In September 2022, The Growth Plan 2022 policy paper was announced. Now known colloquially as the mini-budget, this new plan was designed to help individuals and businesses to deal with the current cost of living crisis in the UK. The new government has made plans to achieve a steady 2.5% growth in the UK economy in the coming years. Hence, the new changes have been met with mixed reception from small and medium-sized businesses. In this article, we explain some of the ways in which these new tax changes could affect your business, and some steps you might have to consider.
National Insurance Reversal
In early 2022, the government increased NI to fund health and social care. From November 6th 2022, these changes will be reversed. The existing 1.25% increase in NI will now be scrapped, which could save 28 million people an average of £330 per year according to the Treasury. 920,000 businesses throughout the UK will also be affected. “This change affects different businesses differently, depending on their payroll processes,” explains Gavin Jones of Claims Bible. “The majority of employees should receive the NI cut directly via their November payroll, if businesses can update their payroll software before the 6th. If not, they will receive the benefit retrospectively.” “If your business currently does not use an external provider for its payroll, you will need to inform your payroll team to remove this 1.25% NI payment from future payslips.”
IR35 (off-payroll) determination reversal
Another U-turn included in the mini-budget is the IR35 reversal. IR35 is a name for off-payroll working rules, designed to distinguish whether a contractor is someone who is genuinely self-employed rather than an employee being disguised by businesses in order to pay a lower rate of tax.
“Contractors who work through a limited company might forgo some employee benefits,” explains Rosie Marie of Rosca Technologies. “This includes things such as paid time off, but they might also enjoy a level of tax efficiency that regular employees might not. IR35 is designed to tackle this.” “This rule, introduced in 2017 for the public sector and in 2021 for the private sector, made businesses responsible for managing how their contractors should be taxed.” “The policy change now means that it lies with the workers to be responsible for determining their employment status. This means that contractors must ensure they are paying the correct amount of tax and NI, relieving businesses of the burden.”
Corporation Tax on Company Profits
In 2021, the rate of corporation tax was announced to increase from 19% to 25%, starting in April 2023. This change was not set to affect businesses with profits below £50,000, who would still be due to pay the same 19% rate at first, with this rate increasing gradually. Only businesses with profits over £250,000 are meant to pay the full 25% rate. “It was expected that 70% of companies (which is around 1.4 million companies) would be unaffected by this change when in fact it was only set to affect 10% of companies,” explains Richard Allan of Funding Zest. “However, this plan will be scrapped. The Treasury estimates that this U-turn will cost £12 billion next year and £17 billion the following year. This is intended to encourage businesses to invest.”
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