14 October 2022
In our last alert, we noted the seismic economic shockwaves caused by the “Special Fiscal Event” (or “mini-budget”) on 23 September and predicted that the then UK Chancellor of the Exchequer, Kwasi Kwarteng, might not be in office for much longer as a consequence. Those shockwaves have continued to reverberate, disrupting bond and stock markets and threatening major pension funds, amongst many other calamities. Today they capsized Mr Kwarteng’s Chancellorship.
The current UK Prime Minister, Liz Truss, has sacked Mr Kwarteng and reversed a key tax measure announced in the controversial mini-budget in an effort to stabilise the UK economy. Jeremy Hunt has been announced as Mr Kwarteng’s replacement.
UK corporation tax paying companies should note that the previously planned and then cancelled corporation tax rise from 19% to 25% is back on and will take effect on 6 April 2023.
The mini-budget turned a challenging economic environment into a calamitous one. Liz Truss and her administration have been in power for barely a month but have quickly seen their “revolutionary” approach to up-ending economic orthodoxy and convention collide with the hard brick wall of reality. The new Prime Minister has now acted pragmatically, and may get some credit for this reversal (at a punishingly increased rate of interest, one suspects), but the chaos caused by the Special Fiscal Event may prove both fatal to her Premiership and also require further tax and regulatory measures to get UK plc on a firmer financial footing.
The reduction in the basic rate of income tax, NICs and dividend income tax that we reported on in the last alert appear to be safe and unchanged, but uncertainty and confusion abound. The new Chancellor, who was a Prime Minister leadership candidate at one point (and pledged to cut corporation tax to 15% If he were elected leader!), now has a difficult task ahead. Companies will have to monitor the position as it develops but must once again be resigned to a substantial increase in their corporation tax burden from next April. Time will tell, as it always does… but the wait might not be an easy one.
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.
Chris Fallon and Tom Parker