Chancellor, Jeremy Hunt, delivered us his spring budget on 15th March, a budget that pledges to ‘tackle the two biggest barriers that stop business growing – investment incentives and labour supply’. It is his first budget since becoming chancellor, presented amid a backdrop of financial uncertainty for many, with the cost of living crisis and inflation impacting families and businesses across the country.
According to the budget, the UK is now not expected to fall into the technical recession that was forecast for 2023 and inflation is expected to dramatically reduce, down from 10.1% currently to 2.9% by the end of the year. Hunt argues that he is choosing to ‘reject the narrative of decline’ and his budget presents measures that that he hopes will promote growth in our economy. Key measures include:
- Increasing capital investment allowances
- Tackling the cost of living crisis through maintaining the energy price cap and fuel duty cut
- Incentivising people to work through changes to pensions tax and childcare
So, how will the Chancellor’s announcements impact you and your business?
Personal Tax and Pensions
There will be limited changes to personal tax. No changes were announced in relation to personal income tax and national insurance contribution rates or thresholds. Thresholds for 2023/24 will sit at £12,570 for income tax with the primary threshold for national insurance also sitting at £12,570. This freeze will last to 2028.
As previously announced, the dividend allowance will be reduced from £2,000 to £1,000 from April 2023 with an additional reduction of £500 to follow in April 2024. Equally, the capital gains allowance reduction will go ahead, with the allowance being reduced to £6,000 from April 2023.
A significant change was made to pensions, aimed at reducing economic inactivity and encouraging workers to stay in employment for longer. The key changes include:
- Increasing the annual tax free allowance from £40,000 to £60,000 per year, which means that individuals are able to contribute more to their pension funds without being penalised.
- Abolishment on the Lifetime Allowance (previously set at £1.073m); this means that no one will face a lifetime allowance tax charge from April 2023. This means that anyone who has a pension over the previous allowance may now avoid up to 55% in tax charges.
The government hopes that this will encourage (mostly, those on higher salaries) to continue working and investing in their pensions, by removing concerns around being penalised for increased contributions.
Business Tax and Investment
As has been indicated in the autumn statement, the Chancellor confirmed that the main corporation tax rate will increase from 19% to 25% in April 2023. This means that any business with profits over £50,000 will see a gradual increase from 19 to 25% in the rate applied, with all companies with profits over £250,000 paying the full rate of 25%. It is expected that only 10% of business will pay the full 25% charge although a much larger proportion of companies will fall between the £50-250k threshold and will therefore be subject to an increase tax rate compared with the previous years.
To incentivise investment, a ‘full expensing’ system has been introduced and the Annual Investment Allowance threshold has been increased to £1m which aims to replace the super deduction scheme which comes to an end in April 2023. Under the ‘full expensing’ scheme, companies will be able to deduct 100% of the cost of qualifying expenditure from their profits. It is a scheme which aims to be simpler than the previous super deduction system and is available on new main pool plant and machinery which is purchased after April 2023 and before April 2026. 50% first year allowance is to be available on special rate pool assets up to April 2026.
As the full expensing system is only available to incorporated businesses, the Annual Investment Allowance available to unincorporated businesses has increased to £1m (sitting previously at £200k, in 2018 although had been ‘temporarily’ increased from 2019 to £1m). This aims to incentivise expenditure although, arguably, is unlikely to impact the average SME.
Changes have also been introduced to encourage research and development; companies whose expenditure on R&D is in excess of 40% of total expenditure will see themselves able to claim a tax credit of £27 per £100 spent on their R&D expenditure.
Other key announcements
Duty – The planned fuel duty increase has been scrapped and, instead, the current 5p cut will continue to be in place. This is good news for motorists. Fuel duty will be frozen for the next 12 months.
Alcohol duty will be frozen and draught products will see a tax relief of 11p for draught drinks served in pubs from August 2023.
Energy – The government has listened to campaigners, including Martin Lewis, who had argued against the increase in the energy price cap. The energy price cap will remain at £2,500 until the end of June, when it is expected that energy prices will go down. The rebate scheme, which paid customers £67 per month has not been extended and will end this month and, consequently, households will see bills rising in spite of the freeze in the price cap.
Prepayment meter customers will no longer be charged more for their gas and electricity from July 2023.
Childcare – The ‘free’ childcare scheme, which currently offers 30 free hours of childcare for 38 weeks per year to parents of 3 and 4 year olds will be extended to all children from 9 months to 3 years. This aims to bring parents back into the workforce by making childcare more accessible to all. This will be gradually implemented from April 2024. Increases will be made to the financial support available to parents claiming universal credit.
If you have any queries or questions regarding any of the new measures and changes outlined and how they are likely to impact you and your business, please do not hesitate to get in touch.