Budget 2023 – key announcements to be aware of

Budget 2023 has been announced by the Chancellor, Jeremy Hunt. It was one to encourage the nation back into employment with pension changes and childcare offered as some of the carrots to get people back into the workplace. The Chancellor also explained that the OBR has forecasted that, with his budget measures, the UK will now avoid a recession in 2023, with inflation estimated to drop to 2.9% by the end of the year.

Also announced were changes to Capital Allowances, suggested as a measure to counterbalance the confirmed increase in corporation tax to 25%, alongside the withdrawal of the 130% super deduction tax relief, which is ending this month.

What does Budget 2023 mean for your future plans?

If you would like Alexander & Co to review your current situation or discuss how Budget 2023 could affect your future plans, please contact us to discuss how our services can assist you.

Corporation Tax confirmed to increase to 25%

During Budget 2023, Jeremy Hunt confirmed that the main rate of Corporation Tax, paid by businesses on taxable profits over £250,000 is to increase to 25% from the current 19%.

Companies whose profits are between £50,000 and £250,000 will, as previously announced, pay between 19% and 25% of Corporation Tax.

In justifying this rise as one which still enables the UK to remain competitive on an international level, he also announced tax incentives to enable businesses to deduct investment in new machinery and technology to lower taxable profits.

12 new Investment Zones across the UK, funded by £80 million each are also to be created providing tax breaks and other incentives.

Capital Allowance changes in the Budget

The Chancellor announced Full Expensing for Capital Allowances, which allows 100% first-year relief on qualifying new main rate plant and machinery investments, which will apply from 01/04/2023 to 31/03/2026.

The policy also provides a 50% first-year allowance (FYA) for expenditure by eligible companies on a new special rate (which includes long life assets) until 03/03/2026.

In addition to these, the Annual Investment Allowance (AIA) which provides 100% first-year relief for plant and machinery (P&M) investments up to £1 million is available to all businesses including unincorporated businesses and most partnerships.

Changes to Research and Development Tax Credits

As previously announced at Autumn Budget 2021, the Government is to legislate to reform R&D reliefs, the Small and Medium-sized Enterprise (SME) scheme and R&D Expenditure Credit.

Previously announced restrictions on certain overseas expenditure are to now come into effect from 01/04/2024 rather than the planned date of 01/04/2023. The Government claim this will allow it to consider the interaction between the restriction and the design of the potentially merged R&D relief, which they have recently consulted on.

The Chancellor also introduced an enhanced credit whereby qualifying small or medium businesses who spend 40% or more of their total expenditure on R&D, can claim a credit worth £27 for every £100 they spend.

More information on the Research and Development changes can be found on our website here.

12 New Investment Zones to be created

Twelve new Investment Zones have been announced across the UK, with eight of these in England. These include the Greater Manchester Mayoral Combined Authority, The Liverpool City Region Mayoral Combined Authority and the West Yorkshire Mayoral Combined Authority.

Each Investment Zone will be backed by £80 million of funding over a five-year period and will benefit from generous tax incentives. Additionally, plans include an investment of £100 million into 26 ground-breaking projects in Greater Manchester, the West Midlands and Glasgow, aimed at supporting them to become future centres of research and innovation in the UK.

Significant pension changes

Whilst it was heavily rumoured that the Lifetime allowance for pensions was to increase significantly, it came as a surprise when the Chancellor announced at Budget 2023 that the allowance is being abolished in its entirety.

Currently, the cap on the amount that can be accumulated in pension savings over a worker’s lifetime before having to pay extra tax is £1.07 million. This is planned to take effect from April 2024.

Additionally, the tax-free yearly allowance which can be placed into a person’s pension pot is to significantly rise from £40,000 to £60,000. A significant change considering it had previously been frozen for nine years.

The adjusted income threshold for the Tapered Annual Allowance (TAA) is being increased from £240,000 to £260,000.

Alongside these changes, the MPAA has been increased from £4,000 to £10,000. The MPAA, or Money Purchase Annual Allowance, is the amount that you can still contribute to your defined contribution pension and still obtain tax relief once you start to withdraw money from it.

For those wishing to increase pension contributions, these changes can provide additional tax benefits, both in the short and long term. Please contact us if you would like to discuss how we can assist you with tax planning with regards to this.

Childcare changes

Budget 2023 announced a change to childcare for working parents (where both parents are working full time). The 30 hours of free weekly childcare for working parents is now being extended to cover those children below the age of three and will also eventually cover children from the age of nine months old.

The plan is being phased in as follows:

  • From April 2024, working parents of two-year-old children can claim 15 hours of free childcare
  • From September 2024, this 15 hours of free childcare will be extended to all children from 9 months old upwards
  • The final change from September 2025 will provide access to 30 hours of free childcare each week for under-five year olds

Energy Price Cap extended in Budget 2023

The Chancellor confirmed that Government subsidies which limit household energy bills are to be extended for three months.

Due to rise to £3,000 from April 2023, typical household energy bills in Britain will now be kept at £2,500 until the end of June 2023.

For those on prepayment meters, energy charges will be brought into line with those customers paying by direct debit.

Capital Gains Tax changes affecting divorcing couples

The previously announced changes to how Capital Gains Tax is applied to assets during the divorce of a married couple/civil partnership have been confirmed.

The legislation that comes into effect from April 2023, allows:

  • Spouses or civil partners separating, up to three years following the year in which they cease to live together to facilitate no gain or no loss transfers
  • The no gain or no loss treatment is to also apply to other assets separating spouses/civil partners transfer between each other, when it forms part of a formal divorce agreement
  • When a spouse/civil partner retains an interest in the former matrimonial home, they will be allowed the option to claim Private Residence Relief (PRR) on its sale

You can read more on this on our website here

Expansion of Seed Enterprise Investment Scheme (SEIS)

Announced in September 2022 for shares issued on or after 6 April 2023, the company investment limit is increasing from £150,000 to £250,000, whilst the limit at the date of share issue on a company’s “gross assets” is increasing from £200,000 to £350,000. In addition, the age limit for a company’s “new qualifying trade” is increasing from 2 to 3 years.

The annual limits that apply to the investment amount where individuals can claim Income Tax and Capital Gains Tax re-investment reliefs are also increasing from £100,000 to £200,000.

Summary of key allowances and reliefs from Budget 2023

Key tax allowances and reliefs confirmed in Budget 2023 and previously announced which take effect from April 2023 include:

  • The Capital Gains Tax annual exemption amount is reduced to £6,000 (and then further reduced to £3,000 from April 2024)
  • Tax relief on dividend income is reduced to £1,000 (and then reduced further to £500 in 2024)
  • The additional 45% tax threshold is reduced to £125,000
  • The rate of Diverted Profits Tax will increase from 25% to 31%
  • The National Living Wage is increasing for those aged 23 and over to £10.42 an hour
  • The business rates revaluation is going ahead
  • The state pension will increase to £203.85 per week

Tax thresholds being frozen include:

  • Income Tax personal allowance at £12,570
  • Higher rate threshold at £50,271
  • Main National Insurance thresholds (The Class 1 primary threshold is £12,570 per year)
  • Inheritance Tax threshold at £325,000

In addition to the above, the VAT registration threshold is be maintained at £85,000 until at least March 2026.

Alexander & Co – expert tax advice to assist with issues arising from Budget 2023

Whilst the Budget may not have provided us with many surprises or benefits, the lifting of the pensions annual allowance and the changes to Capital Allowances provide new opportunities to mitigate tax both at a personal and corporate level.

For further advice on any of the topics covered in this update, or to discuss any other business matters, please do not hesitate to contact us using the form on this page or email info@alexander.co.uk

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