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The mini-budget u-turn explained

Mini-budget u-turn explained 2022
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    Jeremy Hunt’s recent reversal of the mini-budget has left the UK reeling, with this just the latest in a series of twists in 2022’s economic and political turmoil. Hunt recently took over the role of Kwasi Kwarteng as Chancellor of the Exchequer and is now pledging to ease the economic strain on the country.

    If you’re confused by this latest bid to regain economic stability by the Conservatives, we’ve got the mini-budget u-turn explained in this helpful guide.

    Below, we’ve broken down what changes to the mini-budget mean for individuals, small businesses and families, as well as answer common FAQs of those looking to have the mini-budget u-turn explained.

    What the mini-budget u-turn means for individuals

    Individuals across the country are experiencing anxiety and economic strain as a result of the cost of living crisis. The effects of the mini-budget ripple into all aspects of life, with many individuals changing the way they manage their finances.

    Income tax

    With Hunt’s plans to scrap income tax by 1p, many employees won’t receive a boost to their income over the next year. The Treasurer estimates that this move will save the government approximately £6 million per year.

    This cut was planned to take place in 2024. However, Hunt’s predecessor, Kwarteng, moved this forward a year. Hunt then scrapped this plan and stated that the basic rate of income tax remains at 20% indefinitely.

    He has claimed that the government does plan to move forward with this cut in the future; however, that will only happen when such change is affordable.

    This places employees and retirees with an annual income exceeding £12,570 at a disadvantage. A worker earning £20,000 per year, for example, will be required to pay an extra £74 of income tax as a result of the government plans.

    Dividend tax

    It has also been confirmed that the 1.25% rise in dividend tax remains in place. This adds approximately £1 billion to the annual tax take of HMRC. Whilst Kwarteng planned to reverse this from April 2023, Hunt has motioned for the increase to remain.

    This means investors will continue to pay tax at 8.75%, 33.75% and 39.35% on investment dividends received outside of tax wrappers. However, it is important to remember that investors can still benefit from up to £2,000 a year in dividends tax-free, so it is not all as doom and gloom as it may seem.

    National insurance

    The decision to reverse April 2022’s 1.25% increase in national insurance is planned to go ahead on 6th November and should boost the average worker’s pay by approximately £330 per year. However, those individuals living off a retirement income won’t benefit from this change.

    Stamp duty

    Similarly, Kwarteng’s stamp duty cut has also remained untouched, allowing home buyers to let out a sigh of relief. The government has estimated that this will exempt approximately 200,000 buyers per year from paying the tax.

    What the mini-budget u-turn means for small businesses

    The bracket that Hunt’s reversals look to negatively impact most is small business owners. This is because they will now pay more tax on both dividends and profits to come April 2023. Further insight into the effects of each tax reversal is below.

    Corporation tax

    Hunt has ditched initial plans to freeze corporation tax and should now set rates at a sharp increase next year.

    Private companies currently pay a flat rate of 19% corporation tax on all profits; however, from April, any business with profits that exceed £250,000 will be expected to pay 25% corporation tax.

    There is also a sliding scale that will be used for those with profits ranging between £50,000 and £250,000, making corporation tax rates a lot more flexible and dependent on the context of profits which will most likely increase confusion, especially for small businesses completing their own accountancy.

    Dividend tax

    The decision to reverse the cuts to dividend tax will impact small business owners as they typically pay themselves using a combination of dividends and salary. This could mean an issue with the rate of pay for business owners.

    National insurance

    The one positive for businesses is the 1.25 percentage point decrease to NI, meaning that they will pay less as an employer.

    IR35

    Freelance workers were faced with disappointment as Hunt reversed the plans to repeal the IR35 rules. If you’re a freelancer, it may be worth considering contacting a professional accountant for help with your tax and finances as it remains more complex than ever.

    What the mini-budget u-turn means for families

    An attention-grabbing measure placed by Hunt was his plea to transform the energy price guarantee.

    Initially planned to stay in place for 2 years, the current package, which caps a household’s gas and electricity bill to £2,500 will be reviewed in April 2023.

    However, there are serious concerns that because of this and the current financial and economic crisis of the UK, this cap could potentially increase drastically to more than £4,300.

    These times are worrying and most definitely confusing. The state of the economy is consistently changing along with the measures to combat it too. If you’re worried about your finances and how you will manage these tax turns, contact WIS Accountancy at 0203 011 1898 for advice and guides.

    FAQs

    How much money should these measures bring in?

    The Chancellor’s announcements are expected to bring in £32 billion a year for the treasury.

    Should we expect any more u-turns on the mini-budget?

    Kwarteng has spoken out and declared that we can rest knowing this is the final change to previously announced measures. He has insisted that there will be no more mini-budget u-turns; however, in such unprecedented times, it is difficult to be reassured by that.

    Will anything of the mini-budget remain?

    Yes, three of the announcements still plan to go ahead, and these are:

    • Cut to stamp duty
    • Cut to National Insurance
    • £1 million annual investment allowance

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