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If the series of updates and change of chancellor following the September Mini-budget have been enough to make your head spin, then today’s announcement was a real roller coaster. It reversed almost all of the tax cuts set out in the 23 September Mini-budget and Growth Plan 2022. So what’s going on with all the budget reversals and why are we all on this wild budget ride?
The initial Mini-budget swiftly resulted in a drop in the value of the GBP in the financial markets and concerns about how the budget would be funded. The reversals have been made to help re-balance the country’s books and hopefully, as a consequence, to improve market confidence and stability. The reversals are estimated to raise £32bn.
The Mini-budget changes have not yet been legislated through Parliament. So it’s still possible to reverse them at this stage, even if it’s rather unusual. Today’s announcement was bringing forward a number of measures that are part of the Government’s 31 October Medium-Term Fiscal Plan.
The first budget reversal announced on 3 October 22 was to scrap plans to abolish the 45p rate of income tax. The additional rate of income tax at 45% will now remain.
Basic rate income tax was due to be cut to 19% from April 2023. After today’s announcement this will no longer take place. The government still aims to proceed with the cut, but no future date has been given as to when it might happen. For now the basic rate remains at 20%.
Plans to cut dividends tax by 1.25% from April 23 have been reversed. The 1.25% increase which took effect from April 2022 will remain.
The Energy Price Guarantee for households will only be in effect until April 2023. This was originally put in place for two years but will now be limited to 6 months and will be reviewed next April.
On 14 October 22 the freeze on Corporation tax was scrapped. The Mini-budget announced plans to leave Corporation tax at the current 19% rate instead of the increasing to 25% from 1 April 23. This decision was reversed and the planned increase in April 23 will still go ahead.
The Mini-budget planned to simplify IR35 with a move back to workers determining their own employment status. Today’s announcement has reversed this and the 2017 and 2021 IR35 reforms will remain in place. Employment status will still be the responsibility of the business or public authority rather than the worker.
The freeze in alcohol duty rates will not go ahead.
The VAT free shopping scheme for non-UK visitors has been scrapped.
There are a few items that have survived intact from the Mini-budget.
On the individual tax side of things, the planned reversal of the National Insurance increase and scrapping of the Health and Social Care Levy will still take place. The extra 1.25% introduced from April 22 will be removed from 6 November 22.
The changes to the Stamp Duty Threshold also remain. No stamp duty is paid on the first £250,000 of a property’s value and the first £425,000 for first time buyers.
The £1m annual investment allowance has not changed.
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