On 23rd September 2022, Chancellor Kwasi Kwarteng made his first major announcement since taking office. Kwarteng has said that his ‘mini-budget’ represents the “biggest tax cuts in a generation”—and comes the day after the Bank of England warned that the UK may already be in a recession.
But what do the changes mean for sole traders and unincorporated landlords? Here’s a quickfire overview of his announcement, summarising the impact the changes will have on you (or your clients) in the foreseeable future.
The Chancellor announced a reduction in basic and higher rates of income tax:
- The basic rate of income tax will reduce from 20% to 19% from April 2023
- The 45% higher rate of income tax will also be abolished, meaning that there will only be one single higher rate of income tax of 40%.
Note that these changes won’t impact taxpayers until the next tax year starts in April 2023. For reference, here are the current self-employed tax rates for 2022/23.
- Kwarteng has also reversed the recent 1.25% rise in National Insurance Contributions (NI)—a change that will come into effect from 6th November.
- In 2021, the government also outlined plans to introduce a Health and Social Care Levy, which would increase National Insurance Contributions. This levy has now been scrapped.
In a bid to stimulate the property market, the Treasury has also raised stamp duty thresholds for people buying property in England and Northern Ireland. These changes will come into effect from today.
- No stamp duty will be payable on the first £250,000 of a property’s price (vs the previous threshold of £125,000)
- For first-time buyers, that threshold rises to £425,000 (vs £300,000).
- The IR35 reforms which were introduced for the private sector in April 2021 will be repealed from April 6th, 2023. The reforms transferred the responsibility for assessing whether a contractor is self-employed or employed to the end client, rather than the contractor themselves.
- Under the Chancellor’s changes, it will once again be the worker who is responsible for determining their employment status and paying the right amount of tax and national insurance contributions.
- The motivation behind this change is to reduce complexity in the tax system. It will hopefully also make it easier for businesses to work with contractors.
Other announcements made in the budget that may have an indirect impact on self-employed people and landlords include:
- The energy package, which will attempt to combat the cost of living crisis, contains components that will impact both businesses and individuals
- There will be VAT-free shopping for overseas visitors
- Planned increases in the duty rates for beer, cider, wine and spirits will be cancelled
- The planned increase in corporation tax has been cancelled (it remains at 19%)
- The cap on bankers' bonuses will be removed
- The additional rate for savings, dividends and default rates will also be removed from April 2023, and this change will apply UK-wide.