Growth Plan 2022 – A summary of the key announcements

Some very bold announcements were made by new Chancellor of the Exchequer Kwasi Kwarteng in his Growth Plan announced earlier this morning. The Chancellor made it very clear he regards taxation as a significant drag and disincentive to business investment and growth. This was truly a tax cutting Growth Plan.

The key NIC, Income Tax, Corporation tax, capital allowances, SDLT and investment zones measures are are as follows.

NIC

NIC is a tax on earnings and is paid by employers, employees and the self-employed. It is often viewed as a “tax on jobs” and Kwarteng seems determined to ensure that employers are not disincentivized from investing in new employees.

Kwarteng announced yesterday that he is reversing the 1.25% increase in NIC rates that Rishi Sunak introduced on 6 April 2022.

The reduced rates will apply from 6 November.

The reduction is expected to benefit 28 million individuals (employees and self-employed) who will save an average of £330 each in the 2023/24 tax year.

The reduction is also expected to benefit 920,000 businesses in terms of paying less employer’s NIC – on average £9,600 less per year.

Income Tax rates

The basic rate of income tax is being cut from 20% to 19% with effect from 6 April 2023. This will save an individual with earnings that use up the £37,700 basic rate band £377 per year. This income tax cut is being implemented a year earlier than planned.

In a very surprising and bold announcement, Kwarteng announced that he will abolish the 45% additional rate of income tax that applies to income above £150,000 with effect from 6 April 2023. This means that all income above £50,270 will simply be subject to a higher rate of 40%.

Dividend income tax rates are also being cut from 6 April 2023 in accordance with the above. At the moment, dividends are subject to income tax at rates of 8.75%, 33.75% and 39.35% depending on the level of the individual’s income. From 6 April 2023, the dividend additional rate is being abolished and a dividend falling in the basic rate band will be subject to 7.5% income tax, and a dividend falling above the basic rate band will be subject to 32.5% income tax.

Unfortunately the Chancellor has not seen fit to reverse the unpopular phasing out of the income tax personal allowance from £100,000 to £125,140 where income is subject to income tax at an effective rate of 60%.

However, the above income tax cutting measures represent the most radical overhaul of income tax for many years.

Corporation tax

The planned increase in the corporation tax rate from 19% to 25% from 1 April 2023 has been scrapped.

Companies will welcome the announcement that the flat corporation tax rate of 19% will remain in force.

This is a simplification measure and will mean that companies will not need to consider the complicating factors of i) marginal corporation tax rates and ii) the number of associated companies in determining the effective rate at which they are liable to pay corporation tax on their profits.

Capital Allowances

Pleasingly the Chancellor announced that the Annual Investment Allowance (“AIA”) which offers 100% capital allowances to businesses investing in plant and machinery is to remain at £1m and will not be reduced to £200,000 on 1 April 2023 as had been planned.

This measure will be welcomed by SME businesses throughout our south west region who will be able to benefit from full tax relief in the year of acquisition on the cost of capital equipment they purchase for use in their business.

The AIA is available to all businesses whether they trade as limited companies or as sole traders or partnerships.

Stamp Duty Land Tax (‘SDLT’)

As a permanent measure, for all individuals purchasing residential property on or after 23 September 2022, the level at which house buyers start paying stamp duty is being doubled from £125,000 to £250,000, removing the 2% tax band that previously existed and resulting in a saving of £2,500 on purchase. Second-home owners and landlords will also benefit from this measure.

The threshold for first-time buyers is also being permanently increased from £300,000 to £425,000, and the value of the property purchased by first-time buyers will be able to claim relief from £500,000 to £625,000. A first time buyer purchasing a property in London for £543,500 (the average London house price) would have previously paid SDLT of £17,175 but these changes will now result in a new SDLT bill of only £5,925.

Please note that these SDLT changes apply only in England and Northern Ireland. Wales and Scotland have their own land tax regimes.

Investment Zones

It was announced that the Government is in discussion with 38 local authorities in England (including Cornwall, Plymouth, and Somerset) to establish new investment zones. The Investment Zones will benefit from reduced business taxes to help encourage investment in these areas.

The tax benefits include:

• 100% business rates relief on newly occupied and expanded premises
• full SDLT relief on land purchased for commercial or residential development
• A 0% rate for employer National insurance contributions on new employees earning up to £50,270 per year
• A 100% first year enhanced capital allowance relief for plant and machinery used within designated sites
• Accelerated Enhanced Structures and Buildings Allowance relief of 20% per annum.

Designated development sites will release more land for housing and commercial development, and to support accelerated development. The need for planning applications within these development sites will be minimized.