On 15 March 2023 the chancellor, Jeremy Hunt, announced the Spring Budget 2023. Read how the 2023 Spring Budget affects you and your taxes. Our clients can ask us what it means to them, all included in our low fixed-fees.
Highlights of the Spring Budget 2023
Recession expected to be avoided in 2023 and inflation to fall to around 3%
Energy price guarantee (£2,500 cap for a typical bill) is extended by 3 months to 30th June 2023
Duty on draught drinks will be cut on 1st August 2023, 11p lower than supermarkets.
Full tax relief on all plant and equipment in the year purchased. This replaces the 130% super-deduction and the £1m Annual Investment Allowance, so it only helps the very largest companies.
Annual prize offered for best Artifical Intelligence projects.
Tax relief for theatres, orchestras, museums and gallaries to stay at 45-50% until 2025.
Disabled people will not lose disability benefits if they become employed.
Hours of working while still claiming some benefits to increase from 16 to 18 per week, and pressure applied if working less than 18.
Over 50s encouraged back to work with incentives, including mid-life MOT scheme expanded, apprenticeships ‘returnaships’, skills boot camps and increasing pension limits.
Annual pension limit increased from £40k to £60k.
Lifetime pension limit of just over £1m is to be abolished.
Childcare reforms: incentive payments of £600-£1,200 to new childminders, providers given 30% increase in funding and ratios of children to carers relaxed, upfront payment to workers towards childcare £951 – £1,631, all schools to offer wrap around full-time cover by 2026. 30 hours of free childcare for every child from 9 months to under 5 years old.
At CloudBook Online Accountants we are committed to ensuring none of our clients pay a penny more in tax than is necessary and they receive useful tax and business advice and support throughout the year.
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Chancellor Hunt billed his Budget as a Budget for growth with emphasis on fixing problems in the labour market alongside improving business investment and innovation
For the former he has addressed barriers to staying in work experienced by high earners with large pension pots, and provided some help to parents who are looking for affordable childcare.
Under the investment heading he announced incentives for investment in 12 new investment zones, and a ‘fully expensed‘ system of obtaining tax relief for plant and machinery.
The chancellor also confirmed that the energy price guarantee for domestic consumers would remain in place for another three months keeping the annual bill for an average household at £2,500 for the year.
High earners tend to max out their annual pensions allowance of £40,000 quite easily, especially if they are a member of a final salary pension scheme. The annual allowance will rise to £60,000 from 6 April 2023 and the facility to carry forward unused allowance for three years remains in place.
Taxpayers with adjusted net income in excess of £200,000 and income including pension contributions in excess of £240,000, have their annual allowance tapered down by £1 for every £2 over the higher figure down to a minimum of £4000. This income threshold will increase to £260,000, and the minimum tapered annual allowance increase to £10,000, also from 6 April 2023
Taxpayers who started to draw the taxed portion of their defined contribution pension, are subject to a lower money purchase annual allowance (MPAA) of only £4,000. This can catch out individuals who have retired early but return to paid employment and become enrolled in a workplace pension. Hunt has also increased the MPAA to £10,000 from 6 April 2023.
The pensions lifetime allowance catches those who have diligently saved all their life and built up a significant pension pot. If that pot exceeds their lifetime allowance of £1.0731m at the time they start to draw their benefits the excess value is subject to a lifetime allowance tax charge at 25% or 55% on lump sum. This pensions lifetime allowance charge is scrapped from 6 April 2023 and the lifetime allowance will be abolished completely in a future Finance Bill.
Amount of Universal Credit (UC) that is awarded to cover childcare payments will be increased to maximum of £951 per month for first child and to £1630 for two children. This only helps UC claimants who are already paying out the maximum in childcare costs. The current limits are £646.35 per month for one child and £1108.04 for two or more children, but those amounts haven‘t changed since 2016.
The most important change is around the timing of the UC payment. Currently the parent must pay the childcare costs up front and claim that cost in arrears. From a date to be confirmed the parent will be able to claim the childcare fees up front. This will help parents who want to return to work but can‘t afford to pay the childcare fees in advance before they get their first pay cheque.
The Chancellor also announced an extension of free childcare places to children aged one and two in England, to match the 15 or 30 hours of free childcare currently provided to three and four year olds in term time. This will be rolled-out in stages:
– From April 2024, all working parents of two-year-olds will be able to access 15 hours per week. – From September 2024, all working parents of children aged nine months up to three years old will be able to access 15 hours per week. – From September 2025 all working parents of children aged nine months up to three years old will be able to access 30 hours free childcare per week.
To qualify for the free childcare places the parents must be working and each earning at least £659 per month, but not over £100,000 per year.
The staff to chid ratios in nurseries will be changed to an optional 1: 5 from the current 1: 4 for two year olds, to align with the ratios that apply in Scotland.
The payment made by the Government to nurseries to provide these free places will be increase by around 30%. Currently amount paid is well below the hourly cost of providing care, so the free places have to be cross-subsidised by charging other parents more.
As education is a devolved matter, any decision to expand the free childcare places in Scotland, Northern Ireland, and Wales will be up to those regional governments.
To increase the number of childminders the Government will provide all newly registered childminders with a start-up grant of £600 and those who register with a childminder agency will receive a grant of £1,200.
Work capability assessment (WCA), which determines whether people are too ill to work, will be removed. Currently disabled people need to have a health assessment and be found incapable of work to receive additional income support through universal credit and other benefits. This assessment is likely to be replaced by another test, perhaps that for the personal independence payment (PIP).
If individuals are not subject to the WCA, they should be able to take up a job trial without fear of losing all the addition help they receive through the benefits system, should that job not work out.
From 1 April 2023 the main rate of corporation tax will rise from 19% to 25%, but the small profits rate will stay at 19%. The boundary between these two rates is nominally set at annual profits of £50,000, but in practice there is a £200,000 marginal relief zone as follows:
– below £50,000: small profits rate of 19% – above £250,000: main rate of 25% – between £50,000 and £250,000: main rate of 25% less marginal relief.
These profit thresholds are reduced proportionally if the accounting period is less than 12 months, or if the company has associated companies. For example, where there are two associated companies the thresholds will be £25,000 and £125,000.
Marginal relief results in an effective rate of 26.5% on the profits in the marginal relief zone.
The super deduction capital allowances, which provide companies with a deduction of 130% of the cost of new plant and machinery, will end from 1 April 2023 as scheduled.
In their place the Chancellor has proposed a new system of full expensing of the cost of all plant and machinery purchased new and unused by companies between 1 April 2023 and 31 March 2026. This is effectively a 100% first year allowance for the assets which would have qualified for the super deduction. The Chancellor indicated that this relief may be made permanent after a review.
Those assets which qualify for the special rate of 50% continue to benefit from that rate when purchased by companies on and after 1 April 2023.
Most businesses can get a 100% deduction for expenditure on assets, other than cars, using the Annual Investment Allowance (AIA) which now has a permanent cap of £1 million per year. Second-hand assets qualify for the AIA.
“Levelling up” has been the mantra of the Conservative Government since it was elected in December 2019, but there has been little evidence of any significant investment in the regions to achieve this. Chancellor Hunt hopes that 12 new investment zones clustered around research institutes such as Universities will change this, with up to £80m of grants given over five years to encourage growth in areas of technology, creative industries, life sciences, advanced manufacturing and green industries.
These investment zones will benefit from reduced stamp duty land tax, discounted business rates and limited exemptions from employer‘s NIC for new employees. The Investment Zones will have access to flexible grant funding to support skills and incentivise apprenticeships, provide specialist business support and improve local infrastructure, dependent on local requirements.
The first eight low tax zones will be located in the East Midlands, Greater Manchester, Liverpool, North East, South Yorkshire, Tees Valley, West Midlands and West Yorkshire. A further four investment zones will be set up in Scotland, Wales and Northern Ireland.
In Chancellor Hunt‘s Autumn Statement, he announced a reduction in R&D tax credit relief from 130% to 86%, and a cut in the payable tax credit from 14.5% of the loss surrendered to only 10% of that loss. These new rates apply to expenditure incurred from 1 April 2023 included in claims made under the small company scheme and were legislated for in FA 2023.
However, in this Spring Budget the Chancellor has reinstated the 14.5% payable tax credit for R&D intensive SMEs. These are companies with qualifying R&D expenditure at least equal to 40% of their total expenditure for the relevant period. For these purposes, ‘total expenditure‘ will be defined as the expenditure in the profit and loss account, plus any amount included in the R&D claim, less any non-deductible expenditure.
The restriction on some overseas expenditure for R&D claims announced last year will now come into effect from 1 April 2024 instead of 1 April 2023.
The R&D expenditure credit (RDEC) is the method by which large companies claim enhanced tax relief for R&D expenditure. The rate of RDEC will increase from 13% to 20% on 1 April 2023.
The Seed Enterprise Investment Scheme (SEIS) is only available to relatively new, small companies to help them raise equity capital.
The amount that a single company can raise using SEIS will increase from £150,000 to £250,000, and the age limit on the qualifying trade will be raised from two year to three years. In addition, the maximum an investor can subscribe for shares under the scheme will double from £100,000 to £200,000. All these changes will take effect for shares issued from 6 April 2023.
The income thresholds have been frozen until April 2028, as announced last year, with the exception of the additional rate threshold, which is reduced from £150,000 to £125,140. However, Scottish residents pay income tax on earnings and profits according to the Scottish rates and thresholds, with the rest-of-UK rates applying to their dividends, savings, and the threshold for capital gains tax.
The various personal allowances were also announced in last Autumn as follows:
Married Couple‘s Allowance (born before 6 April 1935)
Blind Person‘s Allowance
Capital Gains Tax annual exempt amount:
Individuals who provide foster care and shared lives careers benefit from tax relief on the first £18,140 of care income in 2023/24 plus £375 to £450 per person per week.
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Disclaimer The information contained in this newsletter is of a general nature and no assurance of accuracy can be given. It is not a substitute for specific professional advice in your own circumstances. No action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a consequence of the material can be accepted by the authors or the firm.