Chancellor’s Emergency Statement

Today, the newly appointed Chancellor of The Exchequer, Jeremy Hunt, stood up to try and calm market fears following his predecessor’s mini-budget. He announced significant u-turns and commented that more changes would come.

The headlines

The basic rate of income tax will remain at 20%. This was due to drop to 19% in April 2023, one year earlier than previously planned. The drop has been scrapped entirely until the economic conditions allow for any cuts.

A review of the energy support scheme will commence, but the cap, which was previously promised for 24 months, will only be in place until April 2023. With the cap increasing on 1st October 2022 from the previous cap of around £1,600 a year for an average household, it is likely to bring increased uncertainty for those impacted.

The Chancellor stated, "The objective of the review is to design a new approach that will cost the taxpayer significantly less than planned whilst ensuring enough support for those in need.” This implies a more targeted approach in the future of support in this area.

Dividend tax will not be reducing back to the pre-April 2022 rates in April 2023, remaining at 8.75% (basic rate), 33.75% (higher rate) and 39.35% (additional rate). This again will be until it is deemed possible to review and reduce due to economic conditions.

The IR35 rules remain, just as they did in the mini-budget. However, the u-turn in this area means that again the responsibility for monitoring compliance with them will fall to the businesses and not revert back to the individuals. Significant work had been undertaken at the expense of industry to implement these changes, so not changing the focus of these now will mean money hasn’t been wasted.

The freezing of alcohol duty from February 2023 for a year has also been scrapped, worth approximately £600 million a year. However, other reforms in this area will remain, as will the review in due course.

The introduction of a new VAT-free shopping scheme for non-UK visitors to Great Britain will not be proceeding, saving around £2 billion a year.

The Health and Social Care levy reduction has already progressed through parliament, so the reduction in National Insurance by 1.25% will still come into being in November, with the scrapping of the Health and Social Care Levy in April 2023.

Liz Truss had previously announced the reintroduction of the increase in Corporation tax from 19% to 25% for those companies with profits in excess of £250,000 and a sliding scale for those with profits over £50,000.

Thoughts and comments

These changes are unlikely to have any immediate impact to take home pay over the next few months because changes were not already in force. Nor should they impact heavily on financial plans in place.

However, as with any changes, it is good to review and understand any impact on your financial plans both now and towards the end of the tax year, considering those changes that will impact you the most.