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Mini-Budget 2022: what does it mean for small businesses?

4-minute read

Houses of Parliament in London
Catriona Smith

Catriona Smith

23 September 2022

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This article was updated on 3 October to reflect the government's U-turn on plans to scrap the 45p income tax rate.

The new chancellor, Kwasi Kwarteng, has delivered his mini-Budget and announced a string of tax cuts to ‘deliver growth for the economy’.

The so-called ‘fiscal event’ on Friday 23 October was the first chance new Prime Minister Liz Truss has had to unveil details of how the government plans to deal with the cost of living crisis.

Read on to find out what the announcement means for small businesses.

Cuts to National Insurance

A 1.25 per cent cut to National Insurance has been announced, reversing the tax hike Boris Johnson introduced to help fund the NHS and social care.

From April 2023, this was due to be paid through a new ‘Health and Social Care Levy’ at a rate of 1.25 per cent. Ms Truss has now scrapped this plan in favour of an economic policy that lowers taxes to grow the economy.

The National Insurance increase will be reversed on 6 November 2022.

For the self-employed who pay National Insurance through Self Assessment, this means you’ll keep more of the salary you pay yourself.

According to The Treasury, the reversal will save 28 million taxpayers an average of £330 each a year. The more people earn, the more they’ll benefit from the change.

Income tax

The basic rate of income tax has been cut by 1p to the pound.

As chancellor, Rishi Sunak had promised this by 2024, but today’s announcement brings this forward to April 2023.

This means people will pay 19p (down from 20p) to the pound on everything they earn between £12,571 and £50,270.

It’s the first time the basic rate of income tax has been reduced since 2008-09 and it’s estimated to be worth a combined £5 billion (or £170 each) to 31 million taxpayers.

The chancellor had also confirmed that the 45 per cent tax band for people who earn over £150,000 a year will be scrapped from April 2023.

However the government reversed this on 3 October following a disasterous week for the economy as the pound slummed to record lows against the US dollar.

Read our guide to Self Assessment for more information on filing a tax return.

IR35 reforms to be scrapped

Reforms made to IR35 off-payroll working rules in 2017 and 2021 will be scrapped. From April 2023, contractors will once again be responsible for determining their employment status and paying the right amount of tax.

In 2021, responsibility for working out IR35 status was shifted from the contractor to the client (for medium and large-sized businesses). The change in the private sector mirrored reforms that were introduced in the public sector in 2017.

The chancellor said that the government is scrapping the off-payroll working reforms because they’ve ‘added unnecessary complexity and cost for many businesses’.

Read our guide to IR35 and being inside IR35 for more information on how the system currently works.

Energy support for businesses – how will this be funded?

While the details of the Energy Bill Relief Scheme were finally announced on 21 September, the cost of living Budget was an opportunity for the chancellor to outline how they’ll be funded.

The scheme, starting on 1 October 2022, will give discounted gas and electricity unit prices for those on non-domestic contracts for six months.

Alan Thomas, UK CEO at Simply Business, on the announcement of energy cost cap for non-domestic users said: “The news that business energy costs will be capped for six months will have been welcomed by small business owners – providing short-term relief and ensuring more businesses can make it through the coming winter.

“But it’s clear that small businesses need more. They need a sustainable, long-term solution. With many still in recovery mode from the impact of the pandemic, rising costs and spiralling energy bills will put countless small firms at serious risk. The message from small businesses is clear: this is a pandemic level crisis and the clock is ticking.”

No increase to corporation tax

Limited companies won’t see the planned increase to corporation tax from April 2023.

Plans to raise the tax from 19 per cent to 25 per cent were proposed by Sunak in his role as chancellor, but today’s announcement sees a freeze in rates.

Corporation tax will remain at the rate of 19 per cent.

Alcohol duty frozen

Planned tax increases on beer, wine, spirits, and cider, due to take place in February 2023, have been reversed. According to the Treasury, this equates to a tax cut of around £600 million.

At the same time, five per cent cuts to duty on draught beer and cider will be extended to cover kegs as small as 20 litres to help smaller craft breweries.

The tax paid on alcohol is supposed to rise in line with inflation. However, it has been cut or frozen every year since 2013.

It was also confirmed that a new alcohol duty system, first announced by Rishi Sunak, will be introduced on 1 August 2023. The new system means higher duty for stronger alcohol, with cuts to duty on premium sparkling wine, and beer and cider.

At a glance – what else was announced in the mini-Budget?

Alongside cuts to National Insurance and income tax, the chancellor announced a permanent cut to stamp duty.

This means property buyers will pay no stamp duty on the first £250,000 of a property purchase (up from £125,000), while first-time buyers will only pay stamp duty on properties over £425,000 (up from £300,000).

Here’s an overview of some of the other measures announced today:

  • pension fund investments will be unlocked
  • the bonus cap for city bankers has been scrapped
  • the introduction of minimum service levels by law to reduce strike actions in industries like the rail sector
  • overseas shoppers will benefit from VAT-free shopping
  • the Bank of England will remain financially independent
  • expansion of the Enterprise Investment Scheme

Will there be an autumn Budget later this year?

Today’s announcement isn’t considered a full Budget as the independent Office for Budget Responsibility (OBR) hasn't provided analysis of the measures.

The government watchdog usually assesses the economic impact of new policies alongside the autumn Budget and Spring Statement, but the government has refused to let the OBR publish a forecast.

This means an autumn Budget is still expected later this year, but no date has been set yet. As always, keep an eye on the Knowledge centre for updates.

What do you think about the announcements in the emergency Budget 2022? Let us know in the comments below.

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Catriona Smith

Written by

Catriona Smith

Catriona Smith is a content and marketing professional with 12 years’ experience across the financial services, higher education, and insurance sectors. She’s also a trained NCTJ Gold Standard journalist. As a Senior Copywriter at Simply Business, Catriona has in-depth knowledge of small business concerns and specialises in tax, marketing, and business operations. Catriona lives in the seaside city of Brighton where she’s also a freelance yoga teacher.

We create this content for general information purposes and it should not be taken as advice. Always take professional advice. Read our full disclaimer

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