It may have been billed a ‘mini budget’, but it felt anything but mini by the end!
Income rates changed
The proposed fall in the basic rate of income tax from 20% to 19%, has been brought forward to 6 April 2023. Initially, on 23 September, there was a shock move of eliminating the top 45% income tax rate altogether from April 2023, however, on 3 October the government announced a reversal to this policy.
For basic rate taxpayers, the income tax rate drop to 19% will increase the cost of paying into a pension. A one-year transitional period will apply so that this will not impact the tax relief on pensions until April 2024. We would, therefore, suggest taking advice as to how best to time pension contributions to maximise relief for your circumstances.
For those who also make charitable donations, the basic rate tax fall to 19% will also impact the ‘top up’ that the government make to the charity via Gift Aid. To soften the blow for the charities, an extended transitional period will run to April 2027, so the charities continue to receive the current 20% top up.
The NIC-e handouts continue
As recently as April this year, National insurance Contributions (NICs) were increased by 1.25% to fund the Health and Social Care Levy but this has now been reversed with almost immediate effect, from 6 November 2022. This represents a saving for those working either as an employee or self-employed plus reduces the payroll bill for businesses.
In the same vein, the recent 1.25% rise in the tax rates on dividends has also been reversed with effect from 6 April 2023, so you will revert to paying 7.5% at the basic rate, 32.5% at the higher rate and 38.1% at the additional tax rate on dividends. Clients with any control over the timing of dividends may wish to consider the benefits of deferring those until the rates have dropped.
We have found suitable succession planning for a number of clients utilises Family Investment Companies (FICs). The freezing of the corporation tax rates at 19% and the fall in dividend rates may make these an even more attractive option. Likewise, the announced simplification of IR35 policy for those operating via personal companies, together with the dividend changes, may encourage corporate structuring of this type but advice should be sought as this is an area rife with pitfalls.
A further surprise announcement was that the independent Office of Tax Simplification (OTS) which was created in 2010 will be closed. Rather responsibility for simplifying the world’s longest tax code will be brought inhouse to the Treasury and HMRC! This move suggests to us a wider tactical shift to the scope and direction of HMRC and may result in further policy changes such as the recent explosion of the use of ‘nudge letters’.
We strongly suggest that you contact your accountant to understand how this will affect you personally and what plans you should put in place to maximise the potential benefits. The key here is to take advice and consider your own circumstances for what works best for you.