By Andy Wilson, Tax Director at Ascendis
This week sees the first statement made by the new Chancellor Kwasi Kwarteng to Parliament. Billed by some as a ‘mini-Budget,’ but officially referred to as a Fiscal Statement, the upcoming speech in Parliament is thought to be packed with measures designed to help taxpayers, particularly small businesses.
The UK is currently experiencing a difficult cost-of-living crisis, which is affecting consumers and businesses alike.
Recently the Federation of Small Businesses predicted that as many as 15 per cent of small firms could collapse under the pressure of rising costs.
Given this tumultuous backdrop, many across the UK will be expecting big action in this mini-Budget from Liz Truss’s new Government and her recently appointed Chancellor.
Thankfully, due to the 140-plus pledges made during Truss’s leadership race and some announcements made since her selection as the new Prime Minister, we have an idea of what the speech might contain.
Support with energy bills
Although the support with energy bills this winter has already been announced, many details need to be fleshed out – particularly where it comes to support for small businesses.
What is known is that businesses will receive a discounted unit cost for gas and electricity for the next six months at the same capped price per unit that households will pay.
This will be reviewed after three months and could be extended beyond six months for certain sectors.
This support will certainly help businesses to reduce their energy bills, but energy-intensive industries could still see their costs rise even with this additional protection as it is linked to unit cost rather than an overall cap on energy bills.
Unlike household consumers, commercial energy users have never enjoyed an energy price cap and so the true level of support from this measure will rely on the details revealed by the Chancellor this week.
Abolition of Corporation Tax rise
Under the previous Boris Johnson led Government, Corporation Tax was set to rise to 25 per cent from April next year for those companies with profits over £250,000.
Meanwhile, small businesses with profits of £50,000 or less would enjoy a small profits rate, which means that they continue to pay Corporation Tax at 19 per cent.
Businesses that have profits between these two amounts would pay tax at the main rate reduced by a marginal relief. This would ensure company tax bills increased as their profits rose.
During her campaign, Truss was committed to scrapping this planned rise as she and her Chancellor want the Treasury to focus on growth rather than fiscal responsibility, which has been the objective of the last few Governments.
By growing the UK economy, the Government hopes to increase the success and profitability of businesses, therefore, recovering similar levels of tax thanks to rising GDP.
National Insurance rise reverse
Earlier this year workers and businesses experienced a rise in National Insurance contributions (NICs), as part of the Government’s attempts to better fund social care.
This measure was softened somewhat for workers when the former Chancellor, Rishi Sunak, announced an increase to the threshold at which employee NICs become payable.
Unfortunately, the same support was not given to employers, and as a result, they have had to pay 1.25 percentage points more in NICs since April.
It is understood that the mini-Budget will reverse this increase to help reduce the amount of NICs businesses and individuals pay each year.
Income Tax
Tax cuts were a winning pledge of Liz Truss’s campaign – with a promise to cut the amount of tax individuals pay ‘from day one’.
Although no immediate cut to income tax has occurred just yet, it is understood that Kwarteng’s mini-Budget on Friday may bring forward a former pledge by the Conservative party and former Chancellor Rishi Sunak to cut income tax by one per cent.
This was originally due to be introduced in April 2024, on the basis that the UK economy was recovering by this point from the impact of the pandemic and the Government had reduced national debt.
Although neither of these ambitions has been reached, Truss is keen to show that she will stick to her words and so either an immediate or planned cut to income tax is expected.
The Unknowns
Although we already know quite a bit about what the Fiscal Statement may hold, there is always an element of uncertainty before a Chancellor’s speech.
With a Government keen to create its own identity separate from its Conservative predecessors and the goal of winning a general election in 2024, we could see some other landmark shifts in tax and fiscal policy.
