Introduction

Here is our article published 27 September 2022. Subsequently, many of these introduced changes were cancelled, but we have kept the old article for reference.

23 September 2022 the new Chancellor, Kwasi Kwarteng, held an emergency budget in parliament. Here are the key announcements that affect ecommerce business owners. Some of the changes take immediate effect, while others are planned for 6 November 2022 and April 2023.

Basic rate of income tax cut to 19%

Rishi Sunak (the previous Chancellor) had originally announced the plan to reduce the basic rate of income tax in 2024. However, Kwasi has announced that the current Government will now bring this forward into 2023. 

This means that from 6 April 2023 people will pay 19% income tax on sole trading or employment income. However, those receiving dividends will not benefit from any form of discount and will still pay 7.5% tax on dividend income at the basic rate. 

Someone earning £40,000 will be £563 better off in the year ending 5 April 2024 vs year ending 5 April 2023.

45% 'Additional rate' band abolished

Currently, in the UK (excluding Scotland) there are 4 rates of income tax: Tax free (0%), basic rate (20%), higher rate (40%) and additional rate (45%).

The announcement on Friday will see the removal of the additional rate (45%) of tax, meaning the highest tax rate in the UK will be 40%.

The additional rate of tax used to apply to any income earned above £150,000 at a rate of 45% for salary and 38.10% on dividends.

The removal of the additional rate of tax means that those earning more than £50,271 will pay 40% tax on income after that point and won't enter the 45% bracket. Those earning dividends will pay 32.50% income tax on dividends above this point and won't enter the 38.10% tax bracket.

£500 saving rate

Previously those in the additional rate bracket had their savings allowance (a tax free allowance for interest income) reduced to £0. However, now that the additional rate will be removed, those previously in the additional rate band will be moved down into the higher rate band, so will benefit from £500 of tax free income on interest income.

1.25% dividend rate increase reversed

The 1.25% dividend tax increase which came into effect at the start of personal tax year 2022/23 will be removed, meaning that from 6 April 2023 dividends will return to being to be taxed at 7.5% for basic rate payers, and 32.5% for higher rate payers.

1.25% National Insurance Levy

Effective 6 November 2022, the 1.25% National Insurance Contributions (NICs) increase for employers, employees and the self-employed, which was earmarked for future health and social care expenditure (Social Care Levy) introduced on 6 July 2022 will be abolished.

The effect of the changes to Social Care Levy applies to the whole of the United Kingdom.

Corporation Tax increases cancelled

Following the theme of change cancellations, the planned change to increase corporation tax from 19% to 25% has been cancelled and so the corporation tax rate will stay at 19%.

Annual Investment Allowance (AIA)

The temporary introduction of the £1 million allowance has been made permanent so the planned reduction to £200,000 in April 2023 is being abolished. 

The AIA allows businesses to deduct the value of qualifying investments and capital expenditure from their profit, thereby reducing their corporation tax bill. 

Stamp duty - residential property

The stamp duty threshold has been doubled from £125,000 to £250,000. For first-time buyers, it will be £425,000.

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