Fiscal Statement – Growth Plan: all change for employment taxes?

The Chancellor of the Exchequer, Kwasi Kwarteng, delivered his first Fiscal Statement today.

However, in an unprecedented move, the Chancellor announced the following yesterday, before the Statement to Parliament:

• 1.25% increase in National Insurance (‘NI’) for both employer’s and employee’s NI that was introduced from April 2022 will be reversed from 6 November 2022 for the rest of the 2022-23 tax year. It will also cover Class 1A, Class 1B and Class 2 and 4 (self-employed) NI.
• Additionally, Class 1A and Class 1B (PAYE Settlement Agreement) NI rate will be at 14.53% for the whole of the 2022/23 tax year
• Most employees will see the increase in pay reflected in their November pay depending on their employer’s payroll software’s capabilities. We understand that most software developers have been updating their software in anticipation of this announcement.
• The July 2022 uplift in NI thresholds will also be retained
• In addition, the introduction of separate Health and Social Care Levy tax that was due to come into effect from April 2023 will also be repealed. The Chancellor has pledged that the repeal will not affect the funding of the health and social care services, which will be protected and remain at the same level (at around £13 billion), as if the levy was retained. The shortfall in revenue is expected to come from general taxation but without a tax increase.
• The Government forecast that 30 million people will save an extra £500 and 920,000 businesses are set to save almost £10,000 on average next year due to the change

We assume the urgency of the NI announcement and approximately six week’s timeline is to allow for payroll software to be updated in time for the November reversal. The guidance relating to the Health and Social Levy calculator has been updated to state that it is now out of date due following yesterday’s announcement.

We are advised that the appropriate changes will take place automatically for employers who use HMRC basic PAYE tools.,

Various commentators have said that the reversal will benefit higher earners the most, handing back about £1,800 a year to top earners, while the lowest earners get about £7 a year. The government forecast translates to savings of £135 on average this year.

Other announcements

• Bringing forward the reduction to the basic rate income tax by 1% to 19% from April 2023. 31 million will get £170 more per year
• Additional rate of income tax 45% abolished from April 2023. “From April 2023 we will have a single higher rate of income tax of 40%. This will simplify the tax system and make Britain more competitive,” said Kwarteng.
• IR35 Off payroll working rules introduced in 2017 and 2021 in the public and private sector respectively to be repealed. From April 2023, the original IR35 rules introduced in 2000 will apply. This means the contractors operating through their own Personal Service Company (‘PSC’) will be responsible for assessing their own employment status and operating PAYE, if applicable. This is big news! However, it should also be noted that this does not change the processes the employers should be following for those engaged directly, i.e. sole traders.
• Setting up of investment zones. Each zone will offer tax cuts for businesses to help them create jobs and improve productivity. For those employers in these zones taking on new employees will pay no employers NI on earnings up to £50,270 per year (The Growth Plan 2022 – Factsheet on Investment Zones). This will be supported by less strict planning rules and reforms to environmental regulations to make building houses and commercial property easier.