[UK] Chancellor's mini-budget: good for employers and employees?

[UK] Chancellor's mini-budget: good for employers and employees?
23 Sep 2022

After what feels like years of economic doom and gloom, the UK's new Chancellor Kwasi Kwarteng has announced a raft of measures which, on the face of it, appear very positive for both employers and employees.

For employees:

  • The basic rate of income tax will be cut to 19 per cent from April 2023 and the 45 per cent top rate of tax will be scrapped.
  • The recent employee primary NIC rise of 1.25 per cent will be scrapped from November 2022.

So, employees are set to have more money in their pockets. Employees who are also bankers will come off particularly well, with the current cap on banker’s bonuses lifted.

For employers:

  • The recent employer secondary NIC rise of 1.25 per cent will be scrapped from November 2022.
  • The planned rise to a 25 per cent top rate of corporate tax from April 2023 will be scrapped and the current rates will remain in force.
  • The IR35 changes that came in from 6 April 2021 will be repealed. This means that employers will no longer be responsible for assessing whether workers are inside or outside of IR35. The old rules will once again apply, whereby the personal services companies of contractors will be responsible for determining employment status and operating PAYE and NIC where required.

Therefore, for employers, it means that the cost of employment is set to fall, helping businesses cope more easily with the aftermath of the pandemic and the wider global economic turbulence. The repeal of the IR35 changes also means less administrative burden for employers and it will be easier to engage contractors.

Actions for payroll

For payroll, this unfortunately means another round of updates. Employers will want to get on to the proposed November NIC changes as soon as possible to ensure that payroll software is updated in time to effect the decrease.

What’s the catch?

Whilst many will welcome these measures, others will understandably think that it all seems too good to be true. At a time when inflation is increasing and government debt is at record levels, why would the government cut taxes and jeopardise the inflow of revenue from tax receipts?

Well, the government is banking on one key thing to make this work – GROWTH! The government strategy is to stimulate growth in the economy by cutting taxes. By cutting taxes, demand is stimulated because people have more money in their pockets.

On the supply side, businesses will have additional money to invest. The increase in business revenue resulting from this will increase the overall tax take……easy, eh?!

Not really. If only it were that simple.

In practice, it is a big gamble. Given the current state of the global economy and inflation, there is a significant risk that the tax cuts will simply fuel further inflation (i.e. because more money is pumped into an economy which is already near capacity). No point in having more money in your pocket from tax cuts if the cost of goods goes up at ever-increasing rates.

There is also a risk that the UK growth needed simply is not achievable due to a wider global downturn.

Whilst the ‘sugar rush’ of tax cuts will boost our spirits at least in the short term, I wonder whether we will end up all paying later. The reality is, no one really knows. Time will tell, as they say.


Author: Lee McIntyre-Hamilton

Lee has over 23 years of experience in international mobility, expatriate tax and employment tax. He works with a diverse range of international organisations, from small owner-managed businesses to large multi-national corporations and non-profit organisations.  Lee delivers coordinated, joined-up global mobility tax, international social security and payroll advice across many territories globally. He is a published writer on international tax matters, notably the Tiley & Collinson UK Tax Guide.


Contact Lee: lee@globalpayrollassociation.com

After what feels like years of economic doom and gloom, the UK's new Chancellor Kwasi Kwarteng has announced a raft of measures which, on the face of it, appear very positive for both employers and employees.

For employees:

  • The basic rate of income tax will be cut to 19 per cent from April 2023 and the 45 per cent top rate of tax will be scrapped.
  • The recent employee primary NIC rise of 1.25 per cent will be scrapped from November 2022.

So, employees are set to have more money in their pockets. Employees who are also bankers will come off particularly well, with the current cap on banker’s bonuses lifted.

For employers:

  • The recent employer secondary NIC rise of 1.25 per cent will be scrapped from November 2022.
  • The planned rise to a 25 per cent top rate of corporate tax from April 2023 will be scrapped and the current rates will remain in force.
  • The IR35 changes that came in from 6 April 2021 will be repealed. This means that employers will no longer be responsible for assessing whether workers are inside or outside of IR35. The old rules will once again apply, whereby the personal services companies of contractors will be responsible for determining employment status and operating PAYE and NIC where required.

Therefore, for employers, it means that the cost of employment is set to fall, helping businesses cope more easily with the aftermath of the pandemic and the wider global economic turbulence. The repeal of the IR35 changes also means less administrative burden for employers and it will be easier to engage contractors.

Actions for payroll

For payroll, this unfortunately means another round of updates. Employers will want to get on to the proposed November NIC changes as soon as possible to ensure that payroll software is updated in time to effect the decrease.

What’s the catch?

Whilst many will welcome these measures, others will understandably think that it all seems too good to be true. At a time when inflation is increasing and government debt is at record levels, why would the government cut taxes and jeopardise the inflow of revenue from tax receipts?

Well, the government is banking on one key thing to make this work – GROWTH! The government strategy is to stimulate growth in the economy by cutting taxes. By cutting taxes, demand is stimulated because people have more money in their pockets.

On the supply side, businesses will have additional money to invest. The increase in business revenue resulting from this will increase the overall tax take……easy, eh?!

Not really. If only it were that simple.

In practice, it is a big gamble. Given the current state of the global economy and inflation, there is a significant risk that the tax cuts will simply fuel further inflation (i.e. because more money is pumped into an economy which is already near capacity). No point in having more money in your pocket from tax cuts if the cost of goods goes up at ever-increasing rates.

There is also a risk that the UK growth needed simply is not achievable due to a wider global downturn.

Whilst the ‘sugar rush’ of tax cuts will boost our spirits at least in the short term, I wonder whether we will end up all paying later. The reality is, no one really knows. Time will tell, as they say.


Author: Lee McIntyre-Hamilton

Lee has over 23 years of experience in international mobility, expatriate tax and employment tax. He works with a diverse range of international organisations, from small owner-managed businesses to large multi-national corporations and non-profit organisations.  Lee delivers coordinated, joined-up global mobility tax, international social security and payroll advice across many territories globally. He is a published writer on international tax matters, notably the Tiley & Collinson UK Tax Guide.


Contact Lee: lee@globalpayrollassociation.com

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