BUFDG commentary on Mini-Budget that wasn't a Budget

To say the BUFDG tax team watched the budget mostly with their jaws on the floor will probably give you a fair assessment of the “special fiscal operation (aka this is not a budget)” budget on Friday. There were some astounding announcements made and you will have, no doubt, heard about the most press-worthy ones (banker’s bonus anyone)? Here in the BUFDG team, we wanted to share the details (as far as they are known at this stage) of the announcements and how they will impact the HE sector.

General

The Office of Tax Simplification will be abolished. Instead, the government plans to ‘embed tax simplification into the institutions of government’ by instructing HM Treasury and HMRC to focus on simplifying the tax system. We wonder what they’ve been doing all these years…

An independent review will assess how the government can “deliver our net zero commitment while maximising economic growth and investment, supporting energy security, and minimising the costs borne by businesses and consumers.” The report is due by the end of 2022, and we can only hope that the HE sector can be involved.

Individuals and employees

This is the category where you would have likely seen the most news stories. The government has culled taxes that were due to be introduced next April, increased the amount of take-home pay for all (but mostly for the very wealthy) and made it more difficult for the lowest paid workers to claim Universal Credit.

• The 1.25% increase in employee NIC will be repealed and back to pre-6 April 2022 levels, from November
• The Health & Social Care Levy due to come into effect 6 April 2023, has been cancelled
• There will be a 1% cut to the basic tax rate, from 20% to 19% from 6 April 2023 in England, Wales & Northern Ireland
• The additional rate of tax (45%) will be removed from 6 April 2023 in England, Wales and Northern Ireland (Scottish Government to set tax rates)
• Dividend tax rates will not increase next April (had planned a 1.25% increase), the levels will remain at 7.5% and 32.5% for basic and higher rate taxpayers (additional rate of tax abolished)
• Universal Credit claimants will risk losing benefits if they are working less than 15 hours at the National Living Wage per week, from January 2023.  Exemptions remain for people who can’t work due to long-term sickness or disability.   
• Reforms to improve access to affordable, flexible childcare are expected
• The stamp duty threshold will increase from £125,000 to £250,00 from 23 September for properties in England and Northern Ireland.  The threshold for first-time buyers will also increase from £300,000 to £425,000 and the maximum value increases from £500,000 to £625,000) for properties in England and Northern Ireland.  Scottish and Welsh governments are responsible for stamp duty.

Pensions

With the change of the basic rate of tax, there will be a corresponding reduction in the ‘relief at source’ employees will be receiving in their pension pots. The government has announced a one-year transition period to keep the level at 20%. There’s also a removal of performance fees for DC schemes which may help with this offset and we wonder whether there will be greater investment potential into university spin-out companies?

• Removal of performance fees from the occupational defined contribution pension charge cap to “ensure savers benefit from higher potential returns while providing clarity for institutional investors to help unlock investment into [one] of the UK’s most innovative businesses and productive assets”. 
• One-year transitional period for Relief at Source pension schemes to permit them to continue to claim tax relief at 20%, thereafter it will reduce to the new basic rate tax level of 19%.

Universities as employers

This is where Julia’s mind was blown, and probably the minds of the majority of HMRC workers too. The biggest announcement in the world of employment taxes was the scrapping of the Off-Payroll Working rules from April 2023. Yes, this has been the bane of many people’s lives from 2017, with added administration introduced 2021, but to scrap it entirely without consultation might be rash. What will replace it that will now sit on the shoulders of the workers? Who knows, but HMRC are not likely to go sailing into the night on this one. In terms of the effect on the HE sector, there will be fewer status reviews/CESTs being undertaken, but as the majority of workers taken on outside of the payroll are sole traders rather than personal service companies, CESTs will still be required as we get back on the pre-2017 bus.

• Reversing the Health & Social Care Levy due to be implemented in April 2023 and repealing the additional temporary NIC charge (of 1.25% in 2022/23) that precedes the levy, with effect from November.
• The Off-Payroll Working rules for businesses and the public sector, will be repealed from 6 April 2023.  Workers providing their services through an intermediary will be responsible for determining their employment status – rewinding to pre-2017 rules.
• HMRC approved share scheme increases in thresholds and allowances from 6 April 2023, including:
  • Seed Enterprise Investment Scheme (SEIS) – various threshold increases: ability to raise up to £250k, £350k gross asset limit, annual investor limit £200k;
  • Company Share Option Plan (CSOP) – increase in value of options to £60k.

Universities as charities

Another consequence of the reduction in the basic rate of tax is the knock-on effect on charities claiming gift aid. Their claims will be reduced, and the government did recognise this by announcing a four-year transition period for Gift Aid relief. This will maintain the income tax basic rate relief at 20% until April 2027, thereafter it will be set at the current basic rate level of tax (due to be 19%).

Universities as businesses

• Corporation Tax
  • the planned increase up to 25% to the Corporation Tax rate (due April 2023) has been cancelled and the rate will remain at 19% for all firms, regardless of the profit made;
  • the temporary Annual Investment Allowance of £1 million has been made permanent, enabling businesses to deduct 100% of the costs of qualifying plant and machinery up to £1 million in the first year.

• R&D Tax reliefs
  • There will be further reviews of these reliefs and any changes will be announced in future fiscal events.

• Investment Zones to be introduced across the UK, benefiting from tax incentives over 10 years, potentially including:
  • 100% business rates relief;
  • 100% first year capital allowance on qualifying plant & machinery;
  • Reduction of taxable profits by 20% for qualifying non-residential investment per year (relieving 100% over 5 years);
  • No employer NIC for new employees who work on site for at least 60% of their time, on earnings up to £50,270;
  • Full Stamp Duty Land Tax relief;
  • Relaxation of planning rules/streamlined planning applications.

• Increased incentives for public sector to sell surplus land (aimed at government departments and the NHS): increased flexibility to allow departments to retain more income from sale of surplus government land (NHS to receive 100% of sales).

VAT

Remember the Retail Export Scheme for visitors from overseas?  Well this is being revamped and rebadged with a modern, digital, VAT-free shopping scheme.

Summary

How to sum up? Well, the extent of Julia and Andrea’s surprise at many of these announcements has been matched only by the lack of confidence displayed by the markets (and most of the press) in response. It seems that we are in for more volatile times ahead.