Spring Budget 2023
The Chancellor, Jeremy Hunt, today delivered his Spring Budget with a backdrop of a struggling economy and rising taxes.
Falling energy prices and higher-than-expected tax revenues mean that the outlook for Mr Hunt’s Spring Budget was a little less bleak than expected. However, did the Chancellor announce any good news for businesses in this Budget?
We look at the key announcements below that will affect you and your business:
Super Deduction / Annual Investment Allowance
The Chancellor aims to continue to encourage business investment by today announcing a replacement to the capital allowance super deduction that was set to end on 31 March. The new scheme is as follows:
100% First Year Allowance (FYA) or “Full Expensing”
From 1 April 2023 to 31 March 2026, businesses can deduct 100% of the cost of certain plant and machinery from their profits before tax in the year of purchase. The Chancellor expressed that his aim will be to make full expensing permanent. This applies to new and unused plant, as did the previous super deduction FYA (which expires on 31 March 2023).
Fifty percent First Year Allowance (FYA)
This lets companies deduct 50% of the cost of other plant and machinery, known as special rate assets, from their profits during the year of purchase. This includes long life assets such as solar panels and thermal insulation on buildings. This scheme has also been extended for three years until 31 March 2026. For each year following the first year, 6% of the remaining cost will be written off via Writing Down Allowances (WDAs).
The Annual Investment Allowance (AIA)
The Annual Investment Allowance limit will be set at £1 million permanently.
Depending upon the asset class purchased by the business, a combination of the above reliefs will need considering to obtain maximum efficiency.
These measures will go some way to mitigating the Corporation tax rise for businesses that undertake capital expenditure in the coming years.
Research & Development
Today saw the announcement of a new R&D scheme for 20,000 “R&D intensive” SMEs in the UK from 1 April 2023. This will apply to companies whose qualifying R&D expenditure is worth 40% or more of its total expenditure. The measure provides a higher 14.5% rate of payable tax credit for R&D intensive businesses only, compared to the 10% available for non-R&D intensive businesses – note that the 10% rate only recently was reduced from 14.5% for all SME businesses in the 2022 Autumn Statement. The 86% additional deduction remains the same – albeit again this is a reduction from 130% which was announced in the 2022 Autumn Statement.
The previously announced restriction on some overseas expenditure will now come into effect from 1 April 2024 instead of 1 April 2023.
Announcements were also made around Audio Visual Tax Relief, with the introduction of expenditure credit at a rate of 34% for film, high end television and video games and 39% for the animation and children’s TV sectors. It was also confirmed that the qualifying threshold for high end television at £1m would be maintained.
Employment & skills shortages
A lack of staff and skills is forcing employers to pay higher wages to attract people and is also driving up inflation. Many companies continue to struggle in recruitment to fill vacancies and unemployment remain at very low levels. Mr Hunt today has tried to ease the pressure on businesses by reversing the trend of early retirement and encourage people back to work. The measures announced today include:
- Help for disabled and people on long term sick to get them back to work.
- Support for carers, welfare recipients and those with special education needs to work.
- Help for the over 50’s to stay in work including a DWP mid-life MOT strategy, an over 50’s apprenticeship scheme called “returnerships”, abolishing the lifetime pension allowance and raising the annual pension allowance to £60,000 per year.
- Plans for extension of wrap around cover at schools for working parents.
- Help with childcare costs with the extension of up to 30 hours free childcare per week for children aged 3 to 4 to include children from 9 months to 2 as well. From April 2024, working parents of 2 year-olds will be able to access 15 hours of free childcare per week and from September 2024 that 15 hours will be extended to all children from 9 months up. From September 2025 every single working parent of under 5’s will have access to 30 hours free childcare per week.
The issue with any Government schemes around employment such as apprenticeships can often be the amount of red tape and bureaucracy involved in employing people using such schemes. Until the Government make these schemes easier to use and navigate, there will always be a barrier to some smaller businesses utilising them.
There were no changes announced to the IR35 off payroll working rules. With a general election looming it looks like the Government is side lining any further review of this area of legislation until afterwards.
Previous Chancellors had set a precedent of stopping the RPI fuel duty increase and today Mr Hunt did the same. The Chancellor stepped in to stop the RPI fuel duty increase that was due in March.
This is good news for businesses with high fuel costs to help ease one of the areas of rising business costs.
An unexpected announcement today was the plan to remove the pensions lifetime allowance charge, before completely abolishing it in a future Finance Bill, and raise the Annual Allowance to £60,000 from April 2023. In the Budget details was also a change in the minimum tapered annual allowance and the money purchase annual allowance which are both being increased from £4,000 to £10,000.
Capital Gains Tax
Whilst there was no specific mention of this in today’s speech, within the detail are changes to Capital Gains Tax (CGT) on separation and divorce, with the time period being extended to three years for separating spouses to transfer assets without CGT (currently this relief expires after the end of the tax year in which separation occurs).
UK investment zones
Twelve investment zones were announced across the UK. Businesses within these zones will have access to a 5 year enhanced tax offer matching that in Freeports, consisting of enhanced rates of capital allowances, structures and buildings allowances, and reliefs from Stamp Duty Land Tax, Business Rates and Employer National Insurance contributions. Alongside this, Investment Zones will have access to flexible grant funding to support skills and incentivise apprenticeships.
In England, these zones stretch across the West Midlands, East Midlands, Greater Manchester, Liverpool, North East, South Yorkshire, Tees Valley and West Yorkshire.
This is good news for businesses looking to move into or set up in these areas.
Share incentive schemes
For employers, there will be simplifications to the process to grant Enterprise Management Incentive (EMI) share options, which will apply to options granted from 6 April 2023. Existing EMI share options granted before 6 April 2023 that have not been exercised will also benefit from the changes. As previously announced, changes to the Company Share Option Plan (CSOP) will be made. Qualifying companies will be able to issue up to £60,000 of CSOP options to employees, double the current £30,000 limit.
Share investment reliefs
As previously announced, the generosity and availability of the Seed Enterprise Investment Scheme (SEIS) will be increased from 6 April 2023. The amount of investment that companies will be able to raise under the SEIS will increase from £150,000 to £250,000, the gross asset limit will be increased from £200,000 to £350,000 and the age limit on a qualifying trade from 2 to 3 years. The annual investor limit will be doubled to £200,000.
Unfortunately, the Chancellor didn’t announce any changes to the planned increase in Corporation Tax from April this year. The rise in Corporation Tax will affect all businesses with profits above £50,000. See more below on the details of April’s Corporation Tax rise.
There were no announcements today to tackle high business rates, which will be a huge blow for sectors such as retail and hospitality.
There was little good news for businesses today with rising energy costs, with the only announcement being the extension to the climate change agreement scheme helping to reduce energy costs for companies in eligible industrial sectors by offering significant discounts to participating business on their Climate Change Levy (CCL).
However, there was a raft of announcements from Mr Hunt around gaining energy independence including measures for carbon capture and storage and nuclear reactors.
No further changes were announced around personal tax today in the Spring Budget. Previous announcements included freezing thresholds and reducing allowances (see below in previous announcements).
Whilst today’s announcements may have gone some way to helping business owners with around investment decisions, rising costs and recruitment, frozen tax thresholds and allowances alongside a rise in Corporation Tax rates will still have a significant impact for businesses and their owners from April.
For many companies that continue to grow turnover, these additional tax costs, alongside rising prices will make it much harder for companies to grow profitability.
With so much uncertainty in the past few years alongside rising costs of raw material, energy, transport and labour in the past year, what businesses don’t need is an additional tax burden as well.
A reminder of other tax changes happening in April
April 2023 sees several other tax rates rises or thresholds frozen that had previously been announced before today’s Budget. Here’s a summary to remind you of the changes that may affect you.
The corporation tax rate will increase to 25% from 1 April 2023, affecting companies with profits of £250,000 and over. Small companies with profits up to £50,000 will continue to pay corporation tax at 19%, with profits between these two figures being subject to a tapered rate of 26.5%.
There will also be changes to the group/associated company rules, which reduce the upper and lower limits. The new associated company rules consider common control rather than control within corporate groups. Many companies will have more associates under the new rules, meaning they may fall into the 25% band even with profits below £250,000.
Capital Gains Tax
The capital gains tax annual exempt amount for individuals will fall to £6,000 for disposals on or after 6 April 2023 and further reduce to £3,000 for disposals on or after 6 April 2024.
Research and Development
For expenditure on or after 1 April 2023, the Research and Development Expenditure Credit (RDEC) rate will increase from 13% to 20%, the SME additional deduction will decrease from 130% to 86%, and the small and medium (SME) sized company credit rate will decrease from 14.5% to 10% (subject to the new R&D intensive rate introduced in the 2023 Spring Budget).
Dividend tax-free allowance
The tax-free dividend allowance will reduce to £1,000 from 6 April 2023 and will reduce to £500 from 6 April 2024. Dividend tax rates remain unaffected.
Income tax thresholds
Whilst the rate of income tax remains unchanged from 2022/23, some thresholds and allowances are changing or remaining the same.
From 6th April 2023, if you are a higher rate taxpayer, the income tax additional rate threshold will reduce from £150,000 to £125,140. Changes to this additional top rate tax band means that more taxpayers will pay income tax at the higher rate of 45%.
The income tax personal allowance of £12,570 is frozen until 2028.
Inheritance tax threshold
The Inheritance Tax (IHT) nil-rate band of £325,000 is frozen until April 2028. In addition, the residence nil-rate band will also be frozen at £175,000. The residence nil-rate band taper will be frozen at £2 million.
VAT registration threshold
The VAT registration and deregistration thresholds will also be frozen at £85,000 and £83,000, respectively for a further period of two years from 1st April 2024.
The National Living Wage (NLW) and National Minimum Wage (NMW)
The government will increase both the NLW and NMW from April 2023 as follows:
- Employees aged 23 and over: £10.42 per hour.
- Employees aged 21 – 22: £10.18 per hour.
- Employees aged 18 – 20: £7.49 per hour.
- Employees aged 16 – 17: £5.28 per hour.
- Apprentices: £5.28 per hour.
How can you prepare for these tax changes?
Seeking advice in advance is always key with any tax changes. How you plan for changes will depend on your individual and business circumstances.
With the tax landscape changing, now is an important time to consider your personal and corporate tax planning. Contact us today for further help and advice on tax planning for you and your business.
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PLEASE NOTE: By the very nature of this type of information the details of tax law might have changed since they were published, so contact your Barnes Roffe partner before acting on any matter contained in these documents.