In this article, we provide a summary of the Spring Budget 2023 for the UK.
We will cover:
- A summary of the most important changes in the UK Spring Budget 2023
- How these affect you and your business
• Corporation tax rate to increase to 25% as previously announced
• R&D reliefs changes – RDEC rate for large companies to increase from 13% to 20%
• Small and Medium Enterprise (SME) additional deduction rate will reduce from 130% to 86%
• 12 new investment zones throughout the UK to be created, with access to £80m of government support over 5 years
• Capital allowances ‘full expensing’ to replace the super deduction
This change will result in higher tax bills for businesses with profits over £50,000. It may encourage some businesses to relocate or invest less in the UK, as they will face a higher tax burden. On the other hand, the offsetting reliefs for capital expenditure and R&D may encourage some businesses to invest more in these areas to reduce their effective tax rate.
• Annual Allowance (AA) for pensions to increase to £60,000 in 2023/24
• Unused AA carried forward can now go back three years, with a new maximum of £40,000
• Adjusted income threshold increased from £240,000 to £260,000
• AAs are tapered by £1 for every £2 of adjusted income over the limit
• Lifetime allowance for pensions remains unchanged at £1.1m
Pensions Lifetime Allowance Abolished: This could potentially benefit high earners who have a significant pension pot, as they will no longer face a tax charge on exceeding the lifetime allowance. However, it may also discourage some from contributing to their pensions, as there is no longer a cap on tax-free benefits.
Pensions Annual Allowance Increased: This may encourage more people to save for retirement by increasing the amount they can contribute annually to their pension funds tax-free. It could also be beneficial for business owners who want to contribute more to their pensions or offer more attractive pension plans to their employees.
CAPITAL ALLOWANCES ‘FULL EXPENSING’
• Provides uncapped 100% first-year allowance for qualifying main pool expenditure and 50% first-year allowance for special rate pool expenditure
• Aims to provide significant cash flow benefits and incentivise investment in qualifying plant and machinery over the next 3 years
• Targeted at large, capital intensive companies that exceed their Annual Investment Allowance on an annual basis
Large, capital-intensive companies that exceed their annual AIA may benefit from this measure, as they will be able to claim a 100% first-year allowance for qualifying main pool expenditure. However, it may be less beneficial for smaller companies that do not exceed their AIA, as they will not be able to benefit from this relief.
CHANGES TO R&D
• Aim to maintain tax incentives for UK companies undertaking qualifying R&D activities while tackling abuse of the reliefs
• Changes apply to accounting periods beginning on or after 1 April 2023
• RDEC rate for large companies will increase from 13% to 20%
• SME additional deduction rate will reduce from 130% to 86%
• SME payable credit also decreasing from 14.5% to 10%
• Loss-making SMEs who spend at least 40% of total expenditure on R&D activities will retain 14.5% rate for payable credits
• Qualifying expenditure will be extended to include the cost of datasets and cloud computing
This change may benefit large companies by increasing the RDEC rate from 13% to 20%, providing them with increased tax benefits for qualifying R&D activities. However, it may be less beneficial for SMEs, as the SME additional deduction rate has been reduced from 130% to 86%.
• The government announced 12 new investment zones across the UK
• These zones will focus on developing knowledge-intensive industries such as green industries, digital technologies, life sciences, creative industries, and advanced manufacturing
• Each investment zone will have access to £80m of government support over a 5-year period, a package of tax reliefs, and access to grant funding
• Local areas will be able to tailor their investment zone to their individual circumstances and set out proposals for how it will be supported by private sector funding and how it will help the UK reach its ‘carbon net zero’ target by 2050
• The package of tax support on offer includes enhanced capital allowances and structures and buildings allowances, as well as relief from SDLT, business rates, and employer’s National Insurance contributions
This change may be beneficial for businesses operating in the knowledge-intensive industries located in these investment zones, as they will have access to £80m of government support over a 5-year period, a package of tax reliefs, and access to grant funding. However, businesses outside of these zones may not benefit from these incentives.
• Additional rate (45%) tax threshold to reduce from £150,000 to £125,140
• Dividend tax-free allowance to reduce from £2,000 to £1,000
• Capital gains tax annual exemption to be cut from £12,300 to £6,000
• Various tax rate bands and allowances remain unchanged
These changes may result in higher tax bills if your income exceeds certain thresholds, particularly at or around the pinch points of £50,000 and £100,000. They may also impact businesses that offer high salaries to their employees.
FREE CHILDCARE EXTENDED
• Working parents will receive 30 hours of free childcare for 38 weeks a year
• Qualifying conditions will be the same as the current policy for three to four year olds (including the £100,000 earnings cap)
• This will be delivered in three waves:
• From April 2024, working parents of two year-olds will be able to access 15 hours of free childcare per week
• From September 2024 this will be extended to working parents of 9 month to 2 year-olds
• From September 2025, all eligible working parents of children aged 9 months up to 3 years will be able to access 30 free hours per week
• The government will offer start-up grants for new childminders, including those registering with a childminder agency
• The childcare element in Universal Credit will be paid upfront rather than in arrears
• If you and your partner both earn under £100,000, and wish to pay for additional childcare you can claim a 20% credit towards the costs known as “tax-free childcare”
Working parents will have access to 30 hours of free childcare for 38 weeks a year, with eligibility expanding to include parents of children aged 9 months to 3 years. This may be beneficial for businesses that want to support working parents.
ENERGY SUBSIDY EXTENDED
• The government has extended the energy price guarantee for an additional 3 months until June 2023
• The energy price guarantee caps the cost of energy per hour at a rate below that set by Ofgem to reduce the total amount payable by households
• The government subsidises the shortfall between the cap and the consumer’s actual energy costs above the cap
• The cap will remain at £2,500 (based on the average household’s energy usage) from April to June this year, instead of increasing to £3,000 as previously planned
• The energy price cap by Ofgem will be £3,280 for April to June 2023, £780 higher than the Energy Price
• Guarantee of £2,500 extended in today’s budget
• Following the extension, the price cap will revert to £3,000 in July 2023, rather than in April 2023 as previously announced
• The winter fuel payment of £400, which saw households getting an around £66 reduction in their energy bills, has not been renewed and will come to an end in March
This may provide some relief to households struggling with rising energy prices, particularly those with lower incomes. However, the removal of the winter fuel payment may result in higher energy bills for many households.
EXTENSION TO THE SEED ENTERPRISE INVESTMENT SCHEME (‘SEIS’)
• The SEIS scheme encourages investment in small companies at the beginning of their growth cycle
• The SEIS scheme now allows each investor to claim income tax and capital gains tax (CGT) reinvestment relief of £200,000 each year, which has increased from £100,000
• The limit on the amount SEIS companies can receive from investors over a period of three years has been increased from £150,000 to £250,000
• The maximum gross assets a company can have before the share issue has been increased from £200,000 to £350,000
• The activity receiving the investment must be a new qualifying trade, with ‘new’ now being defined as not more than three years old, up from two years
• Investors receive an income tax reducer of 50% of the amount subscribed, plus can claim reinvestment relief to permanently shelter other gains of up to the same amount
• Shares in SEIS companies also become exempt from CGT after three years
This change may benefit adventurous investors by increasing the subscription limit to £100,000, providing them with increased tax benefits for investing in SEIS companies. However, this may be less beneficial for businesses that are not classified as new qualifying trades or do not meet the other criteria for SEIS investments.
We hope these helped you stay informed about the latest changes to tax.
The changes outlined here may have a significant impact on your business and financial planning.
We encourage you to review the key points in this article carefully and seek our advice to ensure that you’re taking advantage of all available opportunities and minimising your tax burden.
By staying up-to-date and proactive, you can position your business for success in the changing economic landscape.
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