Accountancy and tax update
On 23 September the then Chancellor Kwasi Kwarteng published his Mini Budget, or The Growth Plan 2022 as it was more properly known. The impact this has had on the economy since its publication are well documented and led to Kwarteng’s resignation and much of his planned changes being reversed by his successor Jeremy Hunt, with the possibility of further changes to come. The situation is ever changing and can be confusing but we shall summarise on the tax measures that have been announced as at the time of writing that will have the greatest effect on charities.
Income tax and Gift Aid
Before the Mini Budget was announced there was already a planned reduction in the basic rate of income tax from 20% to 19% to take place in 2024. This was to apply across the UK except where the Scottish Parliament has the devolved power of setting income tax rates in Scotland. At first it was announced that this reduction was to be brought forward a year, but this was one of the changes that Jeremy Hunt made on coming into office and now any reduction in income tax rates have been put on hold for the foreseeable future. The transitional relief that was to apply, protecting charities from the potential loss of Gift Aid that could arise from a reduction in the basic rate of income tax, is of course no longer necessary.
Those charities which are also employers will be pleased to know that the 1.25% increase in National Insurance that was only introduced last April will be reversed for payments from 6 November 2022. In addition the Health and Social Care Levy that was due to be introduced in April 2023 has been scrapped. This is one of the few announcements made in the Mini Budget that continues to apply. The Mini Budget also announced that recent reforms to the off-payroll working rules will be repealed from 6 April 2023. This will no longer go ahead, meaning that charities will continue to be required to determine the employment status of any workers who provide their services via an intermediary and paying the appropriate amount of tax and National Insurance.
The planned increase in the rate of corporation tax to 25% that was due to be introduced in April 2023 will continue to take place, despite initial plans outlined in the Mini Budget to withdraw this increase. Those with lower levels of profit are likely to see little change though, as the higher rate of tax will only apply to companies with taxable profits in excess of £250,000. The current rate of 19% will continue to apply for those companies with profit below £50,000, with the increase tapered for those with profits between those two limits.
Support and incentives provided to those on Universal Credit is to be increased through changes to the Administrative Earnings Threshold (AET) that will apply from January 2023. The AET will increase to 15 hours a week at National Living Wage for an individual claimant and 24 hours a week for couples. More Universal Credit claimants will be asked to take steps to seek more work or risk having their benefits reduced.