Home Business News Chancellor’s mini budget reversal could see a withdrawal in ‘taxpayers confidence in their ability to plan long term’

Chancellor’s mini budget reversal could see a withdrawal in ‘taxpayers confidence in their ability to plan long term’

by LLB Finance Reporter
17th Oct 22 12:51 pm

The new Chancellor announced on Monday new drastic changes to the Government’s tax plans this morning, which has seen many of the announcements contained in the 23 September Growth Plan reversed.

Jeremy Hunt said the basic rate of income tax will remain at its current level of 20% indefinitely, rather than reducing to 19% from April 2023 as previously planned.

On dividends, each income tax rate band will retain the extra 1.25 percentage points added from April 2022, which was scheduled to be withdrawn from April 2023.

On off-payroll working, the reforms introduced in 2017 and 2021 will now not be repealed. Companies will retain responsibility for determining the employment status of workers working through an intermediary.

The Chancellor also announced the VAT-free shopping scheme for non-UK visitors to the UK has also been cancelled.

This will “reduce taxpayers confidence to plan for the long term” combined with the changes in corporation tax businesses could now hesitate further in making decisions.

Anthony Whatling, tax partner at Evelyn Partners said, “Whilst relatively little planning will have been undertaken around these announcements, their withdrawal after less than a month reduces taxpayers’ confidence in their ability to plan long term.

“Issues such as the timing of dividends, pension contributions, and even gift aid donations are affected by these changes, as well as the even shorter-lived planned withdrawal of the additional rate.

“Combined with the changes to corporation tax announced on Friday, individuals and businesses will hesitate to make decisions until they are confident that final plans have been established.

“Further details of the changes are expected to be unveiled this afternoon when the Chancellor speaks to Parliament.

“This will however not be the last we hear, because, as the Chancellor said, “there will be more difficult decisions… on both tax and spending”. The medium term fiscal plan is scheduled for 31 October, and will be released alongside forecasts from the Office for Budget Responsibility.

“On IR35, the main change is that businesses must have long-term compliance in this area and maintain discipline across their contractor population going forward. A lot of businesses will have questioned what changes they need to have made since 23 September, but most had waited for full clarity before going ahead to change their processes. The changes of process made following the 2017 and 2021 reforms now need to stay.

“Contrary to some expectations, the changes to SDLT have not been reversed, to the relief of those currently purchasing houses.

“Another element of the Growth Plan that remains is the increase to capital allowances, in the form of the permanently increased Annual Investment Allowance. Rather than reverting to £200,000 from April, it remains at £1million a year, which means that businesses, including sole traders, will be entitled to relief on the cost of qualifying plant and machinery up to that enhanced level. This will be welcomed by businesses who would otherwise have been looking to bring forward spending into the period before it was cut.

“The increase in the generosity of venture capital schemes and company share option plans (CSOPs) has also been kept. The schemes remain available beyond the original cut-off date of April 2025, and the increased investment cap on the seed enterprise investment scheme also remains. Relaxations to the limits on CSOPS also remain. This will be welcomed by investors, and hints at the Government’s continued ambitions to increase growth and investment.

“Overall, despite some tax cuts remaining including the SDLT cut and national insurance cut, the last month has been a period of unhelpful uncertainty, and considerable wasted effort from businesses, individuals, and their advisers, who have been responding to planned changes that will not go ahead.”

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