18.10.2022 | Tax

What’s the latest on the Government’s fiscal plan?

The new Chancellor, Jeremy Hunt, has unveiled a raft of measures ahead of the Medium-Term Fiscal Plan on October 31. 

It comes after a tumultuous few weeks in which several U-turns have been made to ensure the UK’s economic stability.

Here, head of taxation at Beatons, Andrew Diver, explains the latest.

Reversal

Monday’s announcement brought a reversal of almost all of the tax measures that were set out in the Growth Plan last month. The following tax policies have been axed:

  • Cutting the basic rate of income tax to 19% from April 2023
    The intention is to proceed with the cut; however, this will only happen when economic conditions permit it, and a change is affordable, and neither of these is anticipated in the medium term. The basic rate of income tax will remain at 20% – worth around £6 billion a year.
  • Cutting dividends tax by 1.25% from April 2023
    The increase of 1.25%, which took effect in April 2022, will remain in place – worth around £1bn a year.
  • Repealing the 2017 and 2021 reforms to IR35 from April 2023
    The reforms to the off-payroll working rules will remain in place, meaning obligations to check and collect PAYE on worker status continues to revert to the end user.
  • Introduction of VAT-free shopping scheme for non-UK visitors
  • Alcohol duty freeze from February 1, 2023, for a year
    Not proceeding with the freeze is worth around £600m a year. The next steps of the Alcohol Duty Review announced in the Growth Plan will continue as planned.

These measures sit alongside the previously announced decision not to proceed with the proposals to remove the 45p rate of income tax for top earners and to cancel the planned increase in the corporation tax rate.  Businesses and business owners should review their capital investment and remuneration plans in light of these announcements.

Going ahead

Not all of the measures were scrapped. The cuts to stamp duty paid on house purchases and the scrapping of the National Insurance rise will continue.

Alongside this, the £1m Annual Investment Allowance, the Seed Enterprise Investment Scheme and the Company Share Options Plan will also continue to support business investment.

Energy bills

In good news for households and businesses, the Energy Price Guarantee and the Energy Bill Relief Scheme, which are supporting millions with rising energy costs, will continue to do so, although now only until April 2023.

A Treasury-led review will be carried out to design a new approach that will cost the taxpayer less than planned while ensuring enough support for those in need.

The Chancellor also confirmed that any support for businesses will be targeted to those who are most affected, and the approach will better incentivise energy efficiency.

What next?

The Chancellor is expected to announce further changes to the fiscal policy on October 31 with announcements of departmental spending forecasts with the aim of putting public finances on a sustainable footing.

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