New approach for a new era?

Last week, the Bank of England (BOE) raised interest rates to 2.25%, the highest level since 2008. They believe the UK economy has shrunk by 0.1% between July and September and, for the seventh time in a row, has made the increase to interest rates in an attempt to halt soaring prices. Inflation is at its highest since the 1980s and prices are expected to rise further in October, with inflation peaking at just under 11%.

We will have more insight in November when the BOE will work out the effect of the government’s recent interventions to bring down inflation and ease the cost-of-living crisis, albeit with vastly increased borrowing.

On Friday the Chancellor Kwasi Kwarteng announced a series of “growth” measures that the government thinks will help businesses and households get through this winter and beyond.

The chancellor announced:

·         The 1.25% percentage point rise in National Insurance contributions will be reversed from 6 November 2022 and the government will not go ahead with the planned April 2023 levy to fund health and social care.

·         The planned increase in corporation tax from 1 April 2023 will not happen and it will remain at 19%, irrespective of the level of company profits.

·         The basic rate of income tax will be cut from 20% to 19% from April 2023.

·         Dividend tax rates will reduce by 1.25 percentage points from April 2023.

·         The 45% and 39.35% ‘additional rates’ of income tax that apply to income over £150,000 will be abolished from 6 April 2023.

·         The annual investment allowance, allowing 100% tax relief on certain capital expenditure including computer equipment and vans, will remain at £1million beyond April 2023, when a reduction had been planned.

·         From April 2023, workers providing services via an intermediary will once again be responsible for determining their employment status and paying the correct amount of tax and National Insurance contributions under the IR35 rules. The complex ‘off-payroll’ working rules for larger employers will be repealed.

·         New ‘Investment Zones’ are to be established across England, with the Government currently in discussions with 38 local authorities. Within each Zone there will be targeted and time limited tax cuts for businesses on offer. The 38 local authorities taking part in discussions can be viewed here.

·         A possible future extension to the tax-advantaged Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT). In relation to the Seed Enterprise Investment Scheme (SEIS), there will be a widening of the criteria, allowing companies to raise £250,000 under the scheme, 66% more funding than previously.

·         Enhancements to the tax advantaged Company Share Option Plan (CSOP) scheme. The maximum employee share option limit will be increased from £30,000 to £60,000 for any new options granted from 6 April 2023. There will also be increased flexibility for share options granted from 6 April 2023 due to a removal of conditions around the class of shares used.

·         Modifications will be made to the Universal Credit regime, to support claimants to secure more or better paid work.

·         Stamp Duty Land Tax (SDLT) in England and Northern Ireland has been permanently cut from 23 September 2022. The cut is delivered by an increase in the threshold before SDLT is payable from £125,000 to £250,000. First time buyers currently pay no stamp duty on the first £300,000 and that will be raised to £425,000. The revised rates table can be viewed here.

·         VAT-free shopping for overseas visitors is to be introduced as soon as possible.

·         A package of measures to help households and businesses with energy bills.