Chancellor Kwasi Kwarteng has announced this morning that the planned scrapping of the 45% additional rate of income tax set out as part his mini-budget on 23 September 2022, and as reported in last week’s Muras Matters, has now been abandoned.
The intention to remove the additional rate of income tax was a surprise in the mini-budget and had come under criticism since the announcement. In his Twitter post this morning, the Chancellor stated they had listened and that ‘It is clear that the abolition of the 45p tax rate has become a distraction from our overriding mission to tackle the challenges facing our country’.
This week in Muras Matters we will also highlight a possible misconception regarding the IR35 rules following the announcement the Chancellor made in his mini-budget of the end to the off payroll working regulations.
Additional Rate of Income Tax
The statement made by the chancellor this morning means that the abolishment of the 45% additional rate of income tax, with effect from April 2023, for those earning over £150,000 a year will no longer take place.
The reversal of the planned scrapping of the 45% additional rate of income tax is also expected to see the additional rate dividend tax of 38.1% remain in place from April 2023. The Personal Savings Allowance of £500 that taxpayers earning above £150,000 a year would have been entitled to following the mini-budget is also now likely to revert to the current rules and be unavailable. It is anticipated that the government will provide further clarification on these matters in due course.
IR35/Off Payroll Working
One of the other major surprises in the mini-Budget was the significant decision to reverse the off payroll working regulations with effect from April 2023. However, it should be noted that this does not mean that the IR35 rules have been abolished too. In fact IR35 remains very much alive and the proposed changes announced in the mini-budget merely reimposes the responsibility for IR35 back to the contractor and their personal service company from April 2023.
The reality is that HM Revenue & Customs (HMRC) will continue to conduct enquiries into personal service companies and their engagers under both the off-payroll working rules (for periods from April 2017 to March 2023) and under the IR35 rules for periods prior to April 2021 and post 5 April 2023. As such the complex area of establishing the employment status for an individual worker will remain in place.
It is likely that any status determination statements issued by HMRC stating a contractor is caught by IR35 will be very difficult to reverse post 6 April 2023.
If you have any questions or require further information regarding how any of the changes outlined above may affect you, please speak to our Tax Director, Jenny Marks.
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