The Spring budget announced on March 15th by Chancellor Jeremy Hunt was based on stability and growth, with the focus on ‘Economy, Employment, Education, Enterprise and Everywhere’. The main intention is to deliver a plan to deliver on three of the five key priorities set out by the Prime Minister in January: to halve inflation, grow the economy and get debt falling. So the Budget emphasised the ‘back to work’ initiatives and growing the economy. According to the OBR, inflation will fall from 10.7% in the final quarter of last year to 2.9% by the end of 2023.
Spring Budget 2023
The key points of the Spring Budget 2023 were:
- Raised the £40,000 annual cap on pension contributions to £60,000
- Abolished the pensions lifetime allowance
- Announced 12 new Investment Zones to drive business investment
- Full expensing tax relief will come in from 1 April in respect of qualifying plant and machinery
- Froze road fuel duty and retained the recent 5p cut in petrol and diesel duty for 12 months
- Criminal charges for promoters of tax avoidance – new consultation
- The Energy Price Guarantee kept at £2,500 for an additional three months
- Froze duty on average strength draught beer sold in pubs across the UK
- Introduced a new apprenticeship – the ‘returnership’ for over 50s
- Alcohol duty to rise with inflation
A few more details on the tax measures:
Corporation tax is to increase this April in spite of pressure to postpone or cancel this measure. As previously announced, corporation tax will increase to 25% where profits are above £250,000. If profits are below £50,000 the 19% rate will prevail. The increase is gradual between 50,000 and 250,000, so corporation tax will be 25% less marginal relief. It is important to remember these bands are divided by the number of associated companies which applies when one company controls the other, or both companies are controlled by the same person or persons.
Essentially all but the smallest companies will be impacted by the rise in corporation tax. This tax rise will hurt as most company owners take dividends, which are after corporation tax, so it will reduce the dividends available.
In replacing the 130% super deduction, full expensing is being introduced – a 100% First Year Allowance, from 1 April 2023 until 31 March 2026. Companies will be able to write off the full cost of qualifying main rate plant and machinery investment in the year of investment. This will be of most benefit to companies that have used their full £1,000,000 AIA allowance. Companies investing in special rate (including long life) assets will also benefit from a 50% first-year allowance during this period.
From 1 April 2023, there will be an increased rate of relief for loss-making R&D intensive SME with eligible companies receiving £27 from HMRC for every £100 of R&D investment.
Back to Work Measures
The Government would like to see more of the 7 million people of working age, but not in work, start or return to work. There will be incentives and punitive measures in place for those deemed eligible for work but currently on benefits. Working parents are encouraged back to work with more help with child care, and those with retirement less than 20 years away, are being encouraged to continue to work without their pensions being penalised.
Lifetime allowance – A lifetime limit on the total amount of pension value that could benefit from tax relief – this was £1,073,100, now it is abolished altogether.
Pension Annual Allowance increased from £40,000 – £60,000. The annual allowance limits the amount that can be paid into pensions and benefit from tax relief and is likely to be popular with higher earners.
30 hours free child care from 9 months (not just 3 to 4 year olds) introduced in stages from April 2024.
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