On Friday 23 September, the Chancellor unveiled the Mini-Budget which included several key tax announcements. We have listed the most important tax changes below and commented on the Scottish perspective.

1. Income tax and dividends

In England, Wales and Northern Ireland, the basic rate of income tax will be reduced from 20% to 19% from 6 April 2023. The 45% additional rate of tax applicable to income over £150,000 will also be abolished from April 2023.

Scottish taxpayers will benefit from these lower rates on certain types of savings income, but crucially not on earned income.

In the absence of any change implemented by the Scottish Government, Scottish taxpayers will continue to pay income tax at 46% on anything earned over £150,000 (whilst the highest rate for taxpayers in the rest of the UK will be 40%).

We would anticipate that this disparity in tax rates will lead to a renewed interest in whether or not someone is a Scottish taxpayer, particularly with the increase in hybrid working arrangements. This is a statutory test, on which we would be pleased to provide further details. 

In addition to scrapping the additional rate of tax for income tax, the 39.1% additional rate for dividends income will also be scrapped from 6 April 2023, resulting in 32.5% being the top rate of tax for dividend income throughout the UK (including Scotland). We would expect this rate change to impact the timing of dividends in the short term. 

2. National Insurance Contributions (NICs)

The increase in NICs of 1.25% for employees, employers and the self-employed, which was introduced in April 2022, will be reversed from 6 November 2022. The planned Health and Social Care Levy of 1.25% that was due to be introduced as a separate tax from April 2023 has also been scrapped. 

As NICs are not a devolved matter, Scottish taxpayers will also benefit from these NIC reductions.

3. Corporation tax

The statutory rate of corporation tax was due to increase from 19% to 25% in April 2023. This increase will no longer go ahead as planned and the rate will remain at 19%. This applies equally in Scotland. 

4. Capital allowances

The capital allowances annual investment allowance (AIA) for qualifying plant and machinery is to be permanently set at £1 million. This applies equally in Scotland.

5. Stamp Duty Land Tax (SDLT)

SDLT only applies to land transactions in England and Northern Ireland. The SDLT nil rate band has been doubled from £125,000 to £250,000. The nil rate band for first-time buyers has been extended from £300,000 to £425,000 and the value on which first-time buyers' relief can be claimed has also risen from £500,000 to £625,000. 

These changes are effective from 23 September 2022.

Although these amendments are geared towards non-commercial residential buyers, these SDLT reliefs will also positively impact companies that are involved in the development of residential properties such as student accommodation, care homes and new houses. 

The Scottish Government has not yet made any announcement regarding whether it is likely to make similar amendments to Land and Buildings Transaction Tax.

6. Investment Zones

The UK Government announced the introduction of Investment Zones across England that will benefit from low taxes and liberalised planning rules in a bid to encourage investment. Although no further information has been released about the planning rules, the following tax benefits are proposed to apply for a 10-year period:

• 100% business rates relief on newly occupied premises, and on certain expanded premises, in the site;
• full SDLT relief on land bought for commercial or residential development; 
• zero rate for Employer NICs on new employees working in the site at least 60% of their time for earnings up to £50,270 per year (above this level normal Employer NICs will arise); and 
• 100% first-year enhanced capital allowance relief for plant and machinery used within designated sites and accelerated Enhanced Structures and Buildings Allowance relief of 20% per year.

The UK Government is currently liaising with the devolved nations to set up similar investment schemes across Scotland, Wales and Northern Ireland. 

7. Off-payroll working rules (IR35 reforms)

The tax treatment of consultants, directors and contractors engaged through personal service companies (PSCs) changed for the public sector in 2017 and for other sectors in 2019. These changes were aimed at preventing tax avoidance and sought to achieve this by making the ultimate client, rather than the PSC, responsible for assessing whether employment taxes were due on fees paid to the PSC. If they were, the client was also required to deduct and account for those taxes to HMRC under PAYE.

It has now been announced that the 2017 and 2019 reforms will be reversed from 6 April 2023 on the basis that they were unduly burdensome for business. 

Although this reversal of the anti-avoidance provisions will be welcomed by many employers, the off-payroll working rules will remain in place. The obligation to assess liability for employment taxes and to account for those taxes to HMRC will revert to the PSCs.

However, businesses will still need to consider their obligations under the Criminal Finances Act 2017 not to facilitate tax avoidance by suppliers and ensure they have effective policies in place to prevent it. 

This change applies equally in Scotland.

8. Seed Enterprise Investment Scheme (SEIS)

The tax reliefs provided under the Seed Enterprise Investment Scheme (SEIS), a scheme which provides income tax relief to investors in start-ups, will be increased. Currently, new companies can raise £150,000 from SEIS investments but from April 2023 this will be increased to £250,000. The amount on which investors will be able to claim income tax relief will increase from £100,000 to £200,000. 

These changes will be welcomed by start-ups as they will be able to raise more money from investors and investors will be able to claim income tax relief on more of their investment income.

This applies equally in Scotland.

9. The Company Share Option Plan (CSOP)

The CSOP is a share option arrangement under which certain companies can grant tax-advantaged options to their employees. Currently there is a limit of £30,000 on the value of CSOP options that an employee can hold at any one time. This limit will be increased to £60,000 from April 2023. This applies equally in Scotland.

10. Alcohol duties

From February 2023, the UK Government will freeze alcohol duty rates for all categories of alcohol (e.g. beer, wine, cider, spirits) and, from August 2023, taxes on alcohol will be generally based on alcohol volume. 

11. VAT-free shopping for overseas visitors

VAT-free shopping for overseas visitors ended in Great Britain when the UK left the EU (it still applies in Northern Ireland). Under a new digital scheme which will replicate the previous position, overseas visitors to Great Britain will be able to obtain VAT refunds on goods bought in high street shops, airports and other departure points. This applies equally in Scotland.