Government u-turn on September mini-budget measures

Some of the main mini-budget plans that have now been axed include the proposed changes to income tax, corporation tax, tax reductions on dividends for company directors, and the VAT-free shopping scheme for overseas visitors.

The basic rate of income tax will remain unchanged at 20% instead of being cut to 19% as previously announced.

Hunt also said the government will review its support energy bills in April 2023. The help on energy bills was previously promised for two years to domestic households and to be reviewed after six months for businesses.

On Friday (October 14) prime minister Liz Truss had already announced a u-turn on the previously announced plan to keep corporation tax at 19% rather than raising it to 25% as had been proposed by Kwarteng's predecessor Rishi Sunak.

The £18bn a year cut to national insurance (NI) contributions will remain in place, as will the cut to stamp duty.

What was announced in the previous mini-budget?

On September 23, then chancellor of the exchequer Kwasi Kwarteng announced a mini-budget designed to combat the rising cost of living:

Energy

The Energy Bill Relief Scheme was confirmed in the precious mini-budget, meaning that businesses including beauty salons will get support for covering the cost of energy. This discount is applied automatically and will take effect from companies' October bills, usually received in November. The new announcement did not reverse this measure but did state that it is only guaranteed until April 2023 whereas previously it had been promised to domestic households for longer. 

National Insurance

The mini-budget announced that the 1.25% rise in NI which was introduced in April to fund health and social care would be reversed from November 6, 2022.

This means that employers will have to contribute less NI for staff, so the cost of employing labour will go down. Employees will have less NI coming out of their wages, and those who are self-employed will pay less NI on their profits.

Changes to NI should come into effect in most people’s November pay packet. The more people earn, the more they will benefit from this change.

This change was not reversed in the October 17 statement and will still go ahead.

Corporation Tax

The previous chancellor, Rishi Sunak, had announced plans to increase corporation tax from 19% to 25% from April 2023. This was scrapped in the September 23 mini-budget, with then chancellor Kwarteng claiming that it would put £19 billion a year back into the economy.

However, Kwarteng's plans were reversed in the October 17 statement by Jeremy Hunt.

Income Tax

The September mini-budget announced that from April 2023, the basic rate of tax was due to be cut to 19%. Currently, people in England, Wales and Northern Ireland pay 20% tax on income from £12,571 to £50,270.

Kwarteng said this cut will benefit 31 million people with an average £170 a year reduction in tax.

However, the October 17 budget statement from chancellor Jeremy Hunt reversed this measure, confirming income tax will remain at 20%.

The September mini-budget also announced that the 45% additional rate of tax which is paid by people who earn more than £150,000 a year would be abolished in April 2023 but that decision was reversed on October 3. 

Recruitment

In addition to the cost-of-living crisis, the beauty and spa industries have been facing a recruitment crisis for some time. The chancellor has announced some measures which may encourage more people to seek employment.

Rules around universal credit will be changed, meaning that people’s benefits will be reduced if they don’t fulfil their job search commitments. Around 120,000 people on universal credit will be asked to take active steps to seek more work or risk having their benefits reduced.

Kwarteng also announced extra support for unemployed people aged over 50 to help get them into work.

Industry reactions 

Commenting on the u-turn, Jonathan Bardolph FCCA of Accountably Ltd Chartered Accountants said: “Whilst income tax will now not be reduced from 20% to 19%, it won’t be too damaging to aesthetic practitioners. However, the plan to continue with the increase in corporation tax from 19% to 25% from April 2023 will affect most aesthetic limited companies. What isn’t widely publicised is that this is not a step increase from 19% to 25% but a gradual smoothing by ‘marginal rate relief’ between annual taxable profits of £50k and £250k. This means that, where profits are closer to £50k a year, the company will pay closer to 19%. Where the profits are closer to £250k a year, the company will pay closer to 25%.

“There are ways to mitigate this tax rate increase via capital investment, pension planning and reviewing the number of associated companies (which affects the marginal rate relief calculation). Moreover, there is a real need to have current and up-to-date accounting records to enable the practitioner to plan tax liabilities and mitigate them if possible.” For more insight, please contact Jonathan at jonathan@accountably.co.uk.