The Houses of Parliament

The Spring Budget 2023 – The Five Headline Announcements

We outline the top five announcements that will affect businesses and personal finances following the Spring Budget on 15th March 2023.

Corporation Tax Increase

The Chancellor confirmed that Corporation Tax will increase from 19% to 25% on 1st April 2023 for companies whose taxable profits exceed £250,000.

For companies with profits less than £50,000, the current 19% rate will still apply.

Companies with profit levels between £50,000 and £250,000 will pay tax at 25%, reduced by marginal relief. That is, they will pay a tapered rate between 20% and 24%.

Importantly, because marginal relief will start at the relatively low limit of £50,000, the associated companies rules could affect a significant number of small businesses. Find out more about the associated companies rules and what you need to do now here.

Pension Tax Relief

The current pension lifetime allowance (LTA) charge is to be abolished from 6th April 2023.

This is a big deal for high earners saving in a personal pension and the government hopes that these changes will keep people in work for longer before they retire, particularly Doctors.

Up to now, the LTA has caused some high earners, especially GPs, to retire early, as tax charges apply on crystallisation of pension funds if the LTA (currently £1,073,100) is exceeded.

Individuals may be able to receive 25% of their pension savings as a tax-free lump sum when they become entitled to their pension benefits. This is currently capped at 25% of the LTA and going forwards, for most individuals, will remain capped at £268,275.

Savings

The Chancellor also confirmed that the pension Annual Allowance (AA) will increase from £40,000 to £60,000 from 6th April 2023.

The Annual Allowance applies to the combined pension input by the individual and, in the case of employees, their employer.

Pension contributions exceeding the AA result in a tax charge on the individual, although they may take advantage of unused AA amounts from the 3 previous tax years.

For those with high incomes, the AA is tapered. From 6th April 2023, where a taxpayer’s adjusted income exceeds £260,000 (increasing from £240,000), the AA is tapered by £1 for every £2 more than £260,000, down to a minimum of £10,000 (increasing from £4,000).

On 6th April 2023, The Money Purchase Annual Allowance (MPAA) will increase from £4,000 to £10,000. The MPAA replaces the Annual Allowance when an individual starts to flexibly access a defined contribution pension scheme.

Full Capital Expensing

However, to try to offset the rise in corporation tax, coinciding with the end of the generous super-deduction scheme on 31st March 2023 (which gave enhanced 130% relief for new qualifying plant and machinery acquired by companies), the Chancellor introduced a new “Full Capital Expensing” policy which will be in place from 1st April 2023 to 31st March 2026.

Full Capital Expensing (effectively 100% tax relief, called a ‘First Year Allowance’), enables businesses to deduct the cost of any eligible investment from their corporation tax bills in one go, rather than over several years. The full list of eligible investment can be found here on the Government’s website.

The hope is that this policy will make it more attractive for companies to invest in new plant and machinery.

The government announced:

  • Full expensing – which offers 100% first-year relief to companies on qualifying new main rate plant and machinery investments from 1 April 2023 until 31 March 2026
  • A 50% first-year allowance (FYA) for expenditure by companies on new special rate (including long life) assets until 31 March 2026

Up to now, businesses could only deduct a small fraction of the cost of an investment each year over the accounting lifespan of the investment. In reality, this meant that businesses wouldn’t get the full cost of the investment, because inflation eroded the value of the money firms could claim back in future years. So, the longer the right off time, the less of the cost of the investment that could be written off.

Now, businesses will be able to deduct the cost of any eligible investment from their corporation tax bills straight away.

Similar to the super-deduction, Full Capital Expensing also results in a 25p tax saving for every £1 a company invests (19% x 130% super-deduction rate = 25%).

The Office for Budget Responsibility (OBR) argues that because this is initially only a temporary measure for 3 years, it provides a strong incentive for businesses to bring forward investment that had been planned.

For “special rate” expenditure, which doesn’t qualify for full expensing, a 50% first-year allowance can be claimed instead, subject to the same conditions that apply for full expensing. This means that a company can claim a deduction from taxable profits that is equal to 50% of their qualifying expenditure in the year that expenditure is incurred.

Please note that full capital expensing is only available to companies who pay Corporation Tax. Unincorporated businesses cannot claim, but they are entitled to claim the Annual Investment Allowance which offers the same benefits as full expensing for the investments it covers. The Annual Investment Allowance is now permanently set at £1million.

Subsequent disposals of assets on which one of these ‘First Year Allowances’ has been claimed will trigger a clawback of tax relief at a rate of 100% or 50% of the disposal proceeds, depending on the rate of the original relief.

These new FYAs will mainly be of interest to companies that have already fully used their £1million Annual Investment Allowance.

Childcare Support Increased

Childcare

To help with soaring childcare costs, and to help parents to get back to work, the Chancellor announced an extension of 30 hours of free childcare to children aged 9 months to 2 in England.

Mr Hunt said all parents who work at least 16 hours per week will soon be able to claim 30 hours of childcare, for children aged between nine months and four.

The plans are being phased in on the following dates:

From April 2024: Working parents of two-year-olds will be able to access 15 hours of free care.

From September 2024: 15 hours will be extended to all children from 9 months upwards.

From September 2025: Every single working parent of under-fives will have access to 30 hours free childcare per week.

The provision of free childcare only applies within term-time – so 38 weeks of the year.

The government also announced that it will increase the hourly rate it pays childcare providers from September 2023. The minimum ratio of carers to children will increase in nurseries from 1:4 to 1:5 for two year olds.

The government also announced an Incentive payment of £600 for childminders signing up to the profession, rising to £1,200 for those who join through an agency.

For Universal Credit claimants, the government will also pay childcare costs in advance rather than arrears, when parents move into work or increase their hours. The maximum parents can claim will be increased around 50% to £951 for one child and £1,630 for two children.

Energy Costs

The Chancellor confirmed that The Business Energy Bills Discount Scheme will run until 31st March 2024, giving non-domestic customers discounts on their gas and electricity bills.

So despite the ongoing economic challenges and rising business costs, the energy bill price cap increase is still going ahead in April. Businesses will get a discount on wholesale prices of gas and electricity, rather than a fixed price.

For households, the Chancellor announced that the £2,500 Energy Price Guarantee will be extended by 3 months to 30th June 2023, before increasing to £3,000 until the end of the EPG period on 31st March 2024.

The Spring Budget 2023

To read the Spring Budget in full, visit the Government’s website.

Contact Leonherman’s Accounting Experts

If you have a question about any of the measures outlined by the Chancellor in the Spring Budget 2023, or if you think you need to act before April 2023, then don’t hesitate to let us know your query or call us on 0161 249 5040 to discuss your situation without delay with one of our team.

Important Disclaimer:

This material is published for client information. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. No responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by Leonherman.

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