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Chancellor Kwasi Kwarteng holding his blue Plan for Growth 2022 document
HM Treasury

Mini-Budget: Corporation tax frozen and incentives extended

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To simplify the tax system the Chancellor has retained the 19% rate of corporation tax and scrapped the off-payroll working rules, both from April 2023.

23rd Sep 2022
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Chancellor Kwarteng is in favour of simplifying the tax system and he believes this can be achieved by ordering all tax policy officials in the Treasury to focus on simplifying the tax code. As this task will now be taken ‘in house’, he is abolishing the Office for Tax Simplification.

To be completely fair, this ‘mini-Budget’ included two massive simplifications for businesses, both of which will apply from April 2023:

  • Removal of the off-payroll working rules for private and public sector
  • Scrapping two new corporation tax rates plus marginal relief.

Off-payroll working scrapped

From 6 April 2023, we will be back to the IR35 rules largely as they were introduced from 6 April 2000. The off-payroll working variants for the public sector (from 6 April 2017) and for large private sector organisations (from 6 April 2021) will be scrapped.

To be clear, the IR35 provisions will still exist. However, it will be up to the directors of intermediary companies to decide whether there would be an employment relationship between the worker and the engager, if all the intermediaries in the chain were ignored.  

This is a surprising move as the off-payroll rules were introduced in 2017 and 2021 because HMRC was unable to adequately police the original version of IR35, and the cost of non-compliance was estimated to be £1.2bn per year. The chancellor said compliance will be kept under review, but the costings provided in table 4.2 of his Growth Plan 2022 indicate that the revenue lost per year from this change will be £1.1 bn in 2023/24 rising to £2bn in 2026/27.   

Corporation tax frozen

As widely expected, Chancellor Kwarteng confirmed that the scheduled increase in the main rate of corporation tax (CT) to 25% will not be brought in from 1 April 2023. The current main rate of CT will remain at 19% at all profit levels.

Just over a year ago, in the March 2021 Budget, Chancellor Rishi Sunak proposed increasing the CT rates so companies with annual profits of over £250,000 would pay tax at 25%. Those with annual profits of less than £50,000 would continue to pay CT at 19%, but marginal relief would apply between £50,000 and £250,000, giving an effective tax rate of 26.5% on those profits.

Keeping corporation tax at 19% for all companies will simplify this structure, but the tax law will have to be changed to keep the rate at 19%, as the 2023 increase has already been legislated for in FA 2021, s 6.   

According to Chancellor Kwarteng, this tax policy reversal will encourage private sector investment in the UK and a Treasury Factsheet provided a list of four research papers that support this theory. However, the Institute for Public Policy Research (IPPR) argues there is no correlation between corporate investment and lower tax corporate rates in other OECD countries.

Investment incentives

The Enterprise Investment Scheme (EIS), which provides tax incentives for individuals to subscribe for shares in unquoted trading companies, was due to end in 2025. This scheme will now be extended for an undefined period.

The similar seed enterprise investment scheme (SEIS) which provides tax relief for investment in small trading companies is not due to expire, but the annual investment caps (£100,000 per investor, £150,000 per company) will be increased from April 2023.

The Annual Investment Allowance (AIA) provides a 100% tax deduction for up to £1m of plant and machinery purchased in a year. This cap was due to reduce to £200,000 on 1 April 2023, but will now be kept at £1m indefinitely, or until another Chancellor has a different idea.

The rates of super deductions will be adjusted from 1 April 2023 to take into account the corporation tax rate being maintained at 19%.   

Shares for employees

Under the company share option plan scheme (CSOP) employees can be granted share options with a market value not exceeding £30,000. The chancellor has proposed doubling this cap to £60,000 from April 2023.

Stability and growth

When entrepreneurs are asked what would help them grow their business, most will mention stability in tax and economic policies in order to provide certainty when planning. Three chancellors and three changes in NIC rates and thresholds within a year does not provide certainty or stability.  

 

Replies (30)

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By Winnie Wiggleroom
23rd Sep 2022 14:47

Of all the measures the IR35 one surprised me the most, the 2017 and 2021 changes killed the contractor market off almost completely, like or not "employers" are not willing to take the risk whether the contract would be outside IR35 or not and so we have a large uptake in umbrella working and I have seen many of these brollies playing fast and loose with the rules.

So now the only ones that benefit from this reverse step are the employers that will no longer need to take responsibility, but the most worrying thing for me is that if you now have a flood of individuals going back to contracting but remaining with the same "employer" there has to come a point where HMRC will say "well you were IR35 before according to the engager so what makes you think you are not IR35 now"

Basically we are just back to the confusing situation we were in before. It didn't work before so why would it work now?

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Replying to Winnie Wiggleroom:
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By neiltonks
23rd Sep 2022 15:57

It won't work any better now, but HMRC were unable to police things efficiently before and won't be able to do so in future either. We'll also return to the endless arguments about whether contracting is just a way of avoiding tax.

On that note, I remember a guy I came across years ago who took a few weeks holiday abroad every winter. He called it his 'HMRC holiday', as he reckoned it was paid for by the savings in tax and NI he made by working as a contractor rather than an employee. I don't know how accurate that assertion was, but it didn't endear him to the rest of us who were working as employees doing basically the same job!

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Replying to neiltonks:
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By Paul Crowley
23rd Sep 2022 16:12

Employment protection and benefits and pension and redundancy and notice and holiday pay and unfair dismissal and employment tribunals and SMP and SSP and.......
That is why companies want 'non-employees'
And also why employees want to be employees, completely risk free.
Even paid more, they are cheaper than employees and make instant flexibility, change of direction and reaction to adverse conditions so much easier.

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By ireallyshouldknowthisbut
23rd Sep 2022 17:50

On the CT rate cut I didn't see any whisper about the super deduction being stopped. So presumably we can still claim 25% CT deduction on assets purchased until the 5th April.

Did no.11 forget about this?

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Replying to ireallyshouldknowthisbut:
Ivor Windybottom
By Ivor Windybottom
25th Sep 2022 10:26

The "Blue Book" has reference to it, saying it will remain, but will be subject to technical changes when the rate of CT reduces. I assume it will therefore be scrapped on 1 April 2023.

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By Hugo Fair
24th Sep 2022 00:51

I like your throwaway line, Rebecca ... "indefinitely, or until another Chancellor has a different idea".
Are you taking bets on shelf-life of the Chancellor (or 'mayfly' as he might become known)?

Of course the real problem is that he (and his team) obviously don't actually have any 'ideas' ... even the 'scrapping of Off-payroll working' is as you say nothing of the sort (merely a removal of the rules that attempted to control abuse by assigning liability higher up the food chain).

In fact as far as I can see the announcements are all about 'cancelling' things not about changing or improving how they work (let alone inventing better alternatives) ... a natural concomitant I guess to the diktat of avoiding state involvement as much as possible.

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Replying to Hugo Fair:
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By johnjenkins
26th Sep 2022 09:30

Spot on Hugo. All this rubbish about being bold and getting growth going is all "huff and puff", unless, of course, there is more to come. The only thing Labour is offering is the reintroduction of the 45% tax. All a bit wet and limp.

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By Mr J Andrews
26th Sep 2022 09:53

You can bet a $ to the £ that ''in house'' tax simplification will see more and more pages in the Orange and Yellow books.

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By AndrewV12
26th Sep 2022 10:10

At the time of writing, the pound has recovered to $1.07, it had just hit an all time low earlier, its hardly a ringing endorsement.

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Replying to AndrewV12:
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By johnjenkins
26th Sep 2022 11:37

I've been saying this for a few years now. It's about time £1 = $1 = E1. That would stop the speculators having control over the three major currencies.

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By jamiea4f
26th Sep 2022 11:18

This is a great budget if you're a big business or a high earner... For the average person it's shockingly awful. Designed just to push more debt onto the country while lining the high earning banker's profit with more cash. I think the tories know they're going to get booted out in the next election (or at least should, if there's a decent alternative), and are just leaving a mess for whoever comes in next to clear up....

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Replying to jamiea4f:
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By DJKL
26th Sep 2022 11:40

Not sure it is that great for all big business, are existing UK based entities going to relocate to these new zones , with all the costs of same, and then risk them all disappearing post the next general election?

Meantime their international competitors might fancy a minimum two year edge if already considering a UK investment , they then get some cost advantages over the established UK business entities.

Seems to me a policy to let in the wolves or, as you say, a scorched earth policy.

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Replying to DJKL:
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By Hugo Fair
26th Sep 2022 11:44

Sounds strangely like Putin when you put it like that (although I agree with your interpretation/forecast)!

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Replying to DJKL:
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By anthonystorey
26th Sep 2022 13:19

"Sounds strangely like Putin when you put it like that"
Well the Tories were using a "putinism" when they called this budget a fiscal statement which is akin to calling the war in Ukraine a special operation.

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By tedbuck
26th Sep 2022 12:21

Not overly inspiring but what chancellor is these days. A lot of the problems we now experience go back to the Bank of England. That 'independent' body allowed low or non-existent interest rates to pave the way for a disastrous wave of runaway house price inflation which is at the route (or will be) of many people's financial problems.
I shouldn't have thought it would have taken a genius in the BofE to see that but presumably no-one in HMG would allow the glittering facade of wellbeing from rising house prices to be tarnished. Gross folly for which the BofE and the politicians should be greatly ashamed.
Those of us who are older can remember house mortgages at 15% and they weren't really that difficult to deal with but then the politicians (of both ilks) get bags of support from the builders so are happy to see the house prices rise.
HMG are happy because the result is much more IHT into their coffers and that also applies to all brands of politicos, so they have more money to waste on bad causes like the NHS management teams and other examples of unnecessary expenditure.
So the lessons are:-
Governments benefit from inflation by freezing tax reliefs for IT and IHT and SDLT and other taxes so why on earth would they wish to stop inflation?
They aren't prepared to address the real problems which are a lack of responsibility being instilled into the population and a poor me belief that the people are entitled to something without having to work for it. (WFH is a prime example of this). No challenges on that as it might be unpopular.
Heaven help us if Vlad cannot be defeated as the spirit that carried people through hard times in the 1940s just isn't there any more.

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Replying to tedbuck:
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By paul.benny
26th Sep 2022 12:54

tedbuck wrote:
..The Bank of Englandallowed low or non-existent interest rates to pave the way for a disastrous wave of runaway house price inflation ...

You don't think the lack of housebuilding might be a significant contributor to rising house prices?

And maybe you didn't find 15% interest on mortgages difficult. I certainly did.

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Replying to tedbuck:
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By DJKL
26th Sep 2022 15:41

What was your borrowing multiple of earnings back when interest rates of 15% could be dealt with so easily?

Was it perhaps 3x higher and 1x lower salaries, or 2.5 x joint salary?

(A philosophy I always adopted, we never borrowed more notwithstanding we had an employer 5% capped mortgage from Natwest at the time, I always took the view the double whammy of my other half losing her job and losing her subsidised mortgage at the same time would have been too much to deal with together)

With some of the multiples that have been offered over the last few years (but at least slightly curtailed since pre 2008 excesses) 15% could be eye watering for some.

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Replying to tedbuck:
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By DJKL
26th Sep 2022 15:50

Duplicate

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By Peter Bromiley
26th Sep 2022 12:49

If you believe that workers who get taxed under PAYE/NI should have employment rights (and traditionally those on the Left do) then scrapping the 2017 and 2021 IR35 legislation is the correct thing to do. It has been driving both genuine self-employed workers and 'disguised employees' into Umbrella companies where they have no tax breaks and no benefits of employment (holiday pay/sick pay/redundancy rights/auto enrolment pension etc.).
And, looking longer term, the highly skilled and mobile workers who were prepared to give up a safe job to go contracting where they helped huge numbers of businesses, are not going to be there if there is no upside to giving up a safe job, and they end up in high tax Umbrella companies.

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By vstrad
26th Sep 2022 13:14

You seem surprisingly reluctant, Rebecca, to give any credit for putting right previous errors. And the NI and CT increases were definitely errors - even the Labour Party said so!

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Replying to vstrad:
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By johnjenkins
26th Sep 2022 13:47

Well now. Boris and Liz have ...... the Tories and the unions will .... Labour. Lib/Dems if you don't act on this then you'll never get in.

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Replying to johnjenkins:
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By DJKL
26th Sep 2022 15:46

They will never get in, it really is that simple.

(And I say that as a fully paid up member of the party who just the other day got an e mail asking me if I wanted to stand as the candidate for my constituency (Think they send that email to all members, if not they really are in the xxxx))

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Replying to DJKL:
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By johnjenkins
27th Sep 2022 10:42

Ok they might not get an overall majority but they certainly could get enough to have a strong say in how the country is run. My guess is that Sir Kier will do anything to get into power so he will offer them a good deal. If fact it wouldn't surprise me if negotiations aren't already in progress. 17 points and rising is a mountain to climb considering the Tories haven't got Brexit to fall back on.

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Replying to johnjenkins:
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By DJKL
27th Sep 2022 13:31

There is of course the rumour doing the rounds that Labour might election manifesto some form of PR, if that is the case they will lift an awful lot of Liberal votes anyway so will maybe not need to entertain any fudge.

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Replying to DJKL:
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By johnjenkins
27th Sep 2022 14:23

Unless Sir Kier says he will give in to the Unions then he won't get the votes he needs whatever PR exercise he wants to perform. If the Tories bring VAT down to 15% for a couple of years, that would really stimulate growth and ensure another 5 years in parliament.

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Replying to johnjenkins:
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By DJKL
27th Sep 2022 14:33

Proportional Representation is the alleged carrot . (PR) .

Actually if Scotland left the Union Labour would likely need PR to ever be electable, so maybe Labour know something the rest of us only suspect.

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Replying to johnjenkins:
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By DJKL
27th Sep 2022 14:39

I am not sure it would stimulate that much growth compared with HMG directing its spend, lower earners will not buy that much that suffers vat, higher earners either save the savings , splash on overseas holidays/imported electronics or pay their expensive mortgages, net effect the funds get sucked out of the UK economy, with limited velocity the impact will be weak.

Remember C+I+G+(X-M)=Y, if not spent via G but instead via C you do need to consider marginal propensities to either save or import, G never saves and both import.

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Replying to DJKL:
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By johnjenkins
27th Sep 2022 14:55

I agree that some money will leave the country. That will always happen whatever you do. So give lower earners more money and they will buy more cigs and who owns the cig companies? (that is just an example of what could happen as against your export of money thesis).
With the world in recession and transition (turmoil if you like) it's not going to get better until the "new order" is sorted.

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By Ian McTernan CTA
26th Sep 2022 16:06

Wasn't there mention of some new type of enterprise zone in the budget, with some pretty massive tax breaks?

Did I dream that or was that just swept under the carpet in this article?

Quite a few clients and companies out there will be chomping at the bit to get more details on those when they become available, and it's designed to encourage more investment in the UK- the central plank of trying to raise longer term growth.

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Replying to Ian McTernan CTA:
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By Hugo Fair
26th Sep 2022 16:18

https://www.accountingweb.co.uk/tax/hmrc-policy/investment-zones-and-red...

Not a dream ... but not exactly chock-a-block with details yet - indeed there's more aspirations than commitments right now.

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