Spring Budget 2023 Highlights
Information correct as of 15 March 2023
The Chancellor Jeremy Hunt, yes this time we still have the same Chancellor, unveiled his first Spring Budget yesterday.
As is becoming the norm, most of the headlines had already been leaked. So, it was no surprise that the Chancellor described yesterday’s announcement as the ‘Back to Work’ budget, encouraging more people into work and also back to work. Mr Hunt again reiterated the government’s aims to halve inflation, reduce public debt and boost both economic growth and business investment.
We have sifted through the details and hope the following highlights, which we feel will be the most significant to our clients, will be helpful.
Income Tax Basic Rate Band: No changes were made to income tax rate bands. Therefore the rates set in the Autumn Statement remain unaltered.
The rates of tax for the UK, excluding Scotland, remain at 20%, 40% and 45%. The threshold for the 45% tax band will be reduced from £150,000 to £125,140 from April 2023. As a result, taxpayers within this bracket will pay up to £1,243 more in income tax each year.
The personal allowance, the amount an individual can typically earn before paying income tax, will continue at £12,570. The higher rate tax threshold will remain at £50,270. Both these allowances will stay at these rates until 2028.
Scottish income tax rates were agreed in the Scottish Budget on 15 December 2022. In 2023/24 there will be five income tax rates. Scottish taxpayers are entitled to the same personal allowance as individuals in the rest of the UK. The two higher rates are 42% and 47% rather than the 40% and 45% rates that apply to other UK residents. For 2023/24, the 42% band applies to income over £43,662 for those who are entitled to the full personal allowance. The 47% rate applies to income over £125,140.
You can find all UK income tax rates and bands including those for Scotland and Wales here.
Capital Gains Tax (CGT): No changes were made to the details announced in the Autumn Statement. The CGT annual exemption limit, currently at £12,300, will be reduced to £6,000 from April 2023. This will be halved again to £3,000 from April 2024. Anyone who might be considering a capital disposal may want to consider the timing of this to make the most of the current £12,300 CGT exemption which will remain until 5 April 2023.
Annual Dividend Allowance: No changes were made to the announcement by Mr Hunt in his Autumn Statement. The Annual Dividend Allowance, the amount you can earn from dividends before dividend tax is paid, will be reduced from £2,000 to £1,000 with effect from April 2023. It will be reduced again to £500 from April 2024. This means more people will end up paying tax on their dividends and potentially have to complete self-assessment tax returns each year.
Pensions: The Chancellor was expected to raise the pension Lifetime Allowance (LTA) to encourage more people to return to work, in particular those aged 50 and above. Instead, he removed it completely. The change will come into effect from April 2023.
The LTA is the cap on the amount workers can accumulate in pensions savings over their lifetime, before having to pay extra tax. The change will allow workers to continue to contribute to their pensions without tax penalties should they breach the current £1.07m limit.
The tax-free yearly allowance for gross pension contributions is to rise from £40,000 to £60,000 from April 2023, having previously been frozen for nine years.
The Money Purchase Annual Allowance and the minimum Tapered Annual Allowance (TAA) will both be increased from £4,000 to £10,000. The adjusted income threshold for the TAA will also be increased from £240,000 to £260,000 from April 2023.
Childcare: In an attempt to remove barriers for parents who wish to start work or increase their working hours, several changes have been made to childcare benefits. Currently, only families with three and four-year-olds qualify for 30 hours of free childcare per week. Under new plans, working parents of children in England with children over the age of nine months will be eligible for additional support.
The changes will be introduced in phases:
- 15 hours of free childcare for all two-year olds from April 2024
- 15 hours of free childcare for all children aged nine-months to three years old from September 2024
- 30 hours of free childcare for all children aged nine-months to three years old from September 2025
In addition, families on universal credit are to receive childcare support up front instead of in arrears. The £646-a-month payment for one child will increase to £951. For two children the amount will increase from £1,108 to £1,630.
Energy Price Cap: From April 2023, the energy price guarantee (EPG) will remain at £2500 a year for a further three months until the end of June. Originally this was due to increase to £3,000 on 1 April 2023.
Please note the EPG is an average and is not a fixed limit on what every household might pay. Your household energy bill will depend on how much energy you actually use.
Energy Pre-payment Meters: £200m has been earmarked to bring energy charges for customers with pre-payment meters into line with prices for customers paying by direct debit. This affects around 4m households in the UK.
Fuel Duty: Fuel duty is to be frozen. The planned 5p per litre cut to fuel duty on petrol and diesel, due to end in April 2023 will continue for another year.
Alcohol Taxes: Alcohol duty will continue to rise with inflation, with one exception, draft beer sold in pubs. This will result in draft beer costing 11p in the pound less than the rate in supermarkets.
Corporation Tax Rate: There has been no change to the plans to increase the rate of Corporation Tax from 19% to 25% on taxable profits over £250,000. The 19% rate will become a small profits rate payable by companies with profits of £50,000 or less.
Companies with taxable profits between £50,000 and £250,000 will be subject to Corporation Tax at a rate between 19% and 25%.
Capital Allowances: The capital allowance super-deduction scheme for the purchase of qualifying plant and machinery comes to an end 31 March 2023.
To replace this, a similar scheme has been introduced known as the ‘full expensing’ scheme. Companies spending on new capital assets will be able to claim 100% relief straight away on main rate assets. For special rate assets a lower 50% rate will apply. Initially, this has been implemented for three years to 31 March 2026 with a view to making this permanent, if possible.
The annual investment allowance (AIA) continues to be fixed at £1,000,000. Both non corporate businesses purchasing capital assets or corporate businesses purchasing second hand qualifying capital assets can continue to make use of this.
Research & Development (R&D): As outlined in last year’s Autumn Statement, R&D relief is set to decrease for SMEs from 130% to 86% from April 2023.
The Chancellor has announced that companies whose R&D expenditure is above 40% of total expenditure will now be able to make use of an ‘enhanced’ R&D credit. This will allow them to reclaim 27% of R&D expenditure.
For research intensive companies making a loss, R&D tax credit relief will be available at 10% from April 2023. However, if R&D expenses amount to more than 40% of total expenses this tax credit will be increase to 14.5%.
We would like to highlight that there may be further changes to R&D reliefs, as the government is considering responses to a consultation on the wider R&D regime.
You can find more details on the R&D reliefs and what qualifies here.
Investment Zones: 12 new Investment Zones will be launched across the UK. It is expected that eight sites will be in England and four across Scotland, Wales and Northern Ireland. Business located in these investment Zones will benefit from a number of tax reliefs. These include Stamp Duty Land Tax relief, enhanced capital allowances, structures and buildings allowances and secondary Class 1 NICs relief.
As always, the information outlined above is for general guidance purposes only. We appreciate that every individual and business have different circumstances and you should always seek appropriate professional advice before you act on any of the information provided.
If you would like more information on anything announced in the budget or require wider business or planning guidance, please do get in touch or contact the GWA Partner who looks after your affairs.