The current Chancellor of the Exchequer, Jeremy Hunt, delivered a Spring Budget that was relatively light on tax measures but instead focused on ‘back to work’ initiatives to encourage economically inactive working age people back into the labour market, growing the economy and rejecting the “narrative of decline” about the state of the UK economy.
The tax measures announced were largely trialled in advance to avoid any threat of destabilisation to the financial markets and so there were few surprises. The pension measures announced went wider than anticipated and will be warmly welcomed by public sector high earners and others with large pension funds.
Measures for growth targeted those companies where the Annual Investment Allowance of £1M announced in November is insufficient to support their investment plans via the tax system and so will be very good news for those companies about to embark upon large scale investment in new plant and new technology.
The measures are intended to provide a framework for the UK to be the preferred location to conduct business and provide long term sustainable growth for the UK economy.
Detailed measures announced in today’s budget are set out here:
There were no changes announced in respect of the increase to the main rate of corporation tax to 25% from 1 April 2023.
This increased rate will apply to companies with taxable profits of £250,000 or more. The rate for companies with taxable profits of £50,000 or less remains at 19%, and a marginal rate of tax of 26.5% will apply to companies with taxable profits between £50,001 and £249,999.
Research and Development
Despite the Chancellor previously expressing concerns around significant error and fraud existing in Research and Development (R&D) tax relief claims made by small and medium-sized enterprises (SMEs), he announced that the government remains committed to enhanced support for R&D.
Previously announced changes to the research and development expenditure credit (RDEC) and the R&D tax relief for SMEs, effective from 1 April 2023, remain as follows:
- 20% for RDEC, up from the current 13%;
- 86% additional deduction for SME, down from the current 130%; and
- 10% for SME payable credit, down from the current 14.5%.
However, to effectively target support for loss-making R&D intensive SME’s, a SME payable credit of 14.5% will apply for expenditure incurred on or after 1 April 2023. A company is considered R&D intensive where its qualifying R&D expenditure is worth 40% or more of its total expenditure. Expenditure for these purposes is to be calculated from the profit and loss account, adjusted for amounts not deductible for corporation tax purposes.
Companies will only be able to claim relief once the legislation is in place, expected to be in the summer, and the 10% rate will apply in the meantime. Qualifying R&D intensive companies may therefore either need to amend their claims once legislation is enacted or defer making a claim until then.
Capital Allowances – Full Expensing
From 1 April 2023 until 31 March 2026, investments made by companies in qualifying plant and machinery will qualify for an unlimited 100% first-year allowance for equipment falling into the main rate pool. This will allow companies to write off the full cost of the qualifying plant and machinery in the year of investment, known as full expensing.
Companies investing in special rate assets can claim an unlimited 50% first-year allowance in the year of investment.
Jeremy Hunt stated that 99% of companies already obtain full relief on qualifying capital expenditure through the Annual Investment Allowance (AIA). For the 1% of companies investing more than £1 million annually in qualifying plant and machinery, this is very good news. The intention is to encourage capital investment from the larger corporates and is reported to be worth £27 billion to businesses over three years.
The plant and machinery must be new and unused, must not be a car, given to the company as a gift, or bought to lease to someone else. Expenditure on second-hand assets and those bought to lease to someone else can still qualify for the AIA.
Full expensing is available to companies subject to corporation tax only. Therefore, unincorporated businesses cannot claim, but such businesses are entitled to claim the AIA, which offers the same benefits as full expensing but limited to qualifying investments up to £1 million per year.
Measures for the Labour Market
Support for Childcare Costs
Significant reforms to childcare were announced as part of a childcare revolution:
- By September 2025 30 hours of free childcare will be available for every child over the age of 9 months. The eligibility criteria will match the existing 3-4 year old 30 hours offer. The eligibility rules are complex and can be found here. If you have any queries regarding your eligibility, please contact your usual M+A contact.
- This will be phased in, firstly with 15 hours of free childcare for working parents of 2-year-olds coming into effect in April 2024. From September 2024 there will be 15 hours of free childcare for working parents of children 9 months to 3 years old.
- To support the existing free hours offers, funding paid to nurseries will be increased by £204 million from this September rising to £288 million next year.
- Schools and local authorities will be funded to increase the supply of before and after school care, known as wraparound care. It is the government’s intention for all school aged children able to access 8am-6pm childcare in their local area by 2026.
- The childcare costs of parents moving into work or increasing their hours whilst on Universal Credit will now be paid upfront rather than in arrears. The maximum claim has also increased to £951 for one child and £1,630 for two children.
An incentive payment scheme for new childminders will be piloted from Autumn this year. Those who sign up to the profession will be paid £600, this increases to £1,200 for those who join through an agency.
The following measures were announced with the stated intention of encouraging highly skilled and well-paid workers to remain in work for longer, after the government concluded that the current system has acted as a disincentive to continue working once their pension funds had reached the maximum tax privileged amounts.
The Annual Allowance, which is the amount that can be saved tax-free each year into a registered pension scheme, is to increase to £60,000 from 6 April 2023. This is a 50% increase from the current Annual Allowance of £40,000.
This will be of relevance to higher earners who want to save larger amounts into their pension arrangements, including those of our clients who participate in government career averaged revalued earnings pensions schemes. The budget announcement states that the government now expect 80% of NHS doctors not to have an annual allowance excess as a result of continued participation in the 2015 NHS Pension Scheme.
The Lifetime Allowance (LTA) which is the total amount of tax privileged savings that can be built up in a lifetime is to be abolished from 6 April 2023. This was unexpected. The Lifetime Allowance has been progressively reduced since it was introduced in 2011/12 and so the abolition of the LTA charge will ensure that pensions can be funded for a longer time period than at any previous time, without triggering a tax charge.
The Money Purchase Annual Allowance (MPAA) is increased from £4,000 to £10,000 from 6 April 2023.
This is the amount that can be contributed each year where pension fund income has previously been accessed in Defined Contribution Schemes.
The Tapered Annual Allowance rules for higher earners continues to apply. Threshold income is maintained at £200,000 and the taper threshold is increased to £260,000.
The minimum Tapered Annual Allowance is £10,000 from 6 April 2023. This applies once income reaches £360,000 a year from 6 April 2023, up from £312,000 up to and including 2022/23.
The government would like to see a return to work for the over 50s and so have announced a commitment to ‘returnership’ programmes to upskill and retrain workers. Returnerships will focus on flexibility and previous experience in an attempt to reduce training length.
These programmes will offer accelerated apprenticeships, Sector-Based Work Academy Programme placements and Skills Bootcamps to the over 50s across 2023/24 and 2024/25.
Further information can be found here.
The government will expand and improve the midlife MOT review tool which aims to support and encourage individuals benefitting from Universal Credit to take stock and actively plan their finances, skills and health with a view to better prepare for retirement.
The government will now extend this to online assistance and guidance as well as expanding in-person midlife MOTs for those over 50.
Measures for Individuals
The current ISA allowance of £20,000 has been maintained until 5 April 2024, after which the allowance will rise with CPI. This is good news given that there has been speculation that this allowance may be reduced.
Cost of Living Support
- The Energy Price Guarantee remains at £2,500 for the next three months.
- From July it is expected that the cost of energy will have dropped sufficiently for the Energy Price Guarantee to become redundant.
Trusts and Estates
Simplification for Trusts and Estates Tax Reporting
The government has announced its intention to legislate the proposals outlined from a 2022 consultation document as part of simplifying tax reporting for trusts and estates. The changes are as follows:
- Trusts and estates with income up to £500 will not pay tax on that income as it arises. Where a settlor has made other trusts, the amount is the higher of £100 or £500 divided by the total number of existing trusts;
- Removal of the default basic rate and dividend ordinary rate of tax that applies to the first £1,000 of discretionary trust income; and
- Beneficiaries of UK estates will not pay tax on income distributed to them that is within the £500 limit
The changes will apply for tax year 2024 to 2025 onwards.
HMRC also intends to make changes to inheritance tax regulations to remove non-taxpaying trusts from reporting requirements, which is good news.
The temporary cut in the rates of Fuel Duty announced in March 2022, has been extended for a further 12 months.
This maintains the cut of 5p per litre and will now end on 23 March 2024.
Alcohol duty has been frozen until 1 August 2023, after which non-draught alcohol duties will increase in line with RPI.
Also from 1 August 2023, draught relief will increase from 5% to 9.2% for beer and cider draught products and from 20% to 23% for wine, spirits and other fermented draught products. Draught relief cuts duties on draught beer and cider in a bid to support the hard-hit pubs.
As a result, supermarkets will pay duties of up to 11p higher on products that they sell instore.
The M+A team looks forward to hearing more new announcements in the forthcoming Tax Administration and Maintenance Day. The date is to be announced – we will bring you more news when we have it.
For more information about any of the measures that are relevant to you or your business please get in touch with your usual M+A contact.