The Chancellor of the Exchequer, Jeremy Hunt, delivered his first Spring Budget to parliament on Wednesday 15th March. Opening his statement with;
“I report today on a British economy which is proving the doubters wrong.”
In his speech, the Chancellor expressed his confidence in the UK economy and its ability to bounce back from the burden of national debt and potential inflation. The announcement largely focused on tackling three priorities set out by the Prime Minister in January: to halve inflation, grow the economy, and reduce debt.
As expected, he resisted pressure to reverse previously announced tax rises and freezing of tax thresholds. He did, however, address the pillars of his growth strategy under four E’s: Enterprise, employment, education (childcare) and everywhere (formerly “levelling up”) by providing new tax incentives. There were key changes for individuals centred on pensions, whilst for businesses the Chancellor’s focus was on encouraging investment.
We have listed the new variations in the UK tax rates, allowances, reliefs and other matters of interest below.
Impact on UK businesses
The major announcement affecting business investment, and to reduce the impact of the forthcoming increase in Corporation Tax from April 2023, is the ability of companies to “fully expense” the purchase of qualifying plant and other equipment.
These new temporary first-year allowances (FYAs) will apply to expenditure on new and unused plant and machinery incurred on or after 1 April 2023 until 31 March 2026. The existing exclusions for FYAs on cars and P&M used for leasing will apply.
The Government confirmed that the annual investment allowance of £1m will be made permanent, as previously announced.
The 50% First Year Allowance (FYA)
This current allowance lets taxpayers 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.
The 50% FYA was introduced alongside the super-deduction and was due to end on 31 March 2023. It will now be extended by three years to 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 50% FYA allows for faster relief than under the default WDAs-only regime, which is worth 6% each year, including year one.
Simplifying tax system
Changes to simplify the tax system of the UK were underlined by a number of changes to positively impact the lives of business owners. They are:
- Changes to the Enterprise Management Incentives (EMI) scheme from April 2023 to simplify the process to grant options and reduce the administrative burden on participating companies. This includes, from 6 April 2023, removing requirements to sign a working time declaration and setting out details of share restrictions in option agreements.
- Delivery of IT systems to enable tax agents to payroll benefits in kind on behalf of their clients – allowing agents to better support their clients and reducing burdens on employers.
- The government will extend the Help to Save scheme by 18-months, on its current terms, until April 2025. A consultation will also be launched on longer terms options for the scheme.
- Measures to simplify the customs import and export processes, including improvements to the Simplified Customs Declaration Process, and the Modernising Authorisations project.
R&D tax credits
A £500 million per year package of support for 20,000 research and development (R&D) intensive businesses through changes to R&D tax credits was announced. In full, the Chancellor’s announced changes in this important area are:
- The scheme is targeted specifically at loss making R&D intensive SMEs. Focusing support towards those most impacted by the rate changes introduced at Autumn Statement 2022.
- A company is considered R&D intensive where its qualifying R&D expenditure is worth 40% or more of its total expenditure.
- Eligible loss-making companies will be able to claim £27 from HMRC for every £100 of R&D investment, instead of £18.60 for non-R&D intensive loss makers.
- The permanent increase from 13% to 20% for the R&D Expenditure Credit rate announced at Autumn Statement 2022 also means the UK now has the joint highest uncapped headline rate of tax relief in the G7 for large companies.
The proposed restrictions on certain overseas expenditure will now take effect from 1 April 2024. This is to allow time for the Government to consider the interaction of this restriction and a single new R&D scheme, recently subject to consultation.
Creative sector tax concessions
Newly announced reforms to tax reliefs for the creative sectors will ensure theatres, orchestras, museums and galleries are protected against ongoing economic pressures and will continue to guarantee that more world-class productions are made in the UK.
Expected changes also announced to the audio-visual sector as a result of the HM Treasury Consultation. The current regimes for film, TV and video games will be replaced by refundable expenditure credits, including an audio-visual credit for films and TV at 34%. Draft legislation will be published in Summer 2023. There have been significant changes across the industry since the original film tax relief was introduced in 2007 and we continue to work closely with our clients in this sector to ensure they take full advantage of the reliefs available.
Expansion on the Seed Enterprise Investment Scheme (SEIS)
The amount of investment that companies will be able to raise under the SEIS will increase to £250,000 from £150,000. Gross assets and age limits of the qualifying trade will also increase. These changes will take affect from 6 April 2023.
UK AI research support
£900 million of funding was committed for an AI Research Resource and an exascale computer – making the UK one of only a handful of countries to have one – and a commitment to £2.5 billion ten-year quantum research and innovation programme through the government’s new Quantum Strategy.
Impact on personal finances
Increase in pensions’ tax support
The present £40,000 cap on annual pension contributions that qualify for Income Tax relief is being increased to £60,000 from 6 April 2023.
The present Lifetime Allowance is being abolished.
Both of these changes are intended to incentivise older employees to continue in work whilst continuing to build additional pension savings.
In addition, the Money Purchase Annual Allowance will increase from £4,000 to £10,000 and the minimum Tapered Annual Allowance will increase 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.
Access to employment reforms
Major set of reforms to support people into work, removing barriers that stop those on benefits, older workers, and those with health conditions who want to work.
Previously agreed changes effective from April 2023
Changes to personal or business finances (from April 2023) that were agreed or announced prior to the Budget presentation by Jeremy Hunt on 15 March are listed below:
- Business Rates: freezing the multiplier in 2023-24
- Business Rates: 75% relief for Retail, Hospitality and Leisure sectors in 2023-24, up to £110,000 cash cap
- Business Rates: three-year transitional relief to limit bill increases at the revaluation
- Business Rates: three-year supporting small businesses scheme for properties losing Small Business Rates Relief or Rural Rates Relief
- Business Rates: delay improvement relief by one year to April 2024
- Business Rates: relief for property improvements from 2024-25
- Income Tax and National Insurance: maintain thresholds at 2023-24 levels until April 2028
- Inheritance Tax: maintain thresholds at current level until April 2028
- Income Tax: reduce the dividend allowance from £2,000 to £1,000 from April 2023 and then £500 from April 2024
- Income Tax: reduce the additional rate threshold from £150,000 to £125,140 from April 2023
- Capital Gains Tax: reduce the annual exempt amount from £12,300 to £6,000 from April 2023 then £3,000 from April 2024
- National Insurance: maintain the secondary threshold for employer contributions at current level from April 2023 until April 2028
- VAT: maintain registration threshold at current level, £85,000 to 31 March 2026
- Capital Gains Tax: extend the period for no gain/no loss transfers to three years for couples that separate or divorce
- Income Tax: basis periods reform for the self-employed from April 2024 with transition year in 2023-24
- Corporation Tax: 19% rate for profits up to £50,000, tapering to main rate of 25% for profits over £250,000, from April 2023
One thing is for sure, our tax code and the supporting business regulations are becoming more complex in spite of the promoted changes towards simplifying matters.
For a more detailed summary, please download our report of the 2023 Spring Budget.
We encourage readers who are concerned or interested in more information on any of the announcements described in this short update, to pick up the phone to discuss how you may be affected.