Spring Budget 2023

March 15th, 2023 | Posted in Small Business, Tax Planning

Jeremy Hunt’s Spring Budget opened with the announcement that the UK economy is nowexpected to avoid a recession this year, though the short-term economic outlook remains challenging.  The focus of the Budget was on growing the economy, with a number of measures announced to achieve that goal. Although there weren’t many tax announcements, those in relation to the taxation of pensions are significant.

Pension Tax

The annual pension contribution allowance which is currently £40,000, will increase by 50% to £60,000.  Unused allowances can continue to be carried forward from the previous three tax years.

The minimum Tapered Annual Allowance which reduces the amount high earners can contribute is being increased from £4,000 to £10,000.  The adjusted income threshold at which the taper applies also increases from the current £240,000 to £260,000.

Those who flexibly access their pension are subject to a reduced contribution allowance, the Money Purchase Annual Allowance, and this is being increased from the current £4,000 to £10,000.  All of these changes apply from 6 April 2023.

The lifetime pension allowance of £1,073,100 will now be abolished entirely from April 2024.  This imposed a punitive tax charge on pension pots exceeding the allowance at drawdown.

Corporation Tax

A planned increase in corporation tax from 19% to 25% from 1 April 2023 as announced in Spring Budget 2021 will go ahead.  While many had hoped that the increase would be cancelled, this was not the case.

The corporation tax rate increase will not apply to the smallest of businesses with profits of £50,000 or under who will continue to pay 19%.  The increase will be tapered for businesses with profits of between £50,000 and £250,000 and the full 25% rate will apply for those businesses with profits of £250,000 or more.

Full Expensing for Plant & Machinery Expenditure

All qualifying plant and machinery purchased by companies in the three years between 1 April 2023 and 31 March 2026 will be eligible for ‘full expensing’, i.e., full tax relief in the year of purchase, with an intention to make this permanent beyond 2026 once government finances allow it. This will be of most benefit to larger businesses, as small businesses can already make use of the £1 million Annual Investment Allowance (AIA) which allows capital expenditure to attract full tax relief in the year of purchase.

Enhanced Research and Development Tax Relief

From 1 April 2023, an enhanced rate of Research and Development (R&D) tax relief is being introduced for Small and Medium Sized Enterprises (SMEs).  This will offer £27 of tax relief on every £100 of R&D investment for a loss making SME company whose R&D expenditure comprises at least 40% of total expenditure.

Employment Measures

While the unemployment rate is currently very low, this is partly due to so many individuals dropping out of the workforce since the pandemic. 6.7 million of the working age population are currently neither in nor looking for work. This labour market shortage presents numerous problems for the economy, including stunting business growth and fuelling inflation. A wealth of measures were therefore introduced to encourage the following four groups into work: the long-term sick and disabled, welfare recipients and the unemployed, older workers aged over 50 and individuals with childcare responsibilities.

Childcare Support

Childcare funding is being substantially increased in stages over the next two years and will help more parents of young children to return to work.  By the end of the two year period in September 2025, 30 hours a week of free childcare that is currently offered to eligible working parents of 3 and 4 year olds will be extended to all children between the ages of 9 months and 3 years. In order to help childcare providers, the funding rate paid to them is being increased from September 2023 with ongoing annual increases thereafter, as well as changing the staff-to-child ratio from 1:4 to 1:5 for two year olds.  Start-up grants will be introduced for new childminders, including those who choose to register with Ofsted or a childminder agency.

Other Significant Announcements

The Energy Price Guarantee (EPG) was originally introduced in October 2022 for a period of six months to cap energy costs at £2,500 per year for a typical household.  This has now been extended for a further three months to the end of June 2023, after which the cap will increase to £3,000.

The Energy Bills Discount Scheme will provide all businesses with a discount on high energy bills until 31 March 2024, following the end of the current Energy Bill Relief Scheme. Businesses in sectors with particularly high levels of energy use will be given a higher level of support.

Fuel duty is maintained at the current levels and will remain so for the next year.

Today, we’ve published new guidance for any postmasters who received Horizon Shortfall Scheme compensation between 6 April 2022 and 5 April 2023, and are waiting for top up payments to cover any tax liability. Find out more ⬇️

Ended the first week of 2024 with HMRC late filing penalties and interest successfully cancelled for a new client. Started the second week of 2024 with confirmation that an HMRC enquiry for another client is to be closed with no further action. Winning at 2024 so far!

And the showstopper: main employee national insurance rate cut to 10% from 12%. To be introduced from 6th January 2024 rather than next tax year.

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