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UK Growth Plan 2022 Delivered Including Several Tax Measures — Orbitax Tax News & Alerts

The UK's new Chancellor of the Exchequer, Kwasi Kwarteng, delivered his Growth Plan 2022 in a speech to Parliament on 23 September 2022. Some of the main policy decisions are summarized in the plan as follows:

Seed Enterprise Investment Scheme (SEIS) – From April 2023, companies will be able to raise up to GBP 250,000 of SEIS investment, a two-thirds increase. To enable more companies to use SEIS, the gross asset limit will be increased to GBP 350,000 and the age limit from 2 to 3 years. To support these increases, the annual investor limit will be doubled to GBP 200,000. These changes will help over 2,000 companies a year that use the scheme to grow.

Company Share Option Plan (CSOP) – From April 2023, qualifying companies will be able to issue up to GBP 60,000 of CSOP options to employees, double the current GBP 30,000 limit. The ‘worth having’ restriction on share classes within CSOP will be eased, better aligning the scheme rules with the rules in the Enterprise Management Incentive scheme and widening access to CSOP for growth companies.

Annual Investment Allowance – The government will support UK businesses by making the temporary GBP 1 million level of the Annual Investment Allowance permanent, instead of letting it fall to GBP 200,000 after 31 March 2023. This will support business investment, provide businesses with more stability, and make tax simpler for any business investing between GBP 200,000 and GBP 1 million in plant and machinery.

Investment Zones – The government will work with the devolved administrations and local partners to introduce Investment Zones across the UK. Investment Zones aim to drive growth and unlock housing. Areas with Investment Zones will benefit from tax incentives, planning liberalisation, and wider support for the local economy.

Abolishing the Office of Tax Simplification – A simple tax system is critical for growth. Instead of having a separate arms-length body oversee simplification, the government will embed tax simplification into the institutions of government. It will therefore abolish the Office of Tax Simplification and set a mandate to the Treasury and HMRC to focus on simplifying the tax code.

Cancelling the Corporation Tax rate increase – The previously announced planned increase in the UK Corporation Tax rate from 19% to 25% that was due to take effect in April 2023 will not go ahead. Companies will continue to pay 19% on their taxable profits. This will maintain a competitive business tax regime, which will support investment, innovation and economic growth in the UK.

Bank Corporation Tax Surcharge – In line with the cancellation of the increase in the Corporation Tax rate, the scheduled change to the rate of the Bank Corporation Tax Surcharge will also be cancelled. From April 2023 banks and building societies will continue to pay an additional 8% rate of tax on their profits, rather than the reduced 3% rate that would have been the legislative default, leading to a combined rate of 27%. The increase in the Surcharge allowance to GBP 100 million will go ahead to ensure that the tax system is supportive of growth within the UK banking market, promoting competition to the benefit of consumers.

Adjusting super-deduction rules – The government will amend some of the technical provisions for the super-deduction as a consequence of the Corporation Tax rate being retained at 19% from 1 April 2023. This will ensure that the relief continues to operate as intended.

Cancelling the increase in rate of Diverted Profits Tax – This was legislated to increase from 25% to 31% from April 2023, but will now be retained at 25% to keep the current 6 percentage point differential with the main Corporation Tax rate.

Basic rate of income tax – The government will bring forward the 1 percentage point cut to the basic rate of income tax to April 2023, 12 months earlier than planned. This will apply to the basic rate of non-savings, non-dividend income for taxpayers in England, Wales and Northern Ireland; the savings basic rate which applies to savings income for taxpayers across the UK; and the default basic rate which applies to non-savings and non-dividend income of any taxpayer that is not subject to either the main rates or the Scottish rates of income tax. A four-year transition period for Gift Aid relief will apply, to maintain the income tax basic rate relief at 20% until April 2027. There will also be a one-year transitional period for Relief at Source (RAS) pension schemes to permit them to continue to claim tax relief at 20%.

The additional rate of income tax will also be removed from April 2023. This will apply to the additional rate of non-savings, non-dividend income for taxpayers in England, Wales and Northern Ireland. The additional rate for savings, dividends and the default rates will also be removed from April 2023, and this change will apply UK-wide. As the additional rate of income tax will be removed current additional rate taxpayers will also benefit from the Personal Savings Allowance of GBP 500 for higher rate taxpayers. Where rates are devolved in Scotland the Scottish Government will receive funding through the agreed fiscal framework to allocate as they see fit.

Reversing the Health and Social Care Levy – The government is reducing Class 1 and Class 4 National Insurance contributions (NICs) by 1.25 percentage points from November and cancelling the introduction of the Health and Social Care Levy as a separate tax from April 2023, applying UK-wide. This will benefit all employees earning more than the annual equivalent of GBP 12,570 and self-employed people earning more than GBP 11,909 in 2022-23 or GBP 12,570 in2023-24. The average saving is around GBP 330 next year and an additional saving of GBP 135 this year. Additionally, 920,000 businesses will see an average tax cut of GBP 9,600 in 2023-24.

Reversing the dividend tax increase – The government is reversing the 1.25 percentage point increase in dividend tax rates applying UK-wide from 6 April 2023. Alongside the reversal of the Health and Social Care Levy, the ordinary and upper rates of dividend tax will be reduced to 2021-22 levels of 7.5% and 32.5% respectively. Due to the abolition of the additional rate of income tax, income that was previously charged at the additional rate, will now be charged at the upper rate of 32.5%. The reduction of all rates by 1.25 percentage points will benefit 2.6 million taxpayers with an average benefit of GBP 345 in 2023-24; and additional rate payers will further benefit from the abolition of the additional rate of dividend tax.