Mini-budget highlights – reductions in tax and NICs rates and a change to CSOP

In the mini budget today, the Chancellor announced a number of changes which will affect remuneration and incentives.  These include:

Changes to income tax and NICs rates

• From April 2023, the income tax basic rate will reduce to 19% and the 45% additional rate will be abolished.
• The reversal of the 1.25% increase to the rate of National Insurance contributions ("NICs") introduced in April 2022 from 6 November 2022 meaning that NICs rates would revert to 2% and 12% for employee's NICs and 13.8% for employer's NICs. The Health and Social Care Levy will no longer be introduced.
• No employer's NICs will be payable on salaries for new employees in Investment Zones, on earnings up to £50,270.
• From April 2023, the rate of tax on dividends will reduce by 1.25%.

Increase in the CSOP limit

• From April 2023, qualifying companies will be able to issue up to £60,000 of CSOP options to employees, double the current £30,000 limit. The ‘worth having’ restriction on share classes within CSOP will be eased, better aligning the CSOP rules with the rules on the Enterprise Management Incentive scheme and widening access to CSOP for growth companies.

Financial services

• Bonus cap scrapped – the Prudential Regulation Authority will remove the current cap on bankers’ bonuses. This cap limits remuneration of certain bank staff to 100% of their fixed pay (or 200% with shareholder approval). The motivation for this is stated as being "Pay in bonuses aligns the incentives of individuals with those of the bank, in turn supporting growth in the UK economy." We expect this will apply for performance years starting on after 1 January 2023 but this detail has not yet been published.
• The government announced that later this autumn it intends to bring forward an ambitious deregulatory package to unleash the potential of the UK financial services sector. This will include the government's plan for repealing EU law for financial services and replacing it with rules tailor made for the UK, and scrapping EU rules from Solvency II. Whether this will include a review of the "pay-out process rules" for remuneration remains to be seen.

Other relevant changes

• The Office of Tax Simplification will be abolished.
• IR35 reforms introduced in 2017 and 2021 will be abolished. This means that workers providing their services via an intermediary will once again be responsible for determining their employment status and paying the appropriate amount of tax and NICs rather than service recipient.
• Corporation Tax will remain at 19%, rather than increasing to 25%

For further information see the Growth Plan 2022 documents published by the government.