UK: The Government's "mini-budget" - a new broom sweeps clean

Tapestry Newsletters

19 October 2022

As previously reported (see our alerts of 7 October and 14 October), the UK government’s “Special Fiscal Event” (or “mini-budget”) on 23 September sent major shockwaves through the UK economy. In an attempt to stabilise the continuing market turbulence, on Monday the newly appointed Chancellor of the Exchequer, Jeremy Hunt, scrapped most of the tax cutting measures remaining from the mini-budget.
A further statement is expected on 31 October, providing detail on some of the other (non-tax) proposals in the government’s Growth Plan, as well as a forecast from the Office for Budget Responsibility.

Where are we now on the key tax changes?

For reward and share plan professionals, the following points are of particular relevance:
Some changes are staying:

  • The cut in the rates of national insurance contributions (NICs) by 1.25% from 6 November, and the abolition of the proposed new Health & Social Care Levy, will proceed.
  • The proposed changes to the Company Share Option Plan (CSOP) also remain “on the table” at this stage (see HMRC’s Employment Related Securities Bulletin (45)).

And some are abandoned or amended:

  • The additional 45% rate of income tax is retained. 
  • The recent 1.25% increase in the dividend rates will remain (even though this was originally introduced to align with the now cancelled increase in NICs).
  • The proposed reduction to the basic rate of income tax from 20% to 19% in April 2023 (bringing it forward from 2024) is now postponed "indefinitely".
  • The off payroll working rules (IR35) will remain unchanged, with the obligations around determining employment status and paying the appropriate PAYE and NICs will remain, as now, with the service recipient.
  • The previously planned and then cancelled corporation tax rise from 19% to 25% is back on track and will take effect on 6 April 2023.

What about the bankers’ bonus cap?

HM Treasury has confirmed that the proposal to remove the cap on bankers’ bonuses remains and it is expected that the Prudential Regulation Authority will be consulting on this in the autumn.  A package of regulatory reforms is also expected on this timescale, which may give further insight into any other changes in the pipeline for remuneration regulation in the UK following Brexit.
Tapestry comment
The new Chancellor’s extensive tearing-up of the tax measures in the mini-budget has restored a degree of stability for UK plc. However, the government must clear more hurdles to restore confidence with the markets, businesses and the public. Generally, the messaging seems to be that the current administration will defer most tax cutting measures until the economy is in a better shape, but at this stage they still have the appetite to continue with reducing regulation.

From a share plans and reward perspective, it’s largely back to the “status quo” as far as tax rates are concerned, with some slight reduction in participant costs through the changes to NICs from 6 November. We are pleased to see that the increase in the CSOP limits has (so far) survived the bonfire.  

However, this is a fast-moving situation, and we are now awaiting the release of the further fiscal statement on 31 October. Given it coincides with Hallowe’en, we hope that it will not present an opportunity for too many scary surprises!   

As always, if you have questions about any of the content of this alert, or there is any assistance you need in relation to your share incentives, do not hesitate to contact us.

Suzannah Crookes and Sharon Thwaites

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