5 months ago
Since becoming Chancellor of the Exchequer on 14th October, it's been clear that Jeremy Hunt was going to make a lot of changes to Kwasi Kwarteng's mini-budget. Only a few days after taking office, we had a clearer understanding of his plans, including spending cuts. But what changes has Jeremy Hunt made? How will these changes affect small businesses? In this article, we cover all that you need to know about Hunt's Mini-Budget U-Turn.
No, as of yet, the UK Government's commitment to the Energy Bill Relief Scheme remains unchanged, meaning the scheme will continue to run from 1st October 2022 to 31st March 2023. Due to the maximum discount which applies to those out of contract (i.e. on variable rate contracts), it's still worth considering a fixed price contract to maximise your savings.
There are several changes to Kwasi Kwarteng's mini-budget under Jeremy Hunt's Mini-Budget U-Turn. However, the following will have the most notable effect on small businesses:
The plan to increase the Main Corporation Tax Rate from 19% to 25% was in place before Kwarteng froze the increase as part of his mini-budget. Unfortunately, Hunt's U-Turn means that the planned increase will now continue. As of 1st April 2023, the following rates will be in place:
Companies whose profits equal to or less than £50,000 are subject to a small profits rate of 19%.
Companies with profits in excess of £250,000 are subject to the Main Corporation Tax Rate of 25%.
Companies with profits between £50,000 and £250,000 will pay tax at the Main Corporation Tax Rate of 25%, reduced by the Marginal Relief for Corporation Tax.
It's vital that your business meets your tax obligations, but we appreciate that at times it can be difficult to meet these obligations. With the Main Corporation Tax Rate increasing, this may become more challenging. To help your business meet your tax obligations, you could consider a business tax loan as a temporary measure.
Under his mini-budget, Kwarteng announced a Growth Plan that included steps to resolve the complexity of the tax system. As part of this plan, he subsequently aimed to repeal the 2017 and 2021 off-payroll working rules (IR35 Reforms). Accordingly, the IR35 Reforms most notably affect contractors. There's been a lot of discourse over this decision, but according to Hunt, it will free up £2bn of UK Government spending.
Although Kwarteng's plans to offer tourists tax-free shopping may have been a great way to increase retail spending from abroad. Unfortunately, this has been reversed under Hunt's Mini-Budget U-Turn. The good news is that this will save the UK Government £2.1bn. However, businesses who had made plans to capitalise on this tax break will need to rethink their strategy, as tourist spending won't be as appealing.
For any businesses serving alcohol, you'll be disappointed to learn that Kwarteng's plans to freeze the duty on alcohol have been revoked by Hunt's Mini-Budget U-Turn. Subsequently, you need to increase your prices on alcohol to stay profitable. However, it's important to keep a close eye on your competition, as they may sell higher volumes at lower prices and turn a higher profit.
As part of their plan to keep debt at current levels, the UK Government is aiming to spend less than it receives in tax receipts by the 26/27 tax year, meaning they need to find £60bn in the budget. The Mini-Budget U-Turn is part of this plan, as Jeremy Hunt believes his plan will produce savings of £32.3bn by the 26/27 tax year.
The breakdown of savings created by the budget is as follows according to a recent BBC News article:
Raising corporation tax to 25%
Keeping the basic rate of income tax at 20p
Higher-rate income tax
A dividends tax increase
Cancelling changes to IR35 rules for freelance workers
Cancelling plans to offer tax-free shopping to tourists
Cancelling plans to freeze alcohol duty increases
As you can see, this leaves a £27.7bn shortfall, meaning that it's likely we will see further policy revisions over the coming months if the Government is to meet their target of stopping the UK from going further into debt.
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