On Friday 23 September the now previous Chancellor of the Exchequer, Kwasi Kwarteng, set out a range of tax measures in the UK Government’s “Mini-Budget”. The new Chancellor made clear the Government’s commitment to cutting taxes for individuals and businesses alongside measures to reduce regulation. The announcements came as part of the Government’s Growth Plan, with the stated aim of delivering consistent 2.5% growth in the UK.
On Monday 17 October, the new Chancellor of the Exchequer, Jeremy Hunt, reversed many of the measures originally announced. Following the various announcements, the remaining measures to be introduced are summarised below:
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Scrapping of the increased NI contributions of 1.25% from 6 November 2022, with the health and social care levy due to take effect from April 2023 also scrapped
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Increase in the Stamp Duty Land Tax threshold to £250,000
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Scrapping the planned reduction in the basic rate of income tax to 19% (originally announced by Rishi Sunak to take effect from April 2024). The rate will remain at 20% indefinitely
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Permanent increase in the Annual Investment Allowance to £1m per annum
After the various announcements and reversals, the resultant position is a very modest set of tax policy changes which are unlikely to have a significant direct impact on Channel Islands based persons.
Corporate tax
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Planned increase in the corporation tax rate to 25% to go ahead, with the increase to take effect from 1 April 2023
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Planned Diverted profits tax increase to 31% to go ahead with effect from 1 April 2013
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Temporary increase in capital allowances to £1m per annum to be made permanent – this was due to revert to £250,000 from April 2023 and the proposed change has been retained
The retained tax measures are less generous than those initially announced in the mini-Budget, however the permanent increase in the AIA rate will be a benefit to many CI based businesses investing into the UK.
Personal taxes
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Basic rate of income tax to remain at 20% indefinitely
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Additional rate of income tax of 45% to be retained indefinitely
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The planned 1.25% increase in dividend tax rates from April 2023 will proceed as enacted, with UK dividend tax rates moving to 8.75% basic rate, 33.75% higher rate and 39.35% additional rate
Many CI based individuals and trusts will be able to benefit from exemptions to dividend taxation in the UK. As such, given the largest measures are to maintain the existing state of affairs, the revised income tax measures should have no net tax impact on most CI based persons subject to UK income tax.
Employment taxes
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Reversal of the planned National Insurance rate increase. The 1.25% rise in NIC has been reversed, effective from 6 November. The planned “health and social care levy” to be introduced from April 2023 has also been scrapped
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The IR35/off-payroll working changes introduced in 2017 and 2021 with much controversy have been retained.
Many businesses on the Islands engage with UK contractors and the revocation of the IR35 changes would have removed a significant administrative burden on those businesses. As these measures have been retained, businesses on the Islands must take appropriate steps to ensure continued compliance with the regulations.
Stamp Duty Land Tax
The increase in the SDLT threshold for purchases of UK residential property to £250,000 has been retained. This change was effective immediately from Friday 23 September.
Whilst non-UK residents are required to pay an SDLT surcharge of 2% above the standard rates, the increase in the nil rate threshold should still benefit Jersey persons looking to purchase UK residential property.
Proposed regulatory changes
In addition to the announced tax changes, the 23 September mini-Budget also set out plans for an overhaul of the UK regulatory environment, with the following announcements:
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Introduction of “Investment zones” across the UK. Investment Zones will be special administrative regions benefitting from tax incentives, reduced regulation and planning liberalisation.
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Proposed revision to the current Countryside Stewardship payments available for farmers and landowners. The proposed policy measure suggests a reversion to a system of payments based on land ownership, akin to the system in place under the EU’s Common Agricultural Policy
The new Chancellor has reversed the proposed VAT-free shopping scheme, a measure that was likely to be popular for CI residents. The status of the above noted reforms is less clear, with further detail expected in the Medium-Term Fiscal Plan, due on 31 October.
The Chancellor has also suggested further changes to the tax code are up for consideration, and more details are expected at the Medium-Term Fiscal Plan. For now, however, we are left with a set of changes to the UK tax code which largely retain the status quo for CI based individuals and businesses.
Zaeem has many years of experience advising individuals and businesses investing into the UK via the Channel Islands. If you have any questions or concerns about your business' tax position or the implications of the Mini Budget please get in touch with Zaeem - zyoussouf@bdo.je or our tax team who will be happy to help.