Prime minister Liz Truss has had some huge decisions to make since taking up office at the start of September.
With Russia’s war in Ukraine continuing, soaring inflation and spiralling living costs at home are set to leave millions of UK households struggling this winter. Having announced a freeze to the energy price cap for domestic users, pressure was mounting on the government to do likewise for businesses.
On 21 September, Truss announced the new Energy Bill Relief Scheme, designed to support business owners in the coming months.
Chancellor Kwasi Kwarteng followed the prime minister’s announcement with his mini-Budget, which he hoped would boost growth while maintaining responsible public finances. The reactions of global markets told their own story and led to a U-turn on at least one high-profile measure.
So, what has been announced during a busy September, what do the changes mean for you and your financial plans, and what impact could they have on your business?
Keep reading to find out.
The Energy Bill Relief Scheme provides discounted energy until March 2023
Businesses UK-wide have been struggling with the prospect of rising energy bills for much of 2022. With the war in Ukraine continuing, supply issues are forcing prices up, leading to unsustainable price hikes for commercial users.
As a business owner, you will likely have welcomed Liz Truss’s Energy Bill Relief Scheme.
The package of support caps gas and electricity at a “government supported price” of £211 per megawatt hour (MWh) for electricity and £75 per MWh for gas. This compares to anticipated wholesale costs closer to £600 per MWh for electricity and £180 per MWh for gas.
The cap applies to businesses, charities, and public sector organisations like schools, hospitals, and care homes. The help is in place now so your business will already be reaping the benefits. It is expected to remain in force until at least 31 March 2023.
You don’t need to apply for this support; the cap will be automatically applied to eligible organisations. The level of support you receive will vary depending on your organisation and the type of contract you hold.
Illustrative examples given on the government website suggest savings (compared to a potential bill had the cap not come into force) of between 35% and 50%. It is worth stressing, though, that these are illustrations only, based on recent average wholesale prices.
The chancellor’s mini-Budget spooked global markets but did offer significant tax cuts
Kwasi Kwarteng approached his “fiscal event” with three key aims:
While tax cuts were top of the agenda, world markets reacted badly to what the Economist called Kwarteng’s “cavalier” approach to the public finances.
The chancellor announced tax cuts costing around £45 billion. In response, the pound hit an all-time low against the dollar as international investors lost confidence in the UK economy. The Bank of England was forced to pledge £65 billion to bond-buying in a bid to ease the pressure on pension funds and investments.
Following high-profile opposition, including from within the Conservative Party itself, Kwarteng U-turned on one major announcement and further changes could still be made.
In the meantime, though, here’s a closer look at five of the biggest announcements so far that could affect you and your finances.
5 key changes announced in the chancellor’s mini-Budget
1. Tax cuts followed by a U-turn
One of the most unexpected, and controversial, measures of the mini-Budget was the chancellor’s decision to abolish the additional rate of Income Tax.
Intended to come into force from April 2023, the 45% rate for those earning more than £150,000 would have been scrapped. However, just over a week later, this was reversed.
2. The basic rate cut will come into force sooner than planned
The chancellor brought forward Rishi Sunak’s proposed cut in the basic rate of Income Tax.
From April 2023, the basic rate of Income Tax will be cut from 20% to 19%.
3. A planned Corporation Tax rise is cancelled
Corporation Tax had been due to rise from 19% to 25% in April 2023. Kwarteng announced that this increase will be scrapped, leaving the UK with the lowest rate of Corporation Tax in the G20.
This will come as good news to business owners – as will a U-turn on Dividend Tax.
If you pay yourself through dividends, the reversal of the 1.25 percentage point increase in Dividend Tax rates will apply from 6 April 2023.
The ordinary and upper rates will be reduced to 7.5% and 32.5% respectively.
4. Health and Social Care Levy scrapped
The 1.25 percentage point rise in National Insurance contributions (NICs) introduced by Rishi Sunak in April 2022 was due to become the Health and Social Care Levy from April 2023.
The revenue generated was intended to help the NHS recover from the effects of the coronavirus pandemic and help battle the social care crisis. From 6 November 2022, this increase will be reversed.
The move will reduce tax by nearly £10,000 for 920,000 businesses next year.
5. New investment zones will be created
The chancellor has held early discussions with local authorities to create UK “investment zones”.
Businesses in these zones will receive accelerated tax reliefs on buildings, 100% tax relief on qualifying investments in plants and machinery, and no Stamp Duty on newly occupied business premises.
There will also be no business rates to pay on new premises and no National Insurance payable on the first £50,000 earned by a new employee in the investment zone.
Get in touch
With many changes occurring, and future U-turns possible, keeping track of announcements – and their impact on your business – can be difficult.
At Boolers, our decades of combined experience mean we’re best placed to help you manage the changing political and economic landscape. If you have any questions about changing rules or any other aspect of your long-term plans, please contact us today.
This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
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