Updated: Oct 21, 2022
Today chancellor Kwasi Kwarteng announced changes to tax legislation in the form of a mini-budget. Here are the most important updates!
The basic rate of income tax has been cut from 20% to 19%, effective from April 2023. This will mean for every £1 you earn over the tax threshold of £12,570, you will be deducted 19p in tax as opposed to 20p previously.
This will impact the pension tax relief available on private pensions, as the relief will also reduce from 20% to 19%. This means to put £1 in a private pension pot, you will have to contribute 81p instead of 80p.
UPDATE: the income tax cut was reversed as of 17/10/22. It will remain at 20%, and the cut has been put on hold indefinitely.
The 45% additional rate of income tax has been abolished- this was previously applicable on income over £150,000. The higher rate of 40% will now be applicable on all income over £50,270. UPDATE: this has now been reversed as of 03/10/22, so income over £150,000 will still be taxed at 45%.
The 1.25% in National Insurance applied in April 2022 will be reversed back to 2021/22 rates from November 2022. This will result in most employees receiving a cut to their NI via payroll in their November wages.
The threshold at which stamp duty is paid on a UK property has been increased from £125,000 to £250,000. This is higher for first-time buyers, as stamp duty is now payable on property values over £425,000- an increase of £125,000. This is effective from today, 23/09.
The planned rise in corporation tax from 19% to 25% over the next few years has been scrapped, and will now remain at 19%. UPDATE: this was reversed as of 14/10/22, and is expected to rise to 25% in April 2023.
IR35 will be repealed in April 2023. IR35 rules were introduced in 2017 and 2021- they required employers to be responsible for the tax status of contractors, rather than the workers themselves. A repeal may mean workers will be once again responsible for determining their employment status and paying the correct tax and national insurance. UPDATE: the decision to repeal IR35 guidance was scrapped on 17/10/22 and will not go ahead.
This not-so-mini budget has, as you can see, made a lot of changes to tax legislation and cut taxes, as promised by Liz Trust. We will see what effects these changes have on the cost of living crisis in the near future.