Spring Budget 2023: At a glance

15/03/2023

A Budget for Growth?

Just a few days short of the third anniversary of the first Covid lockdown, Chancellor Jeremy Hunt rose to the Despatch Box to deliver the first full Budget to have taken place since October 2018. Of course, in that time, we have had several fiscal statements and mini-Budgets, but never a full Budget Statement.

In contrast to the last full Budget, gone are the fiscal emergencies of the past 3 years. However, there was still plenty for the Chancellor to deal with. Inflation, exceptionally high fuel bills, stagnant growth, economic inactivity and the post-Covid damage to the public finances have not gone away.

The Chancellor began by describing his speech as a “Budget for Growth”, saying he would deliver on an aim to make the UK one of the most prosperous countries in the world by removing barriers to investment, tackling labour shortages, breaking down barriers to work and harnessing British ingenuity.

He said the Office for Budget Responsibility (OBR) expects inflation to fall from a high of 10.7 per cent in the final quarter of 2022 to just 2.9 per cent by the end of 2023.

The OBR no longer expects the economy to enter a technical recession, with the economy expected to shrink by 0.2 per cent during 2023, before growing by 1.8 per cent in 2024, 2.5 per cent in 2025, 2.1 per cent in 2026 and 1.9 per cent in 2027. Public sector net debt is currently 100.6 per cent of GDP but is expected to fall to 94.6 per cent of GDP by 2027-28.

The Chancellor focused his attentions on what he called the Four Pillars for the vision ahead.

Enterprise – encouraging investment and incentivising key growth sectors
Employment – breaking down barriers for getting the right employees
Education – giving people knowledge and skills
“Everywhere” – extending opportunities across the UK

A quick summary of the key changes that were announced impacting our clients include:

Pension Caps – The maximum amount (Annual Allowance) which can be paid into a pension without incurring a tax charge is being increased from £40,000 per year to £60,000 per year.The Annual Allowance is currently tapered to as little as £4,000 per year for very high earners but the Government is increasing this minimum Tapered Annual Allowance from £4,000 to £10,000 per year from 6 April 2023. The income threshold at which this tapering applies will also increase from £240,000 to £260,000.Currently, tax charges can arise if the value of your pension fund exceeds a Lifetime Allowance of £1,073,100. The Government will remove this Lifetime Allowance charge from 6 April 2023, and are planning to fully abolish the Lifetime Allowance in a future Finance Bill.
Corporation Tax – it was confirmed that the rate of 25% will apply from 1 April 2023 for businesses where profits are in excess of £250,000. This limit is pro-rated for the number of companies under common control. Those with profits below £50,000 will retain a 19% rate. Those with profits between these levels will have a tapered mid-point rate.
Capital Allowances – From 1 April, companies (not unincorporated businesses) will be able to obtain 100% deduction from profits for any capital expenditure on plant and machinery that previously qualified for the main rate of relief (“Full Expensing”). At present this is limited to £1 million per annum. For three years until 31 March 2026 there will be no limit on the amount of this type of qualifying expenditure which can be offset against profits. Assets must be new and unused, not second-hand.As the Full Expensing regime only applies to companies, the Annual Investment Allowance (AIA) will still have value for qualifying partnerships, individuals and sole traders as this AIA gives relief of 100% of qualifying expenditure up to £1,000,000, which is to now become the permanent level of AIA.
Research & Development Reliefs – From April 2023 a new R&D Scheme is being introduced, aimed specifically at loss making small and medium companies who are “ R&D intensive”. This is where the qualifying R&D expenditure is more than 40% of total expenditure. These companies will be able to claim £27 from HMRC for every £100 of R&D investment, instead of £18.60 which other companies may be able to claim.
EMI Share Option Scheme – changes from April 2023 will be in place to simplify the process to grant options and reduce the administrative burden on participating companies. No major changes to the scheme itself were announced.
Income Tax, Capital Gains Tax and VAT – No changes were announced for personal tax, national insurance, capital gains tax or VAT rates.
Free Childcare Extended – To encourage return to work, there was the expected announcement of a commitment to extend the provision for 30 hours’ free childcare for the children of working parents from the age of nine months. These reforms will be phased in gradually from April 2024 to September 2025.
Investment Zones – 12 investment zones will be created across the UK. Those in England will have access to funds worth £80 million over five years, with a five-year tax offer equivalent to that available to Freeports. The zones will be located in the East Midlands, Manchester, Liverpool, the North East, South Yorkshire, Tees Valley, the West Midlands and West Yorkshire, as well as in each of Wales, Scotland and Northern Ireland.

Further detail

Our extended Budget report and outlook for the tax year ahead will be with you early next week, when we have had more time to digest the detail. In addition, there were proposals announced in November that will be introduced from April 2023 which we will cover, along with other matters that the Government has announced they will consult on. Reforms to Pension Allowances in particular, may mean that business owners and senior professionals will need to revisit their tax planning to take advantage of the increased ability to save into their pension pots.

If you have any concerns or questions about how the Budget may impact your tax position in the meantime, please contact your usual WMT advisor.