22.3.2023 | Tax

A summary of the 2023 spring budget

Head of Taxation at Beatons, Andrew Diver, highlights some of the main points affecting businesses and households. 

It was the first Spring Statement from Chancellor Jeremy Hunt last week, and as might have been expected, it came with the usual highs and lows.

Though there were no big shock announcements, many of the measures will take time to reveal their impact. As part of his delivery, Hunt said that the Office for Budget Responsibility (OBR) now forecasts that the UK will not enter a technical recession this year and that the Government “will meet the Prime Minister’s priorities to halve inflation, reduce debt and get the economy growing”.

Energy costs

As households continue to grapple with the cost of living, the government confirmed that the £2,500 Energy Price Guarantee will be extended by three months to June 30, before increasing to £3,000 until the end of the EPG period on March 31, 2024. These extra three months will be worth £160 for a typical household.

A new scheme for businesses, charities and the public sector was also confirmed. The Business Energy Bills Discount Scheme will run until March 31, 2024, giving non-domestic customers discounts on their gas and electricity bills.

Childcare costs

As part of a bid to help get people back to work and boost growth, a £ 4 billion expansion of free childcare for one and two-year-olds in England was announced. Parents will receive 30 hours a week in an increase to funding by £ 288 million by 2024/25.

Income tax

The personal allowance and basic rate band threshold have been frozen until April 5, 2028. This is part of creating a Fiscal Drag because as earnings increase, taxpayers move into higher tax bands, raising more tax without the government increasing income tax rates.

The personal allowance continues to be partially and then fully withdrawn for higher earners, with £1 of personal allowance lost for every £2 of adjusted net income over £100,000.

Capital Gains Tax

Last autumn, the Chancellor announced that the £12,300 annual tax-free capital gains tax exemption (or allowance) will be reduced to just £6,000 in 2023/24 and only £3,000 in 2024/25.

This change was confirmed again and will mean that those disposing of capital assets will pay more tax, where the new lower allowance is exceeded.

Pension tax relief

Changes to personal pension plan rules were widely welcomed. The current pension lifetime allowance (LTA) charge is being abolished from April 6, 2023.

This is good news as the LTA has previously caused some high earners to retire early due to tax charges that apply to pension funds if the LTA (currently £1,073,100) is exceeded. 

The Annual Allowance (AA) also increases from £40,000 to £60,000 from April 6, 2023. The AA applies to the combined pension input by the individual and their employer. Pension contributions higher than the AA result in a tax charge on the individual, although they may take advantage of unused AA amounts from the three previous tax years.

There is a tapering rule for those with high incomes. From April 6, when a taxpayer’s adjusted income exceeds £260,000, the AA is tapered by £1 for every £2 in excess of £260,000, down to a minimum of £10,000 (increasing from £4,000).

VAT

VAT registration continues to be set at £85,000, with deregistration fixed at £83,000, instead of yearly inflation increases. This will remain the case until March 2026.

Since January 1, the new penalty regime for late VAT return submission and late payment of VAT remains fixed. The system is designed to target more persistent offenders, with penalties mounting when defaults reoccur.

All New Investment Zones

The Government announced that it will establish 12 Investment Zones across the UK, with zones in England,  Scotland, Northern Ireland and Wales.

Each successful zone will have access to £80m funding over five years and benefit from a package of tax relief, including Stamp Duty Land Tax, enhanced capital allowances for plant and machinery, enhanced structures and buildings allowances and relief from secondary Class 1 National Insurance Contributions for qualifying employers on the earnings of eligible employees up to £25,000 per annum.

Start-up investment schemes

The government is increasing the amount and availability of the Seed Enterprise Investment Scheme for start-up companies.

The investment that companies will be able to raise under the scheme will increase from £150,000 to £250,000. The gross asset limit will be increased from £200,000 to £350,000, and the investment must be made within three years of trade commencing. In a bid to support these changes, the annual investor limit will be doubled to £200,000. The changes take effect from April 6.

Business taxes

A range of business tax details was highlighted in the Spring Statement, with the main ones covering the following:

Expenditure on plant and machinery: The Annual Investment Allowance is now set at £1m. This gives 100% tax relief to unincorporated businesses and companies investing in qualifying plant and machinery.

However, it should be noted that the super-deduction, which gives enhanced 130% relief for new qualifying plant and machinery acquired by companies, will end on March 31.

It will be replaced by an initiative called a First Year Allowance which means items can be fully expensed. It will be available to companies buying new qualifying plant and machinery between April 1, 2023, and March 31, 2026. The qualifying criteria is broad, although there are exclusions, which should be checked, and more information can be found here.

There is a separate 100% FYA for electric vehicle charge points, and this remains available for unincorporated businesses and companies until Spring 2025.

NICs for the self-employed: For 2023/24, Class 2 NICs are calculated at £3.45 per week, and Class 4 NICs are calculated at 9% on profits between £12,570 and £50,750 and at 2% on profits over £50,750.

MTD for income tax: It was confirmed that Making Tax Digital for Income Tax will not be phased in until April 2026, starting with sole traders and property landlords with gross income above £50,000. MTD will require businesses to keep digital records and send a quarterly summary of their business income and expenses to HMRC using compatible software.

If you and your business need advice, please contact info@beatons.co.uk or call on 01473 659777.