,000).

Individual annual SEIS subscription limit increased to £200,000.

OTHER TAXES

Stamp duty land tax (SDLT)

SDLT residential nil-rate band increased to £250,000. For first-time buyers, the nil-rate threshold increases to £425,000.

Environmental taxes

Energy price guarantee (EGP) to cap the unit price that consumers pay for gas and electricity and gas. £150 of the saving is delivered by adjustments to the environmental/green levies in energy bills for two years.

Jeremy Hunt announces that the EGP will cease in April 2023.

More changes ahead

The recent announcements by the latest chancellor, Jeremy Hunt, has steadied the UK economy and arrested the slump in UK sterling (the pound). But we are clearly destined for more tax hikes. At the time of writing, we await the 17 November 2022 Autumn Statement. Among the changes affecting owner managers, many economic and tax pundits are anticipating:

radical CGT changes – which may include abolishing or restricting some of the main CGT exemptions or reliefs;
further increases in dividend taxation and abolition of the £2,000 dividend allowance; and
restriction in pension contributions tax relief.

All businesses crave certainty in arranging and planning their tax affairs. It is, therefore, only natural that many owner-managers tend to get spooked by media speculation of future tax rises and the removal of key reliefs. The current spate of fiscal U-turns will have done nothing to improve their certitude. The old Benjamin Franklin-inspired adage “never put off until tomorrow what you can do today” has certainly never been more appropriate in OMB tax planning!

Practical tip

The tax rate applicable to loans to shareholders (under CTA 2010, s 455) is based on the upper dividend rate. Therefore, the section 455 tax rate for 2022/23 is 33.75% and this rate is likely to remain going forward.