Mini-Budget 2022: Cuts to personal tax

It’s a little early even for Hallowe'en but in the new Chancellor’s mini Budget on 23 September he did confirm the announcement released yesterday that he was creating a metaphorical bonfire of the National Insurance increase brought in from April 2022.

This will be reversed as early as 6 November this year and will also mean that the Social Care Levy (same tax, different name) will also be scrapped from 2023.

The removal of the Social Care Levy will mean a reduction of 1.25% for those employees that pay it, with a corresponding reduction for employers National Insurance Contributions (NIC), which will help businesses. It also means the additional rate of dividend tax introduced at the same time will be reduced, which is a positive change for owner-managed businesses and investors.

While this seems like good news for taxpayers, the cost to the exchequer is around £30 billion, an amount that had been ringfenced for the NHS and social care. Therefore, the question is if and how this money will be replaced. It is understood that any replacement funding for the NHS and social care will need to come from borrowing, which will likely push interests rates up increasing costs for everyone.

Throwing fuel on the already blazing tax bonfire, is a further bold move by the Chancellor who also announced the complete removal of additional rate tax from April 2023 resulting in a tax saving of 5% for those earning over £150,000. This was announced alongside a 1% reduction to basic rate tax reducing tax from 20% to 19%, for those earning under £50,000.

The government has already come under criticism as these tax cuts clearly benefit the wealthy more than those on lower incomes. For example, based simply on NIC cuts alone; pensioners and those on lower wages do not pay National Insurance so will not benefit at all. Those on a salary of £30,000 (which is above the national average) will save £218, and yet those on an income of £100,000 per a year will save £1,093.

This combined with the tightening of the rules on Universal Credit, increased inflation and higher interest rates make it difficult to see how the government is supporting working families as they claim, particularly at a time when the cap on bankers’ bonuses has also been removed and higher rate taxes cut.

The government insists that lower taxes for individuals and businesses will generate more investment in the UK and increase spending, which will boost our economy and lower inflation. Hopefully they are right and we can at some point get back to the levelling up plans we were promised.

For partners that are facing basis period reform and additional profits being taxed in the transitional year 2023/24, then the abolition of the 45% tax band for profits above £150,000 will be welcomed; their tax bills in January 2025 will be lower than previously anticipated.

If partners are considering retiring on 31 March 2023, they may wish to check to see if there is a tax saving in delaying to after 6 April 2023 and benefiting from the abolition of the 45% tax band.