What Does The Latest Budget Announcement Mean For My Business And Employees?
When a government sets out strategic plans to enhance economic growth, it is a fact that certain measures will follow. The recent announcement of Liz Truss’ government’s aim to achieve a 2.5% growth in the UK’s economy is a testament to this fact. In what the Chancellor of the Exchequer, Kwasi Kwarteng, described as a mini-budget, it was announced that there would be tax cuts that equal the value of over £50bn.
Whatever your opinion on this announcement, it is essential to know what to expect as an individual or a business owner and to understand how you, your business, and your employees will be affected.
National Insurance Increase Reversal
In April 2022, there was a 1.25% increase in National Insurance Contributions for class 1 business owners and their employees, (with the extra threshold of 2% this equalled to a 3.25% increase overall) while employers’ NICs rose to 15.5%, employees’ NICs rose to 13.25% for those earning £1,0480 to £4,189 per month. Class 2 and 4 NICs also increased.
However, from the 6th of November 2022, these rises will be reversed back to the 2% threshold. Please note for clarity – this reversal is not of the NIC that has already been paid, but a reversal of the decision made. The rates will change on the 6th of November and will only relate to pay after the 6th of April 2023, anything paid before this will not be subject to any kind of reversal.
So, what does this mean for employers and employees? While the government projects around 920,000 businesses will enjoy a tax reduction up to the value of £10,000, the implication for employers and employees are reduced total wage bills and increased net pay wages, respectively.
Corporation Tax Increase Cancellation
The planned corporation tax increase announced in 2021 and scheduled to take effect in April 2023 has been cancelled. While it was intended to increase from 19% to 25%, it now remains at 19%.
This cancellation is fantastic news for businesses throughout the UK, who are now facing significantly lower tax bills than they may have prepared for, and of course, for obvious reasons, savings for businesses is always good news for employees.
IR35 has been simplified with the repeal of the 2017 and 2021 reforms. IR35 was implemented initially to ensure correct tax payments between independent contractors and their clients. If contractors fall within IR35 rules, they are taxed on PAYE; if they are outside, they are responsible for their own tax.
The IR35 repeal affects large business owners with over 50 employees, £10.2 million annual turnover, and a balance sheet of over £5.1million. From 6th April, workers providing their services via an intermediary will be responsible again for determining their employment status and paying the correct amount of tax and National Insurance contributions.
Reduction in Income Tax
The unprecedented income tax reduction to 19% scheduled for the 2024/25 tax year has been fast-tracked to April 2023.
While the changes will not kick in until 2023, meaning employers and employees still have to deal with rising running and living costs until then, this announcement will come as a relief to most.
Annual Investment Allowance Fixed at £1M
The annual investment allowance, temporarily raised to £1M, is now permanently fixed at £1M, a change from the planned return to £200,000 due to take place in March 2023. This allowance allows businesses 100% tax relief, which will help to manage the cost of machinery and plant investments against tax bills.
Both large businesses and SMEs are empowered for growth with this allowance available to them. In addition, sole traders are also accommodated for in this generous offering.
While the Chancellor’s announcement has drawn some criticisms, it has received a positive reception from businesses across the UK. However, keeping up to date with these changes and making necessary implementations within your business can be a challenge. If you are worried about what these introductions mean for your payroll process, outsourcing your payroll places you in the best hands to ensure that all is running as it should.
Instead of waiting until the changes take effect, consider employing external payroll services to set your business and employees up for these changes. A reputable outsourced payroll provider will ensure you gain that much-needed edge ahead of your competitors.
All you need to do is to contact us to discuss how we can support your business with our expertise. With Pay Check, we have outsourced payroll solutions to suit every budget, so get in touch today.