The UK 2022 Mini-Budget And How It Affects You

tax documents on the table

As we all know, the new Prime Minister of the UK, appointed a new UK Chancellor of the Exchequer Kwasi Kwarteng.

Last week, Kwasi announced a mini-budget 2022 that included a few tax changes such as a cut to basic-rate tax, which focused on removing additional-rate income tax.

The UK 2022 mini-budget was a response to the soaring inflation rate in the UK and aims to boast the economy but it remains to be seen if it will actually do that. I’m not convinced it will, and the International Monetary Fund (IMF) is not convinced either. They have issued a memo basically telling Kwasi is mini-budget is not a great idea.

This is largely because the tax changes in the mini budget seems to benefit the wealthy more than the regular Joe.

For instance, someone who earns £30,000 will only enjoy tax savings of about £318, while people earning around £200,000 will be rewarded with a whopping sum of £4,333 in tax cuts. This shows that the more people earn, the more tax cuts they enjoy.

Still, apart from a few immediate changes, the mini-budget will take effect from April 2023 for most of the UK.

So, let’s take a look at some of the tax changes and 6 ways it can affect you.

Income Tax

The Chancellor announced that the basic income tax rate will fall from 20% to 19% starting from April 2023. Kwasi also announced that the 45% additional rate for people earning £150,000 would be scrapped entirely.

Instead, there will now be a single higher rate of income tax of 40%. This means that people who earn £150,000 or more will begin to receive the tax-free Personal Savings Allowance of £500.

quote box ontop of stack of paper bills
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This change does not apply to Scottish citizens, as the Scottish government has decided to share its mini-budget in the coming weeks.

Stamp Duty

Effective immediately, first-time home buyers will not have to pay stand duty on homes worth £425,000 (it used to be £300,000). Also, first-time home-buyers could only claim relief on properties less than £500,000, but it has now been raised to £625,000.

This move may be good news for intending home buyers in Northern Ireland and England as these are permanent cuts. So there would be no stressful deadlines that may put you under pressure to buy or sell your home.

The downside of this, however, is that there is a tendency for house prices to rise, which may not be encouraging to aspiring homeowners.

brown and beige wooden house under blue sky
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If you’re applying for a new mortgage or remortgage, you may want to fix the interest rate for at least two years. This is because interest rates will likely increase in the next few months and possibly beyond.

Energy 

The growing cost of energy bills has been a big issue for most of us in the UK. The new Chancellor, Kwasi Kwarteng, has reconfirmed the previous changes made by Liz Truss earlier in September. The energy price cap means that a typical household would pay no more than £2500 for the next two years, starting from October 1, 2022.

five bulb lights
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Corporation tax

The planned rise in corporation tax from 19% to 25% has been scrapped. This means that the rate of corporation tax will remain at 19%. The government also scrapped the reintroduction of tapering relief businesses with profits under £230,000.

National Insurance

The Chancellor also confirmed that with effect from November 6, the 1.25% point rise in national insurance contributions would be reversed. This rise was initially implemented in April this year. 

Reversing this will put a little back- say about £14 per month- in the pockets of basic-rate taxpayers. But unfortunately, this new move will not provide additional assistance to those on meager incomes.

Analysts have envisaged that this change will bring an average savings of £93 per year for people earning £20,000 and as much as £1,093 for those earning £100,000.

IR35

The IR35 is a tax law requiring the end client, not the contractors they hire, to decide how the working relationships should be.

As part of the government’s plan to reduce complexity in the tax system, the government will repeal the previous reforms to off-payroll working. 

From April 6 2023, the sole responsibility for determining the employment status and paying the right amount of tax and NICs will fall on the contractors providing the service. This would be done via intermediary companies like personal services companies.

This move would help companies save time and money and focus on growth.

Summary

With time, we will tell if the stimulus given by the UK 2022 mini-budget can fulfill its purpose. We can only hope that it helps the economy grow sufficiently, bring relief to citizens, and improve the cost of living.

In the mean time, keep saving, investing, paying off debt and living your best Bulletproof life.

Till next time,

Love.

Ronke O.

Published by ronkeodewumi

I am a Chartered Accountant (ACMA, CGMA) and seasoned Management Consultant with about 16 years of experience driving the delivery of strategic solutions to complex problems of global firms. Through my blog, youtube channel, social media, tailored courses and downloadable material, I share information, resources and tips to help you manage your money better, grow your business, progress in your career, thrive in difficult times and create a life that is safe from failure, while being the best version of yourself. You will also find here links to my youtube videos where I share more nuggets to help you achieve and live your dream life. I am based in London, United Kingdom and always happy to connect with you via email (ronkeodewumi@gmail.com), social media or my contact page here.

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