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Mini Budget: All the Tax Changes
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The measures, announced on 23rd September, were aimed at helping consumers who had been hit hard by higher prices in 2022, including rocketing energy bills, petrol and food prices. With inflation at a 40-year high, the British public was hoping for urgent aid in the new chancellor's mini budget.
Basic income tax cut by 1%
Mr Kwarteng says the 1% cut in the basic rate of income tax will benefit more than 31 million people. The cut will be applied to people with annual earnings of between £12,571 and £50,270. The move had already been discussed and planned for 2023 but was brought in a year earlier than planned.
According to analysts, someone earning £20,000 a year will save £167 as a result of the 1% cut, while someone earning £40,000 will save £617. This is the first reduction in the income tax basic rate in 15 years.
The government has also abolished the Additional Rate of income tax to "incentivise enterprise and hard work". Someone who earns £60,000 will save £969 per year, while someone with earnings of £100,000 will save £1,469.
According to official government figures, basic rate taxpayers will be £130 per year better off on average, while higher rate taxpayers will be £360 better off from 2023 as a result of the cuts.
Scrapping the 45% highest tax band
Scrapping the 45% highest tax band for workers who earn more than £150,000 per annum was an unexpected move. From April 2023, there will be one single higher rate of income tax of 40% instead of the highest rate of 45% imposed on the top earners.
The cut in income tax, combined with reversing the National Insurance rise introduced by Boris Johnson, will save higher earners a significant amount of money. An estimated 41 MPs, including every cabinet minister, will benefit from ending the top rate of income tax.
MPs’ standard pay had increased to £84,144 per annum from April 2022, so the tax year 2022-23 was to have been the first year senior ministers would have been paying the highest tax rate.
Cabinet ministers can claim an extra £67,505 on top of their MPs’ wage and the Prime Minister can claim an extra £75,440. They would have all been pushed over the £150,000 income tax threshold if Mr Kwarteng had not changed the tax system.
The chancellor said the high tax rate was "damaging Britain's competitiveness" and reducing incentives for new businesses. He said the tax cuts and changes were "central" to solving the challenges of economy growth, as they would "reward enterprise and growth".
Using figures already published in the past, analysts claim the former prime minister Theresa May will save an estimated £47,305 in income tax, based on her earnings in the past 12 months. Meanwhile, Sir Geoffrey Cox, the former attorney general, would save around £53,963 if his earnings remained the same as last year.
Reversal of the National Insurance rise
The government is to reduce National Insurance rates from 6th November 2022, removing the temporary 1.25% increase imposed by the former Prime Minister for the remainder of the 2022-23 tax year.
In addition, the previously announced 1.25% Health and Social Care Levy on National Insurance (also one of Boris Johnson's policies) won't come into force from 6th April 2023 as a separate tax. It was set to be introduced to help the UK recover from the financial effects of the Covid pandemic.
Cancelling the planned rise in Corporation Tax
The rate of Corporation Tax was set to rise from 19% to 25% beginning in April 2023 for businesses making more than £250,000 profit. This meant around 10% of active companies would have to pay more tax. Some would have been facing a higher increase than others, depending on how much they were making.
The government has cancelled the planned increase. The Corporation Tax rate will remain at 19% for all businesses in April 2023, regardless of their profits.
While the tax changes are aimed at stimulating economic growth, the Bank of England has warned Britain may already be in the grip of a recession. City analysts have forecast a recession for the UK economy for the fourth quarter of 2022. Unlike the Bank of England, however, business analysts believe the economy will grow in 2023, although at an extremely low rate of 0.2%, with an increase to 1% by 2024.
For business owners and the self-employed, rapid changes in the tax and National Insurance systems are proving challenging. According to the latest statistics, 65% of UK businesses use the services of an accountant for accounts preparation and 62% for tax services, while 32% have an external accountant managing their bookkeeping - they will also go to their accountant for "strategic business guidance", according to surveys.