Spring Budget 2023

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15 March 2023

Spring Budget 2023 – Key Announcements for you and your business

Services:

Personal Tax Planning,

Corporate Tax Planning,

Tax Reliefs including R&D,

VAT & Customs Duty,

Funding and Asset Finance,

Expansion & Improvement,

International Tax Planning

Jeremy Hunt today delivered his Spring Budget speech with a backdrop of falling energy prices and higher than expected tax revenues.

But did today’s Budget deliver any good news and what do today’s announcements and previous announcements in the Autumn Statement mean for you and your business?

We’ve sat and analysed today’s headline announcements and we’ve picked out the key points that will affect UK business and international businesses and their owners.

Corporate tax

With the main rate of corporation tax rising to 25% from April, the impact of this will be that the UK will be seen as a less attractive location for international businesses and the rise will hit businesses with profits above £50,000.

Unfortunately, the Chancellor didn’t announce any changes to the previously announced rise to Corporation Tax from April (see previous announcements below).

Capital expenditure / super deduction

It was good news today for those businesses looking at capital investment with the Chancellor announcing a replacement to the capital allowance super deduction that was set to end on 31 March.

The new scheme will be as follows:

Full Expensing (FE) - From 1 April 2023 to 31 March 2026, businesses can deduct 100% of the cost of certain plant and machinery from their profit before tax. The Chancellor expressed that his hope is to make full expensing permanent in the future.

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).

For those businesses planning capital expenditure, it gives more certainty for the longer term and goes some way to mitigating the planned Corporation tax rise.

Research & Development (R&D)

There were some specific changes around R&D for some businesses and sectors, but no overarching changes announced today.

A new R&D scheme was announced for 20,000 R&D intensive SMEs in the UK from 1 April 2023. This will apply to companies where its qualifying R&D expenditure is worth 40% or more of its total expenditure.

Sectors were also featured today with regard to the 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.

Fuel duty

The Chancellor stepped in to stop the RPI fuel duty increase that was due in March. Mr Hunt followed the strong precedent with every Chancellor since the year 2011 cancelling fuel duty rises. This is good news for businesses with high fuel costs.

UK investment zones

Great news for the North West and Wales today with the announcement of twelve new investment zones across the UK. The Chancellor highlighted the success of the Liverpool Docks regeneration project as one of the key drivers of this.

Businesses within these new investment zones will have access to a 5 year enhanced tax offer matching that of previously announced freeports. These tax measures include enhanced rates of Capital Allowance, Structures and Buildings Allowance, and relief 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 the North West two new investment zones will be created in Liverpool and Greater Manchester and Wales is also included. Other zones in England, are in the West Midlands, East Midlands, 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 and great news for the regional economy in the North West and North Wales.

Energy

There was no further help for businesses announced today to tackle high energy costs. The only announcements on energy were:

The extension to the climate change agreement scheme helping to reduce energy costs for companies in eligible industrial sectors by offering discounts to participating business on their Climate Change Levy (CCL).
A series of announcements from Mr Hunt around gaining energy independence including measures for carbon capture and storage and nuclear energy.

Employment & productivity

A huge issue for many SMEs has been the ability to recruit, fill vacancies and skills shortages. The Chancellor today announced a raft of measures aimed at getting people back to work. These 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.
For parents, plans for extension of wrap around cover at schools for working parents.

Extension of up to 30 hours free childcare per week for children aged 3 to 4. This will be extended to include children from the age of 9 months for eligible households. From April 2024, working parents of 2 year-olds will be able to access 15 hours of free childcare per week. 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.

IR35

With the disastrous U-turn on IR35 following Kwasi Kwarteng’s Mini Budget, we continue to see no changes to the IR35 off-payroll working rules. IR35 remains a complex area of legislation and to avoid any further political issues, the Government looks like it may kick the can down the road and defer any changes until after a general election.

Pensions

One of the big surprises of the speech was the removal of the pensions lifetime allowance charge and the increase in the Annual Allowance to £60,000 from April 2023.

This is good news for business owners and the self-employed that want to invest more for retirement.

Personal tax

As expected, there were no sweeping changes to personal tax. Following the announcements in the Autumn Statement to freeze thresholds, which will increase the Revenue’s take in the next couple of years.

Today’s summary

Whilst there was some help for businesses today around capital investment and recruitment and retention of people, the rise in Corporation Tax and rising prices will still hit hard for many businesses. As business turnover grows, it remains much harder to also grow profitability.

As always with a Budget, the devil can be in the detail and we will be analysing the finer details over the coming days and updating this blog with anything else that was not covered in today’s headline announcements. So, check back for updates.

Below we’ve also summarised the main changes happening with tax rates and thresholds from April that were previously announced in the Autumn Statement as you need to be prepared for these.

Previously announced changes from April 2023

From April 2023, there are several changes happening that were announced previously. At the start of a new tax year in April it is important that you are aware of the tax changes being introduced from April 2023, so you can prepare your business and personal finances. Here is a reminder of these changes:

Corporation Tax

The main rate of Corporation Tax will rise from 19% to 25% in April 2023 for many companies. For smaller companies, the rate they pay will depend on your profits for each fiscal tax year and many will not have to pay corporation tax at the full rate of 25%.

If your annual profits are at, or below £50,000 threshold, the current 19% rate will still apply.

The full 25% rate only applies to companies with annual profits of £250,000 or more.

This makes the Corporation Tax system much more complicated than previously, because of the introduction of marginal relief that will apply. This provides a gradual increase in the effective Corporation Tax rate.

Capital Gains Tax

The capital gains annual exemption will fall to £6,000 for disposals on or after 6 April 2023 and further reduce the exemption to £3,000 for disposals on or after 6 April 2024.

Research and Development

The Research and Development expenditure Credit (RDEC) rate will increase from 13% to 20% for expenditure on or after April 1, 2023, however the small and medium-sized companies (SME) extra deduction will reduce from 130% to 86% and the SME credit rate would decrease from 14.5% to 10%.

Dividend Tax

The Chancellor has cut the dividend allowance to £1,000 from 6 April 2023 and reducing it further to £500 from 6 April 2024.

Additionally, from April 2023, the rates of taxation on dividend income will remain as follows:

the dividend basic rate - 8.75%
the dividend higher rate - 33.75%
the dividend additional rate - 39.35%.

Income Tax

The income tax additional rate threshold (ART) is set to reduce from £150,000 to £125,140 from 6th April 2023. This means more taxpayers will pay income tax at the higher rate of 45% once their income goes above £125,140. The new threshold will apply to taxpayers in England, Wales, and Northern Ireland.

Tax thresholds and allowances frozen

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 Inheritance Tax (IHT) nil-rate band of £325,000 will be 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.

The income tax personal allowance of £12,570 is frozen until 2028.

The NIC primary threshold for employees and the Class 2 Lower Profits Threshold for the self-employed will both be frozen until April 2028.