UK Budget 2022 update

What does this mean for business?

17 October 2022

3 min read

Following weeks of economic turmoil, the new Chancellor Jeremy Hunt brought forward the announcements originally planned for the Medium-Term Fiscal Plan set to be delivered on 31 October 2022.

The stated aim of today’s speech was to remove uncertainty and create a more stable environment for the economy. The announcements, together with those previously made, mean nearly all of the Mini-Budget policies have been reversed.

The two key survivors are the cut to National Insurance Rates/Health and Social Care Levy and the reduction in stamp duty land tax. The Chancellor also announced that the Energy Price Guarantee would run until next April only (rather than the 2 years originally planned) and the government will introduce a new system after that date that would cost the government considerably less and focus on those most affected.

What does this mean for businesses?

Corporation tax rates will now increase from 19% to 25% in April 2023 (although the rate for businesses with less than £50,000 of profits will continue to be 19%) and is forecast to raise £18.7bn of tax by 2026/27. The Mini-Budget did include other measures to encourage investment into businesses which will continue. These include the £1m Annual Investment Allowance (providing 100% relief up front for capital expenditure), the expansion of the Seed Enterprise Investment Scheme and the broadening of the scope of Company Share Option Plans. Although these measures did not get the same media coverage, nor do they have the same financial impact, they are all positive changes for businesses.

For businesses operating in the retail space, VAT-free shopping for international visitors will not now proceed.

In relation to business workforces, the Chancellor confirmed that the off-payroll rules which have been implemented over the past few years would remain in place (the Mini-Budget had proposed these were repealed). Although the off-payroll rules have been costly and complicated for businesses to implement this will avoid the need for businesses to change systems yet again. Businesses will benefit from the 1.25% cut in employer’s national insurance contributions that was planned for November (reversing the temporary increase made in April 2022) and the abandonment of the Health and Social Care Levy (that was due to replace the temporary national insurance increase).

What does this mean for workers?

Workers will also benefit from a 1.25% cut to employee’s National Insurance Contributions from November and the Health and Social Care Levy will not come into force. However, the basic rate of income tax is to remain at 20% indefinitely, or at least until the government can afford to make the cut. For those who are owner-managers, or operating through a personal service company, the 1.25% increase in dividend tax rates that took place in April 2022 will be maintained which, going forward, will reduce the tax differential when comparing taking a bonus or paying a dividend.

As previously announced, the removal of the 45% additional tax rate for higher earners is not now happening and the rate will remain.

The effect of all of the above is that the tax system is substantially the same as before the Mini-Budget and the government is hoping that this will help to stabilise the economy. However, at the same time, the Chancellor said that there are more difficult decisions to come on public spending and tax to keep the government finances on an even keel so it may be a while before stability is achieved.

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