The UK Government has today announced a package of tax cuts and other measures aimed at growing the UK economy, alongside confirmation of its costly intervention in the energy market and a significant increase in Government borrowing. The announcements also signal that the tax policy of the Government under its new leadership will be pro-business and further measures can be expected to follow. Tax will be simplified, as well as reduced, so that business can “focus on business”.
The increase in corporation tax to 25% due to take effect from April 2023, and already included in legislation, will be cancelled and the tax will remain at its current rate of 19%. As a first step in the drive to remove complexity for businesses, the recent reforms to the IR35 off-payroll working rules will also be repealed from the start of the next tax year (6 April 2023) such that businesses engaging contractors via intermediaries are not responsible for determining employment status. This is expected to reverse businesses’ recent reluctance to engage workers as contractors.
Also from April 2023, a one percentage point cut (from 20% to 19%) to the basic rate of income tax will be introduced (12 months earlier than initially planned) and the additional (45%) rate of income tax will be abolished, making 40% the highest marginal rate for UK income tax. In addition the recent 1.25% increase in dividend tax rates will be reversed (lowering the rates to 7.5% and 32.5% for ordinary and upper-rate taxpayers respectively) and the Government will reverse the recent 1.25% increase in National Insurance contribution (NICs) rates introduced to fund a Health and Social Care Levy, reducing both employer and employee costs.
The Government further proposes the introduction of new Investment Zones across the UK. Alongside a streamlined planning process, Investment Zones will offer investors significant tax advantages for a ten-year period with measures under consideration including: no Stamp Duty Land Tax on purchases of land and buildings for use or development for commercial purposes; an immediate 100% tax deduction for expenditure on plant and machinery; and a tax deduction for expenditure on structures and buildings at 20% per year over a five-year period. For businesses operating in the Zones, relief from business rates and employer’s NICs for new employees will also provide major economic benefits.
Away from tax, the Government intends to support its growth agenda with regulatory reform including removing obstacles to infrastructure projects, relaxing rules for pension funds and scrapping the cap on bankers’ bonuses. In a marked shift in recent policy, “the financial services sector will be at the heart of the Government’s programme for driving growth across the whole economy”.
The eye-catching package has split economic and political opinion.