Chancellor slashes taxes across the board in a bid to launch economic growth
On Friday 23rd September, the Chancellor of the Exchequer announced an emergency budget in response to soaring inflation and its impacts on the economy.
Alongside the energy support package for businesses and households, Kwasi Kwarteng set out a range of tax cuts, estimated to cost £45bn over the coming years, in an attempt to stimulate the economy.
The headline news for contractors, however, is the repeal of IR35 reform.
Below, we’ve summarised this, and the other key developments from the announcement, including changes to Income Tax, Corporation Tax and more.
IR35 reform repealed
Unexpectedly, the Chancellor announced that the IR35 reform would be repealed.
The reform, introduced in the public sector in 2017 and the private sector in 2021, saw responsibility for determining IR35 status handed to the end client, with the liability transferring to the fee-paying party.
Prior to this, contractors were responsible for assessing and determining their own IR35 status.
The news that IR35 reform will be reversed was met with praise from campaign groups and industry experts, including IPSE’s Director of Policy, Andy Chamberlain, who called the move “a watershed moment”, and welcomed the “dramatic shift in government thinking”.
“We are delighted that the new Chancellor agrees with what we have been saying for years – that the 2017 and 2021 reforms create unnecessary complexity for contractors and businesses,” he said.
“As delighted as we are with the news, we remain concerned that underlying IR35 rules will stay in place, and we hope to work with the government to make further progress on this issue in the weeks and months ahead,” he added.
Income Tax top rate abolished
One of the key themes in the Chancellor’s speech was that of “tax simplification”, both for businesses and individuals.
As a result, the government has abolished the Additional Rate (45%) of Income Tax, levied on earnings over £150,000. This leaves England with two tax bands, the Basic Rate (20%) and the Higher Rate (40%).
In addition, the government will also cut the Basic Rate, from 20% to 19%. Both of these measures will come into effect on the 6th April 2023, which is the start of the new tax year.
Incoming Corporation tax hike scrapped
The Chancellor also used the emergency mini-budget to reverse the planned increase to Corporation Tax, introduced as a fiscal policy by his predecessor Rishi Sunak, serving in Boris Johnson’s government.
Instead of increasing to 25% in April 2023, it will remain at its current rate of 19%, freeing up an estimated £19bn in the budgets of large businesses to “reinvest, create jobs, raise wages” said the Chancellor during his speech to Parliament.
Recent dividend tax hike binned
Another change, also due to come into effect in April 2023, is the reversal of the 1.25 percentage point increase to dividend tax rate levels.
This means that the tax rate on dividends will revert to the previous levels. For basic rate taxpayers, the dividend rate will return to 7.5%, down from 8.75%. The higher rate will return to 32.5% from 33.75%.
NI increase scrapped
The recent increase in National Insurance – another policy implemented by Rishi Sunak during his time as Chancellor – has been reversed, too.
NI was increased by 1.25 percentage points in July, but will return to its 2021-22 level on the 6th November 2022.
The threshold for Stamp Duty was also changed, reducing the tax burden on property buyers. The nil rate band will be doubled from £125,000 to £250,000. Additionally first time buyers will pay no stamp duty up to £425,000, and the value of property on which first time buyers can claim relief has increased from £500,000 to £625,000.
However, first-time buyers purchasing a property valued at over £625,000 will not qualify for First-Time Buyer’s Relief.
All in all, the new government’s first fiscal event was widely welcomed by contractors and the wider self-employed community, with independent workers hoping that government support for this vital sector continues.