UPDATE: 17.10.2022 - Recent announcements make the information in this blog out of date *eye roll* I am waiting to hear what has been decided before publishing new information. If you have any questions, please don't hesitate to get in touch.
‘The biggest tax cuts in a generation’
said the new Chancellor Kwasi Kwarteng on 23rd September 2022, the day after the Bank of England warned we may already be in a recession.
But what exactly are these tax cuts and what impact will that have on you as a small business owner?
Income tax
There is to be a reduction in basic and higher rates of income tax:
The basic rate of income tax will reduce from 20% to 19% from April 2023
The 45% higher rate of income tax will also be abolished, meaning that there will only be one single higher rate of income tax of 40%
It’s really important to note that these rates will start in April 2023 and will be based on your income between April 2022 and 2023, so if you’ve not completed your self-assessment yet this year don’t go dipping into your tax fund!! In fact, if you’ve not sorted your 2021-22 self-assessment then get in touch as we are swiftly approaching a busy time of year for all.
This change impacts all sole trading and employment (e.g. if you run a ltd business) income.
Dividend payments will be remaining at 7.5% basic rate following the reversal of the proposed increase.
As a general idea of how this change will benefit you, if you earn £40,000 a year, you will be £563 better off in the year ending 5 April 2024 vs year ending 5 April 2023.
National Insurance (NI)
Kwasi Kwarteng has also scrapped two recent NI introductions:
The 1.25% rise in National Insurance contributions has been reversed – this change will come into effect on 6th November, another excuse for fireworks!
The planned introduction of a Health and Social Care Levy, which would have seen an increase in NI contributions has been ditched
My systems for payroll will make these changes automatically.
IR35
The penny has finally dropped that the IR35 reforms that were introduced in April 2021 were overly complicated and unnecessary.
In April 2023 it will return to being the responsibility of the worker to determine their employment status and ensuring they are paying the correct amount of tax and NI contributions.
This will make it much easier for businesses to work with contractors and freelancers again – great news for a lot of my clients!
Corporation tax
Another scrapping – there will be NO increase in corporation tax, it’s staying at 19%
Of course, there are other announcements in this mini-budget that may affect you personally or professionally – including announcements about energy, investments, and stamp duty (none of my clients are wankers - cough – sorry – bankers, so not mentioning that one!).
Clients can request a chat to discuss any questions following the announcement.
Not a client yet? Book a free call today.