The Chancellor, Jeremy Hunt, presented his Spring Budget on 15 March 2023. There were no changes to the income tax rates and thresholds, which had been announced previously. However, the Chancellor unveiled significant pension reforms and the successor to the capital allowances super-deduction which comes to an end on 31 March 2023. Firstly, a reminder of the changes for 2023-24 previously announced.
The following bullet points cover the main points:
The most significant tax increase for 2023-24 is the increase in the main rate of corporation tax from the present 19% to 25%.
The Chancellor resisted pressure to reduce or cancel this increase and larger companies with taxable profits in excess of £250,000 will, as a result, see a significant increase in their company tax bills for the financial year 2023 (beginning 1 April 2023).
Fortunately, smaller companies, with taxable profits below £50,000 will continue to pay corporation tax at 19%.
Firms with profits between £50,000 and £250,000 will pay at increasing rates between 19% and 25%.
The availability of the lower rates can be reduced if a company has associated companies or if an accounting period is less than 12-months.
The pension lifetime allowance places a cap on total tax relieved pension savings over a person's lifetime. The lifetime allowance is set at £1,073,100 for 2022/23. Where the allowance is exceeded, the excess is taxed at 55% where it is taken as a lump sum and at 25% where taken as a pension. The lifetime allowance is abolished from 6 April 2023, meaning that from that date there is no limit to the tax-relieved pension savings a person can accumulate. As a result of the abolition of the allowance, the punitive lifetime allowance tax charges are also abolished. However, a cap will apply to the amount that can be taken as a tax-free lump sum, which from 6 April will be limited to £268,275 where this is lower than 25% of the pension fund. The cap is equal to 25% of the current lifetime allowance.
The pension annual allowance is also increased from 6 April 2023, from its current level of £40,000 to £60,000. You can make tax-relieved pension contribution each year up to 100% of your earnings (or £3,600 if lower) as long as you have sufficient annual allowance available. Employer contributions counts towards the annual allowance. Where the annual allowance is not used in full in a tax year, it can be carried forward for up to three years; however, you must use the current year's allowance before utilising unused amounts from earlier years.
The super-deduction for companies comes to an end on 31 March 2023. It is replaced by full expensing for capital expenditure from 1 April 2023. This applies only to companies and will be available in respect of qualifying expenditure incurred in the three-year period from 1 April 2023 to 31 March 2026. The expenditure which will qualify for full expensing is that which is eligible for main rate writing down allowances. A 50% first-year allowance will continue to apply for the same period for expenditure which is eligible for special rate capital allowances. Expenditure on cars does not qualify for first-year allowances.
Full expensing provides immediate relief for capital expenditure in full in the accounting period in which it is incurred.
Unlike the annual investment allowance (AIA), there is no limit on the qualifying expenditure which can be deducted.
Full expensing will therefore benefit companies who incur significant capital expenditure in excess of the AIA limit of £1 million. Likewise, there is no limit on the expenditure that will be eligible for the 50% first-year allowance.
The Chancellor announced an increase in this significant relief of some £500m. The increases are targeted at supporting loss-making ventures.
Support is being introduced on a staged basis for all children over 9-months of age.
The changes will be introduced in phases, with 15-hours of free childcare for working parents of 2-year-olds coming into effect in April 2024 and 15 hours of free childcare for working parents of children from 9-months from September 2024.
Consistent with recent budgets, the proposed 11p increase in fuel duty is being cancelled.
Draught Relief - which allows pubs to serve draught products at lower prices than supermarkets - has been extended from 5% to 9.2%. Accordingly, the duty on an average draught pint of beer served in a pub, from 1 August 2023, will be up to 11 pence lower than the duty in supermarkets.
Please call if you need help with any of the issues raised in this update.