Chancellor Kwasi Kwarteng outlined on Friday a £45 billion tax cut package in a bid to not only ease the growing burden of the cost-of-living crisis, but to boost the potential of Britain’s economic growth. Within the announcement, Kwarteng announced the removal of the health and social care levy, in addition to a reversal of the national insurance hike, which could save over 28 million people around £300 a year. Alongside this, he declared the scrapping of the additional rate of income tax for those earning above £150,000, which has prompted some criticism from experts across the board, whilst for business owners, corporation tax will remain at 19% – which could pump a further £19 billion back into the economy. However, many experts have also warned that Friday’s announcement – which marks the biggest tax cut since 1972 – could take a significant toll on the economy, and in turn could increase the risk of a global recession.
In light of this, Tommy Mcnally, leading tax expert and CEO of Tommys Tax, explains what this means for employees and business owners across the nation, calling for greater action to be taken – to help millions of households who are struggling to make ends meet.
Whilst the prime minister’s changes to the current tax system are part of a wider plan to boost Britain’s economy in the long-run, it has also prompted some criticism after reports show that a cut in national insurance would benefit the highest earners 250 times more than the poorest. That being said, a potential decrease in national insurance alongside a raise in personal allowance could still prove to be a vital lifeline for millions of households across the country. The government stated its overhaul on economic reforms will likely have a trickle-down effect on the economy, with a focus on “growing the size of the pie so everyone gets a bigger slice”.
The implications of Friday’s mini-budget have already made themselves known, with the pound sterling tumbling to an all-time low of $1.03 against the dollar yesterday. In addition to this, government borrowing has reached the highest rate since 1992, according to Bloomberg, while new reports reveal that interest rates are set to top 6% by next year. In a period of widespread economic uncertainty, Mcnally urges employers and employees across the UK to take this opportunity to become more educated when it comes to tax returns, and what you’re eligible to claim back. With around £20 billion of tax left unclaimed every year, this marks a crucial period for Brits navigating a loss in capital across all domains and could even act as a vital lifeline for families struggling with soaring costs amidst the current climate.
Tommy Mcnally, leading tax expert and CEO/Founder of Tommys Tax, comments on the government’s tax reforms:
“What I would call Friday’s mini-budget is in fact an “inflation budget” which is very similar to what was announced 50 years ago by former Chancellor Anthony Barber, and was not successful at all. It resulted in growth, yet inflation rose to such a degree that the budget plans had to be abandoned within 18 months. The scrapping of the additional rate of income tax means that almost half (45%) of the gains from today’s tax changes in the mini-budget will go to the richest 5%, who gain £8,560 on average. The additional rate dividend tax has to be scrapped in line with the scrapping of the additional rate of income as no one will be paying the 45% rate.
“In addition to this, Friday’s mini-budget saw quite a few changes to IR35 rules. IR35 was introduced due to the fact that there was a large number of individuals who effectively acted and served as employees to a company, but paid less tax than actual employees as they were registered as contractors under limited companies (often founded by themselves). This loophole benefited both the companies and the individuals working for them as contractors.
“The choice as to whether IR35 was applicable was up to the individual, with many claiming that they were not carrying out services or benefiting in a way that employees would. The new version of IR35 has simply slowed down the economy and prevented growth. With this in mind, I believe that the chancellor has done the right thing and removed unnecessary worry for firms trying to solve demands when they hire a worker as well as reducing employer national insurance and pension liabilities on top of payroll admin time and cost.
“For the majority of people, taxes can be boring, confusing and anxiety-inducing, which is why millions of tax rebates are left unclaimed. Knowing what you can and can’t claim for isn’t easy to understand, however with our service, it becomes so simple and allows people to claim what’s rightfully theirs. With nearly everyone impacted by the increase of cost of living across the board, there are ways in which people can inject a much-needed boost into their bank accounts.”
