Fiscal Event: The Government’s ‘Growth Plan’
Widely referred to as a ‘mini-budget’, the fiscal event on 23 September contained the largest set of tax cuts since 1972.
Widely referred to as a ‘mini-budget’, the fiscal event on 23 September
Although the media widely described the fiscal event on Friday 23 September 2022 as a ‘mini-budget’, there was nothing ‘mini’ about the tax cuts that were announced. In this article we discuss the tax measures in more detail and we also look at what is likely to come next in the tax policy cycle as this has not been clarified yet. In particular we look at the possible route for ‘substantive enactment’ of the reversal of the previously announced increase to the rate of corporation tax (CT), a subject that will be important to corporates as they consider their year end reporting process.
In terms of what was announced on 23 September, an article written on the day by Tim Sarson, Head of Tax Policy at KPMG in the UK, provides the detail. We also have a number of articles in today’s edition of Tax Matters Digest that provide more information on certain measures:
- The new ‘investment zones’;
- The surprise repeal of the 2017 and 2021 Off-Payroll Working reforms;
- Key considerations for employers of the NIC changes;
- Key considerations for employers of the income tax changes;
- Changes to tax-advantaged Company Share Option Plans; and
- The implications of the fiscal event for individuals.
We had a further announcement from the Chancellor on 26 September on the implementation of the ‘Growth Plan’ although this was light in detail. There were two key points of note:
- On 23 November 2022, the Chancellor will set out a ‘Medium-Term Fiscal Plan’ accompanied by an Office for Budget Responsibility (OBR) forecast. The announcement says that the “Fiscal Plan will set out further details on the Government’s fiscal rules including ensuring that debt falls as a share of GDP in the medium term”. At the time of writing there is no indication that further tax changes will be announced; and
- There will be a Budget in the spring, not this autumn as previously expected, accompanied by another OBR forecast.
Despite this, there is already media speculation that some of the tax measures announced on 23 September may need revision as a result of wider economic pressures so we will be watching the Chancellor’s statement, and any further updates that may be forthcoming in the meantime, with interest.
There was no mention of when we might see a Finance Bill to legislate for the new tax measures announced or, indeed, previously announced tax policy changes that have been in development for some time. For the latter we saw some draft clauses for inclusion in a future Finance Bill published on 20 July.
Implications for tax accounting
The timing of the next Finance Bill is of particular importance in relation to the cancellation of the previously planned increase in the CT rate to 25 percent from April 2023 and the corresponding cut to the rate of bank surcharge to compensate for this. Rate changes like these need to be factored into deferred tax calculations from the date that the legislation is ‘substantively enacted’ for IFRS/UK GAAP (usually when the Finance Bill completes its passage through the House of Commons and can no longer be amended) or ‘enacted’ for US GAAP (usually the date of Royal Assent of the Finance Bill). For corporates, understanding when these dates will fall, in particular whether the date will be before or after a reporting deadline, is crucial.
There was a possibility that the Government might bring the rate changes into temporary effect immediately via the provisions of the Provisional Collection of Taxes Act 1968 (PCTA) and indeed the Speaker did mention that a Motion would be moved under the PCTA at the end of the Chancellor’s speech. However, the only PCTA related Motion listed on the parliamentary website for Friday 23 September was for the Stamp Duty Land Tax (SDLT) rate change which needed to come into effect immediately. As the House of Commons is now in recess it seems likely that the legislation to cancel the rate changes will be introduced in a Finance Bill as usual.
The main unanswered question is when will this Finance Bill be published. In a ‘normal’ tax policy cycle it would be published just after a Budget but if the Bill doesn’t appear until the ‘spring’ it will leave very little time for parliamentary scrutiny prior to the legislation needing to be in force for the start of the 2023/24 tax year. It therefore seems more likely that the Bill will be published independently of the Budget timetable, and we may see it before Christmas. However, even if that were the case, it is very unlikely that there would be time for it to complete its passage through the House of Commons and be substantively enacted before the key accounting deadline of 31 December 2022.
Overall, a Finance Bill published in quarter four of 2022 and enacted in quarter one of 2023 seems most likely but hopefully the Government or HMRC will provide some clarity around the legislative process soon.
Other developments of note since 23 September
During the fiscal event the Chancellor made the surprise announcement that the Office of Tax Simplification (OTS) will close, with HM Treasury and HMRC taking on its mandate to focus on simplifying the tax code. The OTS confirmed it will continue to gather evidence on its hybrid and distance working review ahead of its closure, but has since brought forward the closure date for the call for evidence to 28 October 2022, rather than the original date of 25 November, to allow it to complete its work this year. The OTS has also confirmed that it expects to publish its report on the taxation of Property Income in October.
The Chancellor also announced changes to the SDLT thresholds for the purchase of residential properties in England and Northern Ireland, but there were no immediate announcements made by the Welsh or Scottish Governments in respect of the equivalent devolved stamp taxes in Wales and Scotland. On 27 September the Welsh Government announced an increase in the threshold for paying Land Transaction Tax (LTT) from £180,000 to £225,000 alongside a small increase in the LTT rate which will impact homes that cost more than £345,000. Wales is therefore taking a different approach from England and Northern Ireland: it is increasing the nil band but unlike the SDLT changes, not for second homes, and it is slightly increasing rates for more expensive homes. The Scottish Government has not yet announced any changes in response to the fiscal statement but has confirmed it “will be considering the announcement carefully”. Any changes are likely to be announced at the time of the next Scottish Budget.