Jeremy Hunt replaces ‘Kami-Kwasi’ Kwarteng as chancellor, reinstating April 2023 corporation tax rise
Jeremy Hunt has replaced a humiliated Kwasi Kwarteng as chancellor, parachuting into No 11 a former management consultant who once ran a PR firm specialising in IT.
Mr Hunt’s first announcement as chancellor is the reinstatement of 2023’s rise in corporation tax, which will hit contractor limited companies with over £50,000 in profits from April.
But it is an imperilled Liz Truss who actually reinstated the 19-to-26.5% tax rate on Friday, shortly before she fired “Kami-Kwasi” Kwarteng, as he was mockingly called online by one PSC.
The prime minister now adopting the corporation tax plan of her ex-rival Rishi Sunak, the former chancellor, clawbacks £18billion of £45bn in unfunded tax cuts which Mr Kwarteng’s Mini-Budget explosively unleashed.
'Complex calculations, but tax planning opportunties'
Ironic and awkward, given he initially backed Sunak over Truss and competed against them both with a vow to cut corporation tax from 19% to 15%, Mr Hunt is now actively promoting the hike.
But contractor accountant Helen Christopher says contractor limited companies should be actively crunching the numbers.
“Some complex calculations and opportunities for tax planning [lie ahead because] corporation tax will rise to 25% from April 2023 for companies making profits over £250k.”
Chief operations officer at Orange Genie Accountancy, Ms Christopher continued: “So the scrapped increase in corporation tax rates due in April has now been scrapped itself.
“[Affecting many limited company directors], marginal rates will apply for profits between £50,000 and £250,000.”
Alan Broome, managing director of Acumenica doesn’t believe enough attention is being paid to the thresholds, all of which will apply as Mr Sunak proposed at Spring Budget 2021.
“The U-turn on corporation tax [being reversed] does not mean that your corporation tax will instantly rise to 25%,” said Mr Broome, addressing contractor limited company directors.
“Profits up to £50k will be taxed at 19%; profits above £250k will be taxed at 25% and… [£50k-£250k profits] will get marginal relief which will see the rate taper up from 19% to 25%.”
'Bitter pill for contractors to swallow'
However, the hike might be even more taxing for some contractor-directors according to fellow accountant Chris James, who says such PSCs face a “bitter pill to swallow.”
“As a growing business's profitability grows, due to the way the planned rules operate, it will start to [suffer] corporation tax at more than 25%.
“In fact a company will start to pay 26.5% when their taxable profits reach £50k per annum,” Mr James, a director at Workwell explained. “Or less if you control more than one company.
He added: “This significantly changes the mood music… and will be seen by some to punish those enterprises with plans to expand.”
As the conductor of that mood music, Mr Hunt has done a string of media interviews, repeatedly speaking of the need for “stability” and difficult decisions “across the board.”
Mr Hunt’s wording appears to be code for taxpayers to be ready for another big clawback – the 1p shaving in income tax (brought forward by his predecessor), being put back until 2024.
Media-savvy and appearing to have already avoided the gaffes made in Mr Kwarteng’s just 38 days as chancellor, Mr Hunt has said Mini-Budget 2022 went “too far, too fast.”
John Yerou, CEO of contractor mortgage broker Freelance Financials has told ContractorUK much the same already, scolding the new government for attempting “too much, far too soon.”
'Big lever to help plug the hole'
In wake of Mr Hunt assuring Ms Truss has given him a “clean slate”, BKL tax manager Sam Inkersole mulled which “big lever” the chancellor might pull next to, “help plug the hole”.
“We wait on the edge of our seats to see which taxes will be further tinkered with,” Mr Inkersole posted.
“One thing we can be sure of is that the tax landscape in the UK will be changing – again -- and its unlikely that taxes will be falling in the near term.”
'Businesses alone should not bear the burden'
“The reinstatement of [the corporation tax] increase may go some way to steadying the bond markets and reduce the cost of government debt,” reflects Freelancer & Contractor Services CEO Chris Bryce.
“But the potential downside is that the UK becomes a less attractive place to do business on the world stage, at a time when the economy clearly needs as much inward investment as it can get, and business alone should not bear the burden of difficult economic times.”
Similarly sounding concerned for contractors running their own small or possibly single-person limited company is Joanne Thorne of accounting firm SJD Accountancy.
“Yet again contractors with limited companies are at the forefront of those [taxpayers] being squeezed by the government's tax changes with the previous sweeteners offered by Liz Truss’ government disappearing fast”, said Ms Thorne, the firm’s technical compliance manager.
“[So we now] revert to Sunak’s proposed corporation tax increase whereby a limited company that ends their financial year with profits over £50,000 will be faced with an increase in corporation tax from 19% to 25%.
“This assumes that the tapering tax charge will revert back to the previous tax rules, and won’t just be a blanket increase for all company profits earned.”
'Uncertainty and distress'
At the time of writing, there is no word from the government on whether reneging on the 1.25% dividend tax cut is among Mr Hunt’s plans.
Reversing the dividend tax reduction would clawback £1.4bn for the exchequer, although advisers like Ms Thorne are tired of the government’s ‘will they-won’t they’ stance on policy U-turns affecting limited company workers.
And not just for their own sakes as advisers. “[This stance] continues to cause a huge amount of uncertainty and distress for many of the contractors and small businesses we support,” said Thorne.
At NumberMill, founder Louise Rayner echoed, rhetorically: “How on earth is anyone to plan.”
With Mr Hunt in charge of the country’s purse strings, tax dispute expert Graham Webber believes we should all be planning for the worst.
“Let's remember what he did to the NHS. He so reduced its funding as to make its existence during covid, a thing of fine margins,” Mr Webber, of WTT Consulting began in a post.
“And now he's [tasked] to deliver an economic policy that he has had no input to, no experience of, on behalf of a PM who is prepared to throw under a bus anybody who fails to deliver ‘her’ plan.”
Saffron Cordery, interim header of NHS Providers told the Financial Times Weekend almost the opposite about the new chancellor’s financial approach.
She described Mr Hunt on Friday as a “strong advocate of a long-term, fully costed and fully funded national plan to help the NHS attract and keep the staff it so desperately needs”.
'Unwise to undo IR35 reform repeal pledge'
Back in the contractor sector, the hope is for the new chancellor to use the still-scheduled Medium Term Fiscal Plan on October 31st to steady the ship.
And believes IR35 contract review firm Qdos, a good statement by Mr Hunt on Halloween would not add the off-payroll rules’ repeal to the government’s mounting pile of U-turns.
“The government doesn’t seem to know which way to turn,” said the firm’s CEO Seb Maley. “Having rowed back on its pledge to scrap the corporation tax rise, the government would be unwise to do the same regarding IR35 reform.
“One of the few things Liz Truss and the now ex-chancellor, Kwasi Kwarteng, have got right is the decision to repeal IR35 reform. Backtracking on a promise to scrap these changes would ultimately cause more financial problems than it would solve.”