In his Fiscal Statement delivered on 23 September 2022, the previous Chancellor, Kwasi Kwarteng, introduced a Growth Plan including the tax cuts promised by Liz Truss in her Conservative Party leader campaign.
However, the tax cuts were broader than expected and were being funded by increased borrowing. Furthermore, the plan was not accompanied by a report from the Office of Budget Responsibility (OBR), who normally scrutinise the Governments fiscal plans.
The combined effect of this spooked the financial markets resulting in U-turns, a change in Chancellor, and then, on 17 October 2022, a reversal of nearly all of the earlier fiscal statement measures.
Days later, the prime minister resigned, and we have since seen Rishi Sunak become leader of the Conservative Party.
To say this has been confusing is an understatement! This newsletter summaries where we are and where we are going.
In particular, we are now expecting the new Chancellor, Jeremy Hunt, to deliver an Autumn Statement and OBR report on 17 November 2022 (instead of 31 October 2022).
NIC Rate Change goes ahead
The legislation to abolish the 1.25 percentage point increase in the rate of National Insurance Contributions (NICs) paid by workers, employers and the self- employed was already in progress when the U-turns were being made.
The reduction therefore continues to go ahead and the rate of NICs on salary payments made on or after 6 November 2022 reduces to 12% for employees on earnings between £1,048 and £4,189 a month and 2% on earnings thereafter. Employer contributions will reduce to 13.8% on earnings in excess of £758 per month from 6 November 2022.
As NICs for company directors and the self-employed is based on annual earnings and profits, the rates for 2022/23 are now to be based on a proportionate or average rates.
The rate of NICs for company directors will be set at 12.73% on earnings between £11,908 and £50,270 and 2.73% on earnings thereafter. Class 4 NICs payable by self-employed individuals will be 9.73% on profits between £11,908 and £50,270 and 2.73% on thereafter.
Employers will need to make sure that they update their payroll software so that the correct amount of NICs are paid on salary payments made after 5 November 2022.
SDLT Changes go ahead
On 23 September 2022, it was announced that the Stamp Duty Land Tax (SDLT) nil-rate threshold on residential property would be increased from £125,000 to £250,000.
Like the abolition of the 1.25 percentage point increase in NICs, the legislation to enact the SDLT change was already in progress when the U-turns were being made.
As such, this threshold increase continues to apply. Unfortunately, the significant increases in mortgage interest rates mean the SDLT change is unlikely to provide the desired stimulus to the housing market.
The increase in the nil-rate threshold for first-time buyers, from £300,000 to £425,000, also continues to apply where first-time buyers purchase a property costing less than £625,000.
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