The A to Z of The Spring Budget 2023!

16 March 2023

Christie Inns

Property Owners, Reducing Tax, Accounting & Compliance, Payroll, People, Estate Planning / IHT, Structuring a Business, Property Investors & Developers

On 15 March 2023, Chancellor Jeremy Hunt presented his first Budget to Parliament and set out a plan to reduce inflation, grow the economy and get government debt falling all whilst avoiding a recession and tackling labour shortages.

Below we set out some of the main points from the spring budget announcement.

Childcare

Additional support is being provided towards childcare costs in what the government describe as a ‘childcare revolution’ in the spring budget. This includes 30 hours of free childcare for every child over the age of 9 months, with support being phased in until every eligible working parent of under 5s gets this support by September 2025.

For Universal Credit claimants, the government will also pay childcare costs in advance rather than arrears, when parents move into work or increase their hours. The maximum they can claim will also be boosted to £951 for one child and £1,630 for two children, an increase of around 50%.

Creative industries tax reliefs

The government continues to support the creative industries by reforming and enhancing film, TV and video games tax reliefs. The government will also extend the temporary higher rates of theatre, orchestra, and museums and galleries tax reliefs for 2 further years until April 2025.

Energy Costs

The Energy Price Guarantee (EPG) brings a typical household energy bill in Great Britain down to around £2,500 per year. It has now been announced that the £2,500 EPG will be extended by 3 months to 30th June 2023, before increasing to £3,000 until the end of the EPG period on 31 March 2024. This extra 3 months at £2,500 will be worth £160 for a typical household.

In Northern Ireland, a similar scheme operates, reducing typical household energy bills to around £2,109 per year. This has also been extended at the same rate until 30th June 2023.

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

Investment Zones

The Government will establish 12 ‘Investment Zones’ across the UK as part of the spring budget, including a promise to have at least one each in Scotland, Northern Ireland and Wales.

Each successful zone will have access to £80m funding over 5 years and benefit from a package of tax reliefs. These include relief from Stamp Duty Land Tax (SDLT), enhanced capital allowances for plant and machinery, enhanced structures and buildings allowances and relief from secondary Class 1 National Insurance Contributions (NICs) for qualifying employers on the earnings of eligible employees up to £25,000 per annum.

Pension Allowances

There was good news in the Budget for those saving in a personal pension. The current pension lifetime allowance (LTA) charge is being abolished from 6 April 2023. The LTA has caused some high earners, particularly doctors, to retire early as tax charges apply on crystallisation of pension funds if the LTA (currently £1,073,100) is exceeded.

Individuals may be able to receive 25% of their pension savings as a tax-free lump sum when they become entitled to their pension benefits. This is currently capped at 25% of the LTA and going forwards, for most individuals, will remain capped at £268,275.

Another pension limit increased by the Chancellor in the Budget was the pension Annual Allowance (AA) which increases from £40,000 to £60,000 from 6 April 2023. The AA applies to the combined pension input by the individual and, in the case of employees, their employer. Pension contributions in excess of the AA result in a tax charge on the individual, although they may take advantage of unused AA amounts from the 3 previous tax years.

For those with high incomes, the AA is tapered. From 6 April 2023, where a taxpayer’s adjusted income exceeds £260,000 (increasing from £240,000), 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).

The Money Purchase Annual Allowance (MPAA) replaces the AA when an individual starts to flexibly access a defined contribution pension scheme. The MPAA will increase from £4,000 to £10,000 on 6 April 2023.

Note that an individual’s pension contributions can be very tax efficient depending on their level of income.

The taxation rules for pensions are complex as there have been numerous changes in recent years so please talk to us about your pension contribution strategy.

Research & Development (R&D) Reliefs

From 1 April 2023 a raft of changes is coming to the R&D tax relief regime and claimant companies should consider obtaining updated advice if they’ve not already done so. The key changes are:

The Research and Development Expenditure Credit (RDEC) available to non-SME companies will be increased from 13% to 20%.
For SME companies, R&D tax relief rates will be reduced from 230% to 186%.
For loss-making SME companies, the current payable credit of 14.5% will only be available for companies whose R&D expenditure constitutes at least 40% of their total expenditure. For R&D claimants that don’t meet the new 40% test, the payable credit will be reduced from 14.5% to 10% of the eligible loss.
Qualifying R&D expenditure will be expanded to include data licences and cloud computing services.
New claimants (those who have not made a claim in the previous 3 years) will be required to inform HMRC of their intention to make a R&D claim within 6 months of the end of the accounting period to which the claim relates.

From 1 August 2023, additional information requirements will need to be fulfilled when making a R&D claim.

Tax Relief for expenditure on plant and machinery

The Annual Investment Allowance (AIA), giving 100% tax relief to unincorporated businesses and companies investing in qualifying plant and machinery, is now permanently set at £1million.

The super-deduction, which gives enhanced 130% relief for new qualifying plant and machinery acquired by companies, will end on 31 March 2023.

As a replacement for the super-deduction, ‘full expensing’ (effectively 100% tax relief, called a ‘First Year Allowance’ (FYA)) will be available to companies incurring expenditure on new qualifying plant and machinery between 1 April 2023 and 31 March 2026. The qualifying criteria is quite broad although there are exclusions, including cars and features integral to a building (for example, heating systems). With regard to ‘integral features’, a smaller 50% FYA will be available. Subsequent disposals of assets on which one of these FYAs has been claimed will trigger a clawback of tax relief at a rate of 100% or 50% of the disposal proceeds, depending on the rate of the original relief. These new FYAs will mainly be of interest to companies that have already fully utilised their £1million AIA.

The separate 100% FYA for electric vehicle charge points remains available for unincorporated businesses and companies until Spring 2025.

In Conclusion

Combined with the many mini-budgets and statements made towards the end of 2022, this Budget brings change; good, bad, and often to be determined with time. What is clear is that 2023 remains a year of opportunity and we are here to work alongside you and help you grow.

If you would like to find out more, please contact your account manager, or Christie Inns.

The content in this blog is correct as at 10/03/2023. See terms and conditions.