Spring Budget 2023
Updated: Mar 24
Following Chancellor Jeremy Hunt’s Spring Budget, here are some highlights
Fuel, alcohol, pensions and wages
Cap on amount workers can accumulate in pensions savings over their lifetime before having to pay extra tax (currently £1.07m) to be abolished
Tax-free yearly allowance for pension pot to rise from £40,000 to £60,000 - having been frozen for nine years
Fuel duty frozen - the 5p cut to fuel duty on petrol and diesel, due to end in April, kept for another year
Alcohol taxes to rise in line with inflation from August, with new reliefs for beer, cider and wine sold in pubs
Tax on tobacco to increase by 2% above inflation, and 6% above inflation for hand-rolling tobacco
Energy bills, prepayment meter and nuclear power
Government subsidies limiting typical household energy bills to £2,500 a year extended for three months, until the end of June
£200m to bring energy charges for prepayment meters into line with prices for customers paying by direct debit - affects 4m households
Commitment to invest £20bn over next two decades on low-carbon energy projects, with a focus on carbon capture and storage
Nuclear energy to be classed as environmentally sustainable for investment purposes, with promise of more public funding
£63m to help leisure centres with rising swimming pool heating costs, and invest to become more energy efficient
Childcare, universal credit and back to work plans
30 hours of free childcare for working parents in England expanded to cover one and two-year-olds, to be rolled out in stages from April 2024
Families on universal credit to receive childcare support up front instead of in arrears, with the £646-a-month per child cap raised to £951
£600 "incentive payments" for those becoming childminders, and relaxed rules in England to let childminders look after more children
New fitness-to-work testing regime to qualify for health-related benefits
New voluntary employment scheme for disabled people in England and Wales, called Universal Support
Tougher requirements to look for work and increased job support for lead child carers on universal credit
£63m for programmes to encourage retirees over 50 back to work, "returnerships" and skills boot camps
Immigration rules to be relaxed for five roles in construction sector, to ease labour shortages
Government debt, inflation and economic growth
Office for Budget Responsibility predicts the UK will avoid recession in 2023, but the economy will shrink by 0.2%
Growth of 1.8% predicted for next year, with 2.5% in 2025 and 2.1% in 2026
UK's inflation rate predicted to fall to 2.9% by the end of this year, down from 10.7% in the last three months of 2022
Underlying debt forecast to be 92.4% of GDP this year, rising to 93.7% in 2024
Corporation tax, Investment Zones and tax breaks
Main rate of corporation tax, paid by businesses on taxable profits over £250,000, confirmed to increase from 19% to 25%
Companies with profits between £50,000 and £250,000 to pay between 19% and 25%
There are two planning points for family companies here.
o Identify and eliminate associated companies where possible.
o Forecast profits for 2023/24 and take action to reduce the taxable profits to below £50,000.
Companies able to deduct investment in new machinery and technology to lower their taxable profits
Tax breaks and other benefits for 12 new Investment Zones across the UK, funded by £80 million each over the next five years
Reduced paperwork for international traders, who will also be given longer to submit customs forms under streamlined rules
The super deduction of 130% of the cost of new plant and machinery is ending for purchases after 31 March 2023, but if the company’s profits will be taxed at 26.5%, postponing the purchase of new equipment until April 2023 or later may provide a higher rate of effective tax relief. Measures were announced to encourage continued business investment from 1 April 2023, when the main corporation tax rate will increase from 19% to 25%.
Full expensing and 50% first year allowance
Full expensing will be introduced from 1 April 2023 until 31 March 2026, allowing companies liable for corporation tax to benefit from a 100% first-year allowance (FYA) for capital expenditure on qualifying plant and machinery. This deduction will allow companies to potentially reduce tax payable by 25p for every £1 invested in eligible plant and machinery.
The 100% FYA will be available for expenditure on new and unused plant and machinery that ordinarily qualifies for the 18% main rate of writing down allowances. A temporary FYA of 50% will also be available for expenditure on new and unused special rate plant and machinery, including integral features in a building, and long-life assets that normally qualify for 6% writing down allowances. This represents no change from the former temporary FYA that has been available since 1 April 2021 for expenditure on these assets.
The measures announced will only apply to qualifying expenditure on new and not second hand or used, plant and machinery from 1 April 2023, although it is not clear whether the FYAs will only apply for expenditure incurred under contracts entered into after 15 March 2023. Such provisions existed for both the super-deduction and SR allowance, where expenditure was only qualifying if incurred under a contract entered into on or after 31 March 2021.
As the 100% and 50% deductions are FYAs, the general exclusions for FYAs will apply, and therefore expenditure on cars or plant or machinery acquired for leasing will be excluded. However, the temporary allowances will be available for plant and machinery leased under an excluded lease of background plant and machinery, meaning landlords and property investment companies will be eligible. Plant and machinery must also be owned in the period FYAs are claimed; certain deposit payments without legal title passing in the same period may not be eligible.
Any expenditure that has been subject to full expensing or the 50% FYAs will be subject to an immediate balancing charge on disposal of the plant and machinery. This will be equal to 100% of the disposal value for full expensing and 50% of the disposal value in respect of the 50% FYAs.
As expected with any enhanced allowance or relief, anti-avoidance provisions will apply to prevent certain arrangements that may be contrived, are otherwise abnormal or do not have a genuine commercial purpose to obtain the allowances, including connected party transactions.
Annual Investment Allowance
As previously announced, legislation will be introduced to permanently increase the rate of the Annual Investment Allowance (AIA) from £200,000 to £1 million per annum for expenditure on qualifying plant and machinery. Although the AIA had been temporarily increased to £1 million since 1 January 2019, the AIA was due to return to £200,000 from April 2023 to align with the end of the super-deduction. Fortunately, the complex transitional rules that apply to chargeable periods that straddle 1 April 2023 will no longer be required.
Companies will need to consider the allocation of the AIA in conjunction with any expenditure not eligible for 100% full expensing and/or the 50% FYA.
For higher earners, the ability to contribute into pensions has, up to now, been curtailed by two restrictions. The Annual Allowance restricts the amount a person can pay into a pension during a particular year. The Life Time Allowance seeks to cap the size of the fund that accrues during your lifetime.
Whereas private sector workers caught within the restrictions can control their pension contributions, public sector workers usually cannot, as their employers will continue to contribute based on their earnings. In practice, the only way high earning public sector workers are able limit their exposure to Annual Allowance and Life Time Allowance charges is by restricting their earnings by choosing to work less, or retire.
The Chancellor has announced the abolition of the Life Time Allowance and the raising of the limits for the Annual Allowance to “help remove incentives for doctors to work reduced hours or retire early due to pension tax concerns.” The measures extend beyond just the healthcare sector however, meaning everyone can benefit from the changes.
Annual allowance change
Where pension contributions for a year exceed the Annual Allowance, the excess is subject to charge at the persons marginal rate of income tax. The available Annual Allowance is also tapered by £1 for each £2 adjusted income exceeds a defined limit.
From 6 April 2023, the Annual Allowance will increase from £40,000 to £60,000. The adjusted income limit will increase from £240,000 to £260,000 and, where tapering applies, the minimum tapered Annual Allowance will be £10,000, up from £4,000.
Where a public sector worker is a member of both a closed and an open pension scheme, they will be linked and the combined pension income will be calculated as if it were a single scheme. This enables the offset of negative real growth in legacy public sector schemes when calculating the Annual Allowance.
Indirect taxes - VAT
Medical services carried out by staff ‘directly supervised’ by registered pharmacists will be exempt from VAT from 1 May 2023.
Prescriptions for medicines supplied through Patient Group Directions will be zero-rated from Autumn 2023
The DIY housebuilders scheme is to be digitized and the claim deadline will be extended from three to six months.
The government has issued a call for evidence on options to reform the VAT relief for the installation of energy saving materials. It will consider the inclusion of additional technologies, such as battery storage, and the possible extension of the relief to include buildings used solely for a relevant charitable purpose.