Spring Budget 2023

Chancellor of the Exchequer Jeremy Hunt delivered the Spring Budget 2023 earlier today. Policies directed at getting people into work and keeping them there were central to the Government’s plan to tackle weak economic growth and productivity. Leading the way were key changes on childcare and pensions to try and encourage experienced resource back into the labour market.

Mr Hunt said the Office for Budget Responsibility now predicts the UK will avoid a technical recession – two straight quarters of falling GDP – and that inflation will more than halve by the end of this year.

Some of the biggest decisions affecting business and individuals’ finances in April and beyond were announced previously and there were no reverses to the planned corporation tax rate increase, set to rise to 25% from 1 April 2023.

The full force of the tax rise will hit trading businesses with profits of more than £250,000, while those with profits of between £50,000 and £250,000 will pay a higher rate of tax due to the effect of marginal relief (26.5%). However those companies that are investment companies will automatically pay tax at 25% regardless. Those with profits of less than £50,000 will see no change – they will continue to pay corporation tax at 19%.

Income tax thresholds are already frozen until 2028 which means any pay rise could drag individuals into a higher tax bracket. Even if it doesn’t, it will almost certainly mean a greater proportion of your income is taxed due to fiscal drag.

The main winners from the budget are older workers through the announcement of the changes to the pension regime. The increase of annual limits to £60,000 were widely leaked but surprising was the complete removal of the lifetime tax-free pension allowance.

Parents of children under 5 will also benefit through access to 30 hours of free childcare (phased in from 2024) from when a child is nine month’s old.

Energy bill payers will welcome the news that the energy price guarantee is being maintained at £2,500 for an additional three months and drivers will be pleased that the 5p cut to diesel duty has been extended for a further year.

Here’s a summary of the key points from today’s budget.

Pensions

Mr Hunt increased the pensions annual tax-free allowance by 50% from £40,000 to £60,000. He also abolished the lifetime allowance limit (LTA), in changes that will affect some of the wealthiest people in the country.

The LTA is the total amount of money you can build up in a workplace benefit pension scheme and the savings in a defined contribution pension before you must pay tax.

Increasing the allowance means that people could avoid paying as much as £180,000 in tax on their pension pots when they drawdown the money.

The LTA was first applied in 2006 when it was set at £1.5 million. It rose to a peak of £1.8 million by 2012 before gradually being cut and was due to stay at £1.07 million until 2026.

Under the plans announced today, there is now no limit on how much you can save in your pension over your lifetime.

The Chancellor said the move would encourage NHS doctors, consultants and other high-earners to remain in the workforce for longer. We have our doubts about the effectiveness of this measure to retain people within the labour market due to the small proportion of individuals that it will affect.

The changes will affect those who pay more than £40,000 into their pension annually or have saved more than £1.07 in their lifetime. Statistics show that only 8,000 people across the UK have saved more than £1m in their lifetime and government figures suggest that only 1% of workers, save more than £40,000 per year.

The Government will also increase the Money Purchase Annual Allowance from £4,000 to £10,000 and the minimum Tapered Annual Allowance from £4,000 to £10,000 from 6 April 2023. The adjusted income threshold for the Tapered Annual Allowance will also be increased from £240,000 to £260,000 from 6 April 2023.

Capital allowances

HMRC has confirmed that the 100% first year allowance available in relation to the installation of new vehicle charge points, which was due to cease on 31 March 2023 (5 April 2023 for income tax), has been extended to 31 March 2025 for corporation tax purposes and 5 April 2025 for income tax purposes.

The limit of the Annual Investment Allowance, which allows up front 100% relief against profits for businesses through capital allowances on qualifying expenditure, was temporarily increased from £200k to £1 million. The limit was due to revert to £200k from 1 April 2023, however it has been confirmed within the budget that from 1 April 2023 the Annual Investment Allowance will permanently increase to £1 million for all businesses.

Following the abolition of the temporary ‘super deduction’ for capital allowances effective from 1 April 2023, the budget will introduce temporary first year allowances for companies within the charge to corporation tax from 1 April 2023 to 31 March 2026 which allows for 100% ‘expensing’ of capital expenditure on asset classes as follows:

• Plant & Machinery used in the business, IT equipment, commercial vehicles etc

50% ‘expensing’ will be available on the following:

• Integral features such as electric, lighting and air circulation / conditioning systems in buildings, lifts and retro fitting of insulation in buildings

The balancing 50% of expenditure will receive writing down allowances at 6% per annum. Where there is Annual Investment Allowance available which has not been utilised elsewhere, it will be more beneficial for companies to claim this on expenditure on integral features, rather than ‘expensing’ at  50%.

No limit on the qualifying expenditure has been announced by HMRC.

As with other first year allowances, these reliefs will only be available for unused assets (rather than second hand), will not include purchases of non-fully electric cars and will not apply where plant and machinery is purchased for onward leasing. (There is an exemption for landlords installing new fixtures in buildings.)

Income tax

No changes were announced in respect of the allowances for the 2023/24 tax year and therefore the personal allowance will remain at £12,570 with higher rate tax being chargeable on earnings above £50,270 and additional rate on earnings over £150,000. The dividend allowance will be reduced as planned to £1,000.

Income tax thresholds are already frozen until 2026 which means any pay rise could drag individuals into a higher tax bracket. Fiscal drag and inflation will ensure that actual cash in the pockets will feel less with the freezing of allowances.

R&D tax reliefs

Cuts to the R&D tax credit for SMEs will go ahead despite repeated calls from the UK tech industry for Mr Hunt to abandon this policy, first proposed in his November Budget.

To soften the blow the Chancellor did announce additional tax support for eligible research-intensive startups (in fields like AI, life sciences and fintech) that spend more than 40% of their total expenditure on R&D. These companies will be able to claim £27 for every £100 spent on R&D. The Government said it was “committed to considering the case for further support for R&D-intensive SMEs”.

Meanwhile, as announced in the Autumn Statement, tax relief for larger companies spending on R&D will increase. The rate for the Research & Development Expenditure Credit (RDEC) scheme will increase from 13% to 20% from April 1.

VAT

There were limited changes for VAT within the Budget. The Government announced that it will modernise the VAT DIY housebuilders’ scheme by digitising the application process and extending the timeframe for submitting claims from three to six months from completion of the development.

The limited timeframe for submitting claims, together with the paper-based application frustrated tax payers wishing to make claims, so these changes will be welcome news to those with DIY projects in the pipeline.

Furthermore, the Government has issued a ‘call for evidence’ on extending the relief for energy saving materials to bring the scheme in line with current technology. Affected businesses are encouraged to respond and give their views on the proposals to widen the relief.

New investment zones

Further details were released regarding the Chancellors announcement re Investment Zones.

12 new Investment Zones across the UK are to be established to “drive business investment and level up” the country, with four located in Wales, Scotland and Northern Ireland. The remaining eight will be in locations around England including Greater Manchester and Liverpool and will have access to a single five year tax offer.

Each English Investment Zone will have access to funding of £80m over five years, including tax reliefs and grant funding. This will consist of enhanced rates of Capital Allowances, Structures and Buildings Allowances, relief from Stamp Duty Land Tax, Business Rates and Employer National Insurance Contributions, with the intention of boosting investment and employment in four key industries.

The Investment Zones will focus on driving growth in digital technologies, the creative industries, life sciences, advanced manufacturing, and the green sector.

The exact sites are still to be agreed and local partners within the geographical locations will be invited to being discussions on hosting an investment zone with the Department for Levelling Up, Housing and Communities (DLUHC) and HM Treasury, with a view to agreeing investment zone proposals by the end of the year.

Enterprise Management Incentive (EMI) options administrative requirements

Changes to administrative requirements when granting EMI options have been announced, including:

From 6 April 2024, there will be an extension of the deadline for notifying an EMI option from 92 days following grant to the 6 July following the end of the tax year in which the options are granted.

Removal of the requirement for the company to set out within the option agreement the details of any restrictions on the shares to be acquired under the option.

Removal of requirement for the company to declare that an employee has signed a working time declaration when they are issued an EMI option. However it does not remove the working time requirement itself.

As the finer details emerge over the coming days and weeks, we will of course keep you updated on our website and our social media channels.

If you do have any questions from today’s announcement, please do not hesitate to get in touch with your usual relationship manager, or contact Lisa Wilson.