Disclaimer: All of the information in this article was factually correct at the time of publishing.
In his first fiscal announcement as Chancellor of the Exchequer, Kwasi Kwarteng set out several measures to cut taxes and support families across the country with the cost of living crisis.
Not all of the changes were met with support from Liz Truss’s backbench and across the aisle.
This article will explain the changes which have been announced and how they may affect you.
Income tax changes
As the most controversial of the announcements, the chancellor declared during the statement that the Government intended to abolish the additional 45pc tax rate. This meant that anyone earning over £150,000 a year would no longer be charged extra tax but would remain at 40% from the higher threshold.
This announcement was met with strong opposition, and as of 3 October, Kwarteng informed the public that this decision would be repealed.
One change to income tax which will still go ahead is the 1 percentage point cut in basic income tax, from 20% to 19% as of April 2023.
According to the Treasury, this cut will allow workers to keep an extra £170 of their income for the 2023/24 tax year.
National Insurance reversal
Another of Mr Kwarteng’s aims was to reverse the additional health and social care levy introduced by his predecessor Rishi Sunak. The Government cut National Insurance contributions (NICs) by 1.25 percentage points and scrapped the levy, which was due to come into effect and replace the rise in April 2023.
The cancellation will save workers up to £330 per year and will help 28 million people across the country.
Energy bill support
With both families and businesses worried about the rising costs of energy bills, the Chancellor announced further support to help combat the increasing costs.
First, he reiterated the energy price guarantee for households, which limits prices to 7.5p per kWh for gas and 21.1p per kWh for electricity. This will see the average household pay £2,500 for their energy bills for the next two years. However, it’s crucial to know that if you use more energy than the typical household, your bills may well exceed £2,500.
Kwarteng then announced the energy bill relief scheme, which will support businesses by capping wholesale energy prices for all organisations for six months (from 1 October). It will apply to all non-domestic energy customers in England, Scotland and Wales.
Finally, the chancellor announced a £40bn energy markets financing scheme which will mean a 100% guarantee to commercial banks covering additional lending to energy firms.
Corporation tax rise cancelled
The Chancellor also announced that companies with profits between above £250,000 would continue to pay the 19% corporation tax charge.
Originally, these companies were supposed to pay 25% in corporation tax, while those with profits between £50,000 and £250,000 would have continued paying 19%.
Now all UK companies will continue to pay the 19% standard rate, which is predicted to bring almost £19 billion back into the economy every year.
IR35 rules repealed
The new IR35 reforms, introduced in 2017 and 2021, were repealed during the Chancellor’s speech.
Now, it is no longer the responsibility of the employer to decide whether an employee is inside or outside IR35 rules. The onus will be on the employee to declare and pay their tax obligations to HMRC.
Although there was some expectations for VAT rates to be cut from 20% to 15%, the Chancellor announced a completely different VAT cut.
A new shopping scheme is going to be brought in for tourists, which will allow international visitors get a refund on their VAT charges.
Although the Government hasn’t yet announced in full detail how the system will work, it has said it will modernise the scheme that currently operates in Northern Ireland and introduce a digital format in Great Britain.
If you would like to know more about how these recent changes will impact you, the team at Fairmans is happy to answer any questions.
Get in touch with us today.