The Government stated it wants to halve inflation by the end of 2023 and ease the cost-of-living crisis, with the Budget designed to soften the financial burdens on small businesses and taxpayers alike.
Below, we explain the key talking points affecting you or your business.
Pension tax changes
As part of the Government’s efforts to encourage individuals to return to work, the Chancellor announced significant changes to pension tax limits. The Government believes too many individuals have voluntarily left the workforce in recent years and the broad thrust of the changes are aimed at helping individuals build up retirement savings and improve the incentive of work.
For those with larger pension pots or who wish to catch up on their contributions, this will be very welcome news.
From April 2023 the Annual Allowance will increase from £40,000 to £60,000.
From April 2023 the income level for the tapered Annual Allowance to apply will increase from £240,000 to £260,000. The minimum Tapered Annual Allowance also increases from £4,000 to £10,000.
From April 2023 the Money Purchase Annual Allowance increases from £4,000 to £10,000.
In a hugely significant announcement, the Chancellor announced the abolition of the Lifetime Allowance from April 2023.
We have provided greater detail on the above changes here.
Corporation tax increase to go ahead
For the financial year commencing 1st April 2023, the main corporation tax rate is set to increase, and the Chancellor made no last-minute reprieve. For more about the corporation tax increase, please click here.
Capital expenditure for companies
A reform has been made to relief which companies can obtain on capital expenditure incurred from 1st April 2023 until 31st March 2026. A company can continue to make use of the £1m Annual Investment Allowance (AIA), alongside two new temporary first year allowances for qualifying plant and machinery expenditure.
Firstly, companies will obtain 100% relief on capital expenditure which falls within the main rate of capital allowances. This relief is to be known as “full expensing”. The second change is the introduction of a 50% tax relief to be obtained on expenditure which would fall within the special rate pool for capital allowance purposes. As before, relief will only be obtained if the equipment is new rather than second hand. Some exclusions apply to what expenditure will qualify for full expensing, most notably on cars, and plant and machinery for leasing.
This will impact those companies incurring expenditure exceeding the standard £1m AIA during an accounting period. Larger companies are likely to be impacted more by these changes.
Research & Development (R&D)
Following changes announced by Jeremy Hunt in his Autumn Statement on 17th November, businesses will be disappointed that cuts to Research and Development (R&D) reliefs for small and medium size companies will go ahead.
However, the Chancellor did announce some additional support for eligible research-intensive companies that spend more than 40% of their total expenditure on R&D – a new R&D intensity test will apply. Eligible companies will be able to claim £27 for every £100 of qualifying R&D spend.
In terms of the rates, the Research & Development expenditure credit is set to rise to 20% from 13%, with the SME deduction rate decreasing to 86% from 130% with a credit rate of 10%. However, R&D intensive companies will be able to claim 14.5% rather than 10%.
Foster and shared lives carers
The Chancellor has increased the allowances which qualifying carers are able to offset against their qualifying care receipts.
The qualifying care allowance dispenses with the need to keep detailed records of related expenditure and until the latest increase in allowances this has meant that many carers do not need to pay tax on foster care income. The increase in the allowances will eliminate even more qualifying carers from a liability to tax and Class 4 National Insurance on their receipts.
The new allowances from 6th April 2023 will comprise a fixed amount of £18,140 per annum (increased from £10,000), a weekly amount of £375 (increased from £200) for under 11’s and £450 (increased from £250) for over 11s. These rates will increase each year in line with the Consumer Price Index.
Reforms to childcare support
The Chancellor has outlined reforms to the current system to encourage more parents back into the workplace.
The Government is significantly expanding the support on offer by providing 30 hours a week of free childcare for 38 weeks a year for eligible working parents of children aged nine months to three years. This will be rolled out in phases from April 2024 and is in addition to the 30 hours a week already provided for eligible working parents of three to four-year-olds.
The Government will also increase the hourly rate paid to childcare providers who deliver free hours care. The free childcare will be open to parents who both work a minimum of 16 hours a week.
Also announced in the Budget
- The Chancellor announced the creation of 12 new low-tax investment zones across the UK, designed to “supercharge” hi-tech growth. Successful applicants will receive £80m in support over five years. The zones will be clustered around universities and research centres with the aim of accelerating growth in key industries like life sciences, technology and creative industries.
- The Chancellor also announced a ‘Brexit pubs guarantee’ which will see draught duty prices set at 11p lower than in supermarkets. This will ensure the hospitality sector always pays less tax on pints of beer than supermarket chains.
- Fuel duty remains frozen maintaining the 5p cut across the UK.
- The Energy Price Guarantee has been extended by three months to the end of June, ensuring the average household continues to pay no more than £2,500 per annum on their energy bills.
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Date published 14 Feb 2023 | Last updated 23 Mar 2023This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.
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