The government's 2022 Growth Plan, deceptively referred to as the "mini-budget," has brought in notable changes likely to impact the funds industry. In particular, a number of the changes will help ensure the continued attractiveness of UK holding companies.
The anticipated rise in the corporation tax rate to 25 percent, which was due to take effect from April 2023, has been reversed. The rate will remain at 19 percent.
Similarly, the recent reforms to the UK's off-payroll working rules (commonly referred to as IR35), have been scrapped with effect from April 2023. The IR35 rules subject certain individuals working through intermediaries, such as consultants using personal service companies, to employment taxes. Since April 2021, responsibility for operating IR35 was shifted from those personal service companies to the organizations (with UK operations) receiving their services. From next April, responsibility will revert back to the personal service companies. The 2021 reforms subjected relevant businesses, including investment managers and UK portfolio companies contracting with special advisers or consultants based in the UK, to a material compliance burden (as discussed further in our alert) and, in some cases, caused businesses to change genuine consultancy relationships to employment relationships to avoid dealing with the intricacies of the rules. Going forward, the scrapping of the 2021 reforms should help speed up the engagement process for special advisers and consultants, and provide businesses with greater certainty on the likely costs of such engagements.
The reduction of the basic rate of income tax from 20 percent to 19 percent (announced in the Spring Statement), has also been brought forward to April 2023. This will reduce any UK withholding tax costs to the extent such withholding obligations do not already benefit from an exemption or are otherwise relieved under an applicable tax treaty.
The abolition of the additional rate of income tax (currently at 45 percent for annual incomes exceeding £150,000) and the additional rate of dividend tax (currently charged at 39.35 percent) from April 6, 2023, together with the reversal of the 1.25 percent increase to the dividend tax rates and 1.25 percent increase to National Insurance Contributions introduced earlier this year, suggests the government is positioning the UK as a competitive jurisdiction for attracting skilled individuals in the asset management space.
This Growth Plan, alongside other recent reforms (most notably the Qualifying Asset Holding Company regime but also, for example, relaxing the conditions for the Substantial Shareholding Exemption), demonstrates the UK government's post-Brexit commitment to making the UK an attractive jurisdiction for the investment funds industry and a genuine competitor to jurisdictions like Ireland and Luxembourg.
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