AFTER THE PREVIOUS blockbuster Budgets, today’s Spring Budget 2023 announcement was bit of a damp squib. While the Chancellor’s may not have been the most exciting event, it did have some notable highlights worth mentioning.
The main focus of the speech was on incentives for working parents, older individuals, and carers, rather than on tax changes. However, it was confirmed that the corporation tax increase previously announced in 2021 will go ahead from April 1, 2023, with the main rate increasing to 25%.
In today’s Shipleys Tax note we look at the main Budget 2023 announcements.
Incentives for Working Parents, Older Individuals, and Carers
The Chancellor’s Spring Budget 2023 placed a significant emphasis on providing support for working parents, older individuals, and carers. Several measures were announced with the aim of incentivizing these groups to continue working and contributing to the economy. See here..
Pensions were a major topic, with changes to both the annual allowance (AA) and lifetime allowance (LA) thresholds. The AA, which is the maximum amount of tax-relieved contributions that can be made in a pension input period, will increase from £40,000 to £60,000 starting in 2023/24. The LA charge will be removed for 2023/24 and completely abolished from 2024/25, instead of increasing to £1.8M as previously rumoured. The money purchase annual allowance will also increase from £4,000 to £10,000 from 2023/24.
The changes to the annual and lifetime allowances for pensions have been controversial, with some critics arguing that they primarily benefit the very wealthy. However, the removal of the lifetime allowance charge from 2023/24 is seen as a positive development for some GPs and dentists.
Many GPs and some dentists have been affected by the lifetime allowance charge, which can result in a significant tax bill for those with large pension savings. The removal of the charge is expected to provide relief for these individuals, who may have been considering early retirement or reducing their working hours to avoid the charge.
Despite the positive impact for GPs and some dentists, there is ongoing debate over the fairness and effectiveness of the pensions reforms, with some calling for further measures to address pension inequality and encourage more widespread saving for retirement.
Changes to System of Capital Allowances
In terms of businesses, there will be changes to the system of capital allowances. From April 1, 2023, until March 31, 2026, companies will be entitled to a 100% first-year allowance for capital expenditure on IT equipment and plant and machinery. The 50% deduction for special rate expenditure will also be extended during this period.
Expanding Cash Basis for Unincorporated Businesses
- There will be a consultation on expanding the cash basis for unincorporated businesses.
- This may lead to relaxations of restrictions on loss relief and the cap on deductible interest payments (currently £500).
Qualifying care relief
The income threshold at which qualifying carers begin paying tax on care income will increase to £18,140 per year plus £375-450 per person cared for per week for 2023/24. These levels will then be index-linked.
The planned increase of 11p in fuel duty this year will be cancelled. For the next 12 months, rates will be kept the same.
Trusts and estates
An existing income tax concession for low-income trusts and estates will be extended. Further changes will simplify calculations and reporting. HMRC also intends to remove non-taxpaying trusts from reporting requirements by modifying inheritance tax regulations.
R&D tax relief
From 1 April 2023, there will be an increased rate of relief for loss-making R&D intensive SMEs. Eligible companies will receive £27 from HMRC for every £100 of R&D investment.
A company is considered R&D intensive where its qualifying R&D expenditure is 40% or more of its total expenditure.
Previously announced restrictions on some overseas expenditure will now come into effect from 1 April 2024 instead of 1 April 2023.
Cultural tax reliefs
The higher rates of the theatre, orchestra and museums and galleries tax reliefs will be extended for two years.
Creative tax reliefs
From 1 April 2024:
- A new Audio-Visual Expenditure Credit will replace the current film, high-end TV, animation and children’s TV tax reliefs
- A new Video Games Expenditure Credit will be introduced
Tax avoidance measures
- A further £47.2m investment to support HMRC’s capability to collect tax debts
- Legislation to close an avoidance loophole that can leave HMRC out of time to assess tax due on capital gains when an asset is disposed of under an unconditional contract
- From the 2024/25 tax year, changes to the self-assessment tax return forms requiring amounts in respect of cryptoassets to be identified separately
A full overview of the announcements is available here.