What Does the Spring Budget 2023 Mean for You and Your Business
The Spring Budget 2023 has been highly anticipated by businesses across the UK, as it provides insight into the government’s economic growth and recovery plans. We explore and discuss what the Spring Budget 2023 means for different types of businesses in the UK.
Driving Business Investment
The Chancellor announced a £27 Billion transformation to capital allowances beginning in April this year, which will include full expensing of eligible plant and machinery expenditure. There was also a £500 Million package announced for enterprises that rely heavily on research and development. The Chancellor also unveiled 12 investment zones across the UK, each with funding for skills and support.
For small businesses, the Spring Budget 2023 brings some welcome news. The Chancellor has announced an increase in the annual investment allowance from £1 Million to £5 Million, which will allow small businesses going forward to invest in new equipment and technology, without having to pay tax on the full amount spent. This will help small businesses invest to improve their operations and increase their productivity.
Changes for Start-ups
The Spring Budget 2023 is good news for start-ups as the government has announced plans to launch a new £375 million fund to support high-growth businesses. This fund will be used to help start-ups access the finance they need to scale up their operations and create new jobs.
Furthermore, the Chancellor has announced that the government will be increasing the research and development tax credit to 13% from April 2023. This will provide start-ups with the opportunity to invest more in research and development, which is crucial for their growth and success.
For manufacturing businesses, the Spring Budget 2023 brings some positive news. The Chancellor has announced a £10 Billion investment in a new National Infrastructure Bank, which will be used to fund infrastructure projects across the country. This will help manufacturing businesses improve their supply chain and logistics, making it easier for them to move goods and materials across the country.
Additionally, the government has announced a reduction in employer National Insurance contributions, which will help manufacturing businesses reduce overall labour costs and improve profitability.
National Insurance Contributions (NICs)
A similar principle to that outlined above for income tax thresholds will be followed in respect of many of the national insurance contributions thresholds, namely that they are frozen at the limits for the preceding year and will remain at those levels until 2028. Full details are laid out at the end of this publication.
However, the government will update the Class 2 and Class 3 NICs rates for 2023/24 to £3.45 per week and £17.45 respectively.
The government will increase the hourly NLW and NMW from 1 April 2023 as follows:
- £10.42 for those 23 years old and over
- £10.18 for 21-22-year-olds
- £7.49 for 18-20-year-olds
- £5.28 for 16-17-year-olds
- £5.28 apprentice rate for apprentices under 19, and those 19 and over in their first year of apprenticeship.
Taxable Benefits for Company Cars for 2023/24
Company car tax rates remain stable until 2024/25. Future car benefit rates for 2025/26 through 2027/28 have been announced:
- Rates for emissions under 75gm/km increase by 1% in 2025/26.
- For 2026/27, the rates for emissions under 75gm/km rise by 1%.
- For 2027/28, the rates for emissions under 75gm/km rise by 1%.
During that time, the charge for electric vehicles will increase from 2% to 5%. For cars with emissions of 75gm/km or more, the increase will be 1% in 2025/26, with a maximum of 37%. From 6 April 2023, the figure used as the basis for calculating the benefit for employees who receive free private fuel from their employers for company cars is increased to £27,800.
For 2023/24 the benefit increases to £3,960 per van and the van fuel benefit charge where fuel is provided for private use increases to £757. If a van cannot in any circumstances emit CO2 by being driven, the cash equivalent is nil.
Corporation Tax Rates
The anticipated rise in the rate of corporation tax for many companies to 25% in April 2023 will take effect. This means at the beginning of April 2023, the rate for companies with profits above £250,000 will rise to 25%. The 19% rate will be reduced to a modest profit rate for businesses with profits of £50,000 or less. Profits between £50,001 and £250,000 will be taxed at the main rate, lowered by a marginal relief, resulting in a progressive increase in the effective corporate tax rate. In addition:
- Bank corporation tax surcharge changes will proceed, meaning that from April 2023 banks will be charged an additional 3% rate on their profits above £100 million.
- From April 2023 the rate of diverted profits tax will increase from 25% to 31%.
The super-deduction regime, which provides businesses with a 130% enhanced first year allowance (FYA) on the purchase of eligible plant and machinery, expires on March 31, 2023. Instead, the government has introduced Full Expensing, a 100% FYA that lets businesses immediately deduct the cost of qualifying plant and machinery from their profits with no spending limit. Qualified spending will include most plant and machinery if it is new and not used but will exclude automobiles. Full Expensing will be available for acquisitions made on or after April 1, 2023, but before April 1, 2026.
A 50% FYA for other plant and machinery including long-life assets and integral features (known as special rate assets) will operate along similar lines. Full Expensing and the 50% FYA are only available for companies and not for unincorporated businesses.
Both incorporated and unincorporated enterprises are eligible for the Annual Investment Allowance (AIA). It allows for a complete write-off of certain types of plant and machinery up to a specified financial limit each 12-month period. The maximum has been set at £1 Million for some time, but it is set to be reduced to £200,000 in April 2023. The government has announced that the AIA’s temporary £1 million limit will become permanent, meaning that the proposed cut will not take effect.
The government will also extend the 100% FYA for electric vehicle charge points to 31 March 2025 for corporation tax purposes and 5 April 2025 for income tax purposes.
Research and Development (R&D) Relief
For expenditure on or after 1 April 2023, the Research and Development Expenditure Credit (RDEC) rate will increase from 13% to 20%, but the small and medium-sized enterprises (SME) additional deduction will decrease from 130% to 86% and the SME credit rate will decrease from 14.5% to 10%. A higher rate of SME payable credit of 14.5% will apply to loss-making SMEs which are R&D intensive. To be R&D intensive the ratio of the company’s qualifying R&D expenditure must be 40% or above the company’s ‘total expenditure’ for the period. This equates to a receipt of £27 for every £100 of R&D expenditure.
Other announced changes to the R&D regime include expanding qualifying expenditure to include the costs of datasets and cloud computing. All claims for R&D reliefs will have to be made digitally and be accompanied by a compulsory additional information form. Companies will also need to notify HMRC that they intend to make a claim within six months of the end of the period of account to which the claim relates, generally if they have not made an R&D claim in the previous three years. These changes apply to claims in respect of accounting periods which begin on or after 1 April 2023 apart from the additional information form, which will be required for claims made on or after 1 August 2023.
The restriction to relief on overseas expenditure, designed to refocus support towards UK innovation, will now come into effect from 1 April 2024 instead of 1 April 2023.
Making Tax Digital (MTD) for Income Tax
The MTD regime requires businesses to keep their accounting records in a specific digital format and to submit extracts from those records to HMRC on a regular basis. In what appears to be an ongoing saga, the government has announced another delay in MTD for income tax self-assessment (ITSA).
MTD for ITSA will now be mandated beginning in April 2026, with businesses, self-employed individuals, and landlords earning more than £50,000 required to join first, up from the original £10,000 limit. Those with income over £30,000 will be mandated from April 2027.
The government will also examine the needs of smaller businesses and whether the MTD for ITSA service can be tailored to meet their requirements. The government will not extend MTD for ITSA to general partnerships in 2025 under the new approach. HMRC has previously stated that MTD for corporation tax will not be required until 2026.
Accounting Periods that are Not Aligned to Tax Years
Changes to the rules for allocating trading profits made by self-employed individuals and partnerships to tax years have been made as part of the MTD project. The changes primarily affect unincorporated businesses that do not file annual reports by March 31st or April 5th. The transition to the new rules will occur in the 2023/24 tax year, with the new rules taking effect on April 6, 2024.
Self-employed individuals and partnerships may keep their current accounting period, but the trade profit or loss they report to HMRC for a tax year will become the profit or loss arising in the tax year itself, regardless of the accounting date chosen. In general, this will require allocating accounting profits to the tax years in which they arise.
The Personal Allowance
The income tax personal allowance was already fixed at the current level until April 2026, and will now be maintained for an additional two years until April 2028 at £12,570. The government will update the married couple’s allowance and blind person’s allowance by inflation for 2023/24.
There is a reduction in the personal allowance for those with ‘adjusted net income’ over £100,000. The reduction is £1 for every £2 of income above £100,000. So, there is no personal allowance where adjusted net income exceeds £125,140.
The Marriage Allowance
The marriage allowance permits certain couples, where neither party pays tax in the tax year at a rate other than the basic rate (or intermediate rate in Scotland), to transfer £1,260 of their personal allowance to their spouse or civil partner.
Tax on Savings Income
Savings income is income such as bank and building society interest. The Savings Allowance applies to savings income and the available allowance in a tax year depends on the individual’s marginal rate of income tax. Broadly, individuals taxed at up to the basic rate of tax have an allowance of £1,000. For higher rate taxpayers the allowance is £500. No allowance is due to additional rate taxpayers.
Savings income within the allowance still counts towards an individual’s basic or higher rate band and so may affect the rate of tax paid on savings above the Savings Allowance.
Some individuals qualify for a 0% starting rate of tax on savings income up to £5,000. However, the rate is not available if taxable non-savings income (broadly earnings, pensions, trading profits and property income, less allocated allowances and reliefs) exceeds £5,000.
Tax on Dividends
Currently, the first £2,000 of dividends is chargeable to tax at 0% (the Dividend Allowance). This will be reduced to £1,000 for 2023/24 and £500 for 2024/25.
These changes will apply to the whole of the UK. Dividends received above the allowance are taxed at the following rates for 2023/24:
- 8.75% for basic rate taxpayers.
- 33.75% for higher-rate taxpayers.
- 39.35% for additional rate taxpayers.
As corporation tax due on directors’ overdrawn loan accounts is paid at the dividend upper rate, this will also remain at 33.75%. Dividends within the allowance still count towards an individual’s basic or higher rate band and so may affect the rate of tax paid on dividends above the Dividend Allowance. To determine which tax band dividends fall into, dividends are treated as the last type of income to be taxed.
Pension Tax Limits
This measure supports the government’s efforts to encourage inactive individuals to return to work, specifically those aged 50 and above, and it removes incentives to reduce hours or leave the labour market due to pension tax limits. The legislation will be introduced in the Spring Finance Bill 2023 and will have effect from 6 April 2023. This will:
- Increase the Annual Allowance from £40,000 to £60,000.
- Increase the Money Purchase Annual Allowance from £4,000 to £10,000.
- Increase the income level for the tapered Annual Allowance from £240,000 to £260,000.
- Ensure that nobody will face a Lifetime Allowance charge.
- Limit the maximum an individual can claim as a Pension Commencement Lump Sum to 25% of the current Lifetime Allowance (£268,275), except where previous protections apply.
- Change the taxation of the Lifetime Allowance excess lump sum, serious ill-health lump sum, defined benefits lump sum death benefit and uncrystallised funds lump sum death benefit, where they are currently subject to a 55% tax charge above the Lifetime Allowance, to taxation at an individual’s marginal rate.
The legislation will be introduced in a future Finance Bill to remove the Lifetime Allowance from pensions tax legislation.
Capital Gains Tax (CGT) Rates
There have been no changes to the current Capital Gains tax rates announced. This means that the rate remains at 10% while any income tax basic rate band is available, and 20% after that. Except for any element that qualifies for Private Residence Relief, higher rates of 18% and 28% apply to certain gains, primarily chargeable gains on residential properties.
There is still potential to qualify for a 10% rate, regardless of any available income tax basic rate band, up to a lifetime limit for each individual. This is where specific types of disposals qualify for:
- Business Asset Disposal Relief (BADR). This is targeted at directors and employees who own at least 5% of the ordinary share capital in the company, provided other minimum criteria are also met. It can also apply to owners of unincorporated businesses.
- Investors’ Relief. The main beneficiaries of this relief are investors in unquoted trading companies who have newly subscribed shares but are not employees.
Inheritance Tax (IHT) Nil Rate Bands
The Nil rate band has been frozen at £325,000 since 2009 and this will now continue up to 5th April 2028. An additional Nil rate band called the ‘Residence Nil Rate Band’ (RNRB) is also frozen at the current £175,000 level until 5th April 2028. A taper reduces the amount of the RNRB by £1 for every £2 and the ‘net’ value of the death estate is more than £2 million. Net value is after deducting permitted liabilities but before exemptions and reliefs. This taper will also be maintained at the current level.
Estates in Administration and Trusts
Changes have been made that will affect trustees of trusts, personal representatives who deal with deceased persons’ estates in administration, and estate beneficiaries. Technical changes are made for 2023/24 to ensure that estate beneficiaries’ tax credits and savings allowances continue to function properly.
- Trusts and estates with income of up to £500 will not pay tax on that income as it arises in 2024/25.
- Eliminate the default basic rate and dividend ordinary rate of tax on the first £1,000 of discretionary trust income.
- Make it so that beneficiaries of UK estates do not have to pay tax on income distributed to them that is less than £500.
Hysons, Chartered Accountants are Here to Help
Overall, the Spring Budget 2023 is likely to have a significant impact on the finance industry. The increase in corporation tax and the introduction of a Digital Services Tax may affect large companies operating in the UK, while the new tax relief for investment and the creation of an Infrastructure Investment Bank may encourage further investment in the UK economy. The new Financial Services Bill and measures to tackle financial crime may also affect the way in which the finance industry operates in the UK. As with any budget, the impact of these measures will become clearer over time, and it will be interesting to see how they affect the UK economy and the finance industry in the coming years.
Hysons, Chartered Accountants, has provided a wide range of accounting services to individuals, charities, and businesses. Our skilled team can assist you in answering any questions you may have about the impact of the Spring Budget 2023, and how to maintain financial stability. Contact our knowledgeable team of accountants and let us help you make sense of it all.