2022 mini-Budget reversal, what does it mean for you?
Turbulence in the financial markets caused by September’s mini-Budget has been almost fully reversed by the new Chancellor of the Exchequer, Jeremy Hunt.
While the announced tax cuts by previous chancellor Kwasi Kwarteng were welcome, the government couldn’t say where the money to pay for all the tax cuts was going to come from.
Therefore, something had to be done to calm market volatility, because and the Bank of England couldn’t continue to be relied upon to keep bailing out the UK economy.
Summary of the Chancellor’s announcement
Most of the previously announced tax cuts have been reversed. We look at what this now means for you and your finances.
- The basic rate of income tax will not be reduced to 19p sand will remain at 20p.
- Plans to remove the 45% top rate of income tax have been scrapped.
- Corporation tax will rise to 25% from 19% as planned.
- The proposed freeze on alcohol duty has been scrapped.
- VAT free shopping for non-UK visitors has also been scrapped.
- IR35 reforms to stay as they are - the responsibility for determining a contractor’s employment status remains with the hiring party.
- The cap on energy prices for households now only guaranteed until April 2023, when it will be reviewed.
- Previously announced cuts to stamp duty will stay. This means there will be no stamp duty on the first £250,000 of a property’s value, and no stamp duty on the first £425,000 on properties for first-time buyers.
- The reversal of the proposed 1.25% rise in National Insurance contributions has been retained.
Change to the support with energy bills
The Energy Price Guarantee which it had originally been announced to be in place for two years will now only be in place until April 2023. This significant blow will add to household costs for many people, at a time when mortgage rates are rising, and the cost of food and fuel also continues to rise.
The support for energy prices will be reviewed in April 2023. It will adopt a new approach that will look to help those in the most need. This will likely include those on low incomes, while there may also be incentives for people to become more energy efficient.
This will be an immediate concern for all householders and small business owners who fear the effect of the rising costs.
It’s important to remember that an energy price cap is on what you can be charged per unit for gas and electricity. Therefore, depending on your energy usage, you could pay less than the often quoted £2,500 a year.
Businesses who close or who look to significantly reduce their costs, could cause a domino effect that has a negative impact on the wider supply chain and those businesses who rely on the work from larger organisations to survive.
Reversal in the promise to scrap IR35 reforms
The outgoing chancellor announced in September that the off-payroll working legislation reforms (IR35) would be reversed. This would have meant the responsibility for status determination would have been returned to the contractor.
However, on Monday 17th October the plan to repeal IR35 was reversed as the new Chancellor announced a U-turn. So, the responsibility for determining a contractor’s employment status remains with medium and large businesses, with those contractors who work for small businesses retaining the responsibility for their self-determination.
This came as a huge blow to many, as it means additional costs and administrative burdens for businesses while also meaning contracting opportunities will continue to be lower than pre-pandemic levels as companies continue to try forcing contractors onto their payroll.
Why was there a need for the U-turn?
Keeping the UK economy going throughout the Covid-19 pandemic cost a lot of money. There was a huge increase in public borrowing to help businesses and individuals which must be paid back, so increases to taxes was to be expected.
Whenever tax cuts are announced they need to be quantified and the government must explain how the cuts are going to be paid for. In the instance of the September mini-Budget, no such explanation was put forward which caused financial markets to worry and saw the pound struggle against the dollar and mortgage lenders closed their doors to new mortgage applications.
How long it will take for markets to stabilise and prices to recede remains to be seen but the October 17th announcement was at least a positive step towards repairing some of the damage.
There will be more tough decisions for the chancellor to make in the future and the next six to twelve months will be tough for the general public and small business owners alike.
What could it mean for small businesses?
Increasing taxes will add significant extra expense to businesses, some of which are already feeling the effect of rising running costs, including rent, energy bills and fuel costs.
A few of the changes that will likely have an impact from April 2023 include:
- Corporation tax will increase from 19% to 25%.
- The cap on the price of energy tariffs will end. At this point a review will be undertaken which could see help only going to those who need it the most. If that’s the case, then small businesses could see their energy bills begin to rise again.
- Dividend tax rates will increase, which could affect limited company directors who are paid via different channels to that of employees.
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