Yesterday (15th March), the Chancellor, Jeremy Hunt, delivered his Spring Budget.
As seems to be the way, there weren’t any major surprises, as media outlets had already shared details of the headline announcements in the weeks leading up to the announcement.
Below we have provided a summary of the key points, which we think may be of interest/relevance to you and your business. We believe in seizing any opportunities presented by the announcements, and are here to work alongside you to help you grow, so please don’t hesitate to chat with us in further depth about any of the points raised…
BUSINESS TAX
Corporation Tax
The Chancellor confirmed that the main corporation tax rate will increase, as planned, from 19% to 25% (for many businesses) with effect from 1 April 2023.
‘Associated Company’ rules will apply.
Our comments: Please refer to our previous blog for further details.
Capital Allowances
The super deduction tax break regime will end on 31 March 2023, and will be replaced from 1 April 2023 with ‘full expensing’.
This relief (which applies only to limited companies) allows you to deduct the full 100% of costs incurred on assets subject to capital allowances, such as plant and machinery, in the year of investment.
This will last for three years, to 31 March 2026, (although it was indicated that the ambition is to make this permanent).
The regime has been introduced alongside two other capital allowances:
The 50 per cent first-year allowance (FYA) for expenditure by companies on new special rate (including long life) assets until March 31, 2026
The Annual Investment Allowance (AIA) providing 100% first-year relief for plant and machinery investments up to £1m, which is available for all businesses including unincorporated businesses and most partnerships.
Our comments: In reality, full expensing will only be useful to businesses that have already utilised the full £1m AIA in a financial year. Most small businesses will therefore not see any difference.
It is important to note that both Annual Investment Allowance and the Full Expensing schemes do not apply to company cars.
Research & Development
From 1 April 2023 a raft of changes is coming to the R&D tax relief regime and claimant companies should consider obtaining updated advice if they’ve not already done so. The key changes are:
The Research and Development Expenditure Credit (RDEC) available to non-SME companies will be increased from 13% to 20%.
For SME companies, R&D tax relief rates will be reduced from 230% to 186%.
For loss-making SME companies, the current payable credit of 14.5% will only be available for companies whose R&D expenditure constitutes at least 40% of their total expenditure. For R&D claimants that don’t meet the new 40% test, the payable credit will be reduced from 14.5% to 10% of the eligible loss.
Qualifying R&D expenditure will be expanded to include data licences and cloud computing services.
New claimants (those who have not made a claim in the previous 3 years) will be required to inform HMRC of their intention to make a R&D claim within 6 months of the end of the accounting period to which the claim relates.
From 1 August 2023, additional information requirements will need to be fulfilled when making a R&D claim.
Creative Industries Tax Reliefs
The government continues to support the creative industries by reforming and enhancing film, TV and video games tax reliefs. They will also extend the temporary higher rates of theatre, orchestra, and museums and galleries tax reliefs for 2 further years until April 2025.
Investment Zones
12 Investment Zones across the UK were announced, with the stated aim of helping drive economic growth and “levelling up” the country. The confirmed locations include the West Midlands, Greater Manchester, the North-east, South Yorkshire, West Yorkshire, East Midlands, Teesside, and Liverpool.
Each zone that receives approval will have access to £80 million over 5 years. Once designated, special tax sites will benefit from a package of tax reliefs including Stamp Duty Land Tax relief, enhanced capital allowances for plant and machinery, enhanced structures and buildings allowances, and secondary Class 1 National Insurance contributions relief.
VAT
The VAT registration and deregistration thresholds continue to be frozen at £85,000 and £83,000 respectively, instead of increasing each year in line with inflation. This will remain the case until March 2026
Fuel Duty
The planned 11p rise in fuel duty will be cancelled, maintaining last year’s 5p cut for another twelve months.
Alcohol Duty Rates
Draught Relief has also been extended from 5% to 9.2%, making the rate of duty on draught beer and cider up to 11 pence lower than the charge on cans or bottles bought in a supermarket from August.
PERSONAL TAX
Income Tax
There were no changes to personal income tax and National Insurance Contribution thresholds or rates (they are both frozen until 5 April 2028).
Our comments: As earnings increase, individuals will move into higher tax bands. This is often referred to as ‘fiscal drag’ because it will raise more tax without the government increasing income tax rates.
Pensions
Significant changes to pension taxation were announced:
The tax-free amount that an individual can contribute to their pension fund is to be raised from £40,000 to £60,000 per annum from April 2023.
The Lifetime Allowance (LTA) (which is the maximum amount of tax relievable pension savings an individual can benefit from over the course of their lifetime) is to be abolished altogether.
For those who are already drawing down on their pension, the total amount they can save tax free under the Money Purchase Annual Allowance is to be increased from £4,000 to £10,000 from April 2023.
Our comments: Note that an individual’s pension contributions can be very tax efficient depending on their level of income.
The taxation rules for pensions are complex as there have been numerous changes in recent years so please talk to us about your pension contribution strategy.
OTHER SIGNIFICANT ANNOUNCEMENTS
Childcare
The Chancellor announced 30 hours of free childcare for every child over the age of 9 months, with support being phased in until every eligible working parent of under 5s gets this support by September 2025. Here is the key information:
30 hours of free childcare for every child over the age of 9 months with working parents by September 2025, where eligibility will match the existing 3-4 year-old 30 hours offer.
This will be introduced in phases, with 15 hours of free childcare for working parents of 2-year-olds coming into effect in April 2024 and 15 hours of free childcare for working parents of 9 months – 3 years old in September 2024.
The funding paid to nurseries for the existing free hours offers will also be increased by £204 million from this September rising to £288 million next year.
Schools and local authorities will be funded to increase the supply of wraparound care, so that parents of school age children can drop their children off between 8am and 6pm – tackling the barriers to working caused by limited availability of wraparound care.
Childcare costs of parents moving into work or increasing their hours on Universal Credit paid upfront rather than in arrears, with maximum claim boosted to £951 for one child and £1,630 for two children – an increase of around 50%.
Incentive payments of £600 will be piloted from Autumn of this year for those who sign up to the childminding profession (rising to £1,200 for those who join through an agency) to increase the number available and increase choice and affordability for parents.
Energy Costs
It was announced that the £2,500 Energy Price Guarantee (EPG) will be extended by 3 months to 30th June 2023, before increasing to £3,000 until the end of the EPG period on 31 March 2024. This extra 3 months at £2,500 will be worth £160 for a typical household.
A new scheme for businesses, charities and the public sector has been confirmed. The Business Energy Bills Discount Scheme will run until 31 March 2024, giving non-domestic customers discounts on their gas and electricity bills.
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