The Chancellor, Jeremy Hunt, presented the first Budget since October 2021 on 15 March 2023. Mr Hunt had presented an Autumn Statement in November 2022 which largely reversed the announcements made by his predecessor’s September Growth Plan 2022.
As has become common now, many of the measures in the Budget had been released in advance (whether in leaks to the press or in market-sensitive announcements). There were still a few unexpected proposals (if no ‘rabbit out of the hat’).
You can find HM Treasury’s detailed Budget statement together with all the supporting and related documents here: https://www.gov.uk/government/publications/spring-budget-2023.
In this post we will look at three key areas in which announcements were made at the Budget.
As always with such commentary it should be noted that this has been prepared very rapidly and is for general information only. You are recommended to seek professional advice before taking or refraining from taking action on the basis of the contents of this publication. The guide represents our understanding of the law and HM Revenue & Customs practice as at 15 March 2023, which are subject to change and the passing of the proposed legislation by Parliament.
Do contact us if you’d like to discuss any of these changes and how they will impact you.
Pension Schemes
Much of the press coverage in advance of the Budget concerned the taxation of pension funds, in particular in relation to senior doctors and other professionals.
Following changes to the taxation of pension schemes which began in April 2006, together with subsequent changes, the amount of tax-relieved pension savings and income is dependent on the availability of the annual allowance (currently £40,000) and the lifetime allowance (currently £1,073,100). Where either allowance is breached there can be unwanted tax charges (in some cases as high as 55%). These rules have been causing particular problems for individuals in some defined benefit schemes (and many public sector schemes are of this sort) and a number of proposals had been suggested in recent years.
There will be an increase in the annual allowance from £40,000 to £60,000 from 6 April 2023. There are rules that restrict the level of this allowance for high earners. From 6 April 2023 the adjusted income threshold where this begins will increase from £240,000 to £260,000 and the minimum annual allowance increases from £4,000 now to £10,000 at the same time.
The unexpected move was the complete abolition of the lifetime allowance. From 6 April 2023 the lifetime allowance charge rate falls to 0% with future abolition planned. In most cases it is possible to draw a tax-free lump sum of up to 25% of the prevailing lifetime allowance. Following these changes there will be a fixed maximum lump sum in these cases of £268,275 (which is the current maximum). Where individuals had a higher protected lifetime allowance before these changes they will be able to continue to have a higher tax-free lump sum.
More information on these changes can be found here https://www.gov.uk/government/publications/abolition-of-lifetime-allowance-and-increases-to-pension-tax-limits.
Corporation Tax
The Budget confirmed the increase in the main rate of Corporation Tax from 19% to 25% from 1 April 2023 (originally announced in the Spring Budget of 2021). This applies where taxable profits are over £250,000. Where profits are under £50,000 the rate is 19%, with an effective rate of 26.5% in the band between £50,000 and £250,000. Where there are companies under common control these bands are generally shared evenly.
When the rate increase was originally announced the then Chancellor Rishi Sunak introduced a super-deduction to incentivise company investment on qualifying plant and machinery in the intervening period. With the move to the 25% Corporation Tax rate this will end.
The Budget announces two first-year allowances (FYA) to apply for three years from 1 April 2023 for companies only:
- 100% FYA to companies on qualifying new main rate plant and machinery investments from 1 April 2023 until 31 March 2026 (referred to as ‘full expensing’)
- a 50% FYA for expenditure by companies on new special rate (including long life) assets extended until 31 March 2026
The Budget confirms the previously-announced decision to leave the level of the Annual Investment Allowance (AIA) at £1 million indefinitely. This AIA is available for all businesses including unincorporated businesses and most partnerships and provides 100% first-year relief for plant and machinery investments.
More information on these changes can be found here: https://www.gov.uk/government/publications/full-expensing.
Research and Development Tax Credits
Changes to the Research and Development (R&D) Tax Credits schemes were announced in the Autumn Statement 2022. There are currently two different schemes, the small or medium-sized enterprise (SME) scheme for smaller companies and the Research and Development Expenditure Credit (RDEC) scheme for larger companies. There was consultation on a proposal to merge the two schemes but the decision has not yet been taken.
There is a proposal to restrict the availability of expenditure for relief where the R&D is carried out outside the UK. This was to have come in from 1 April 2023 but has been deferred by a year while the future of the two schemes is decided.
In the Autumn Statement 2022 it was announced that the additional deduction available for the SME scheme would reduce from 130% to 86% from 1 April 2023. The Budget announced an increased rate of payable credit for certain loss-making research heavy SMEs from 1 April 2023. They will, from 1 April 2023, be able to claim a payable credit of 14.5% for qualifying expenditure, rather than the 10% generally payable under the SME scheme (the rate is currently 14.5% for all in the SME scheme).
There are no changes to the RDEC credit rate as announced in the Autumn Statement 2022. This rises from 13% to 20% in April 2023.
There have also been some administrative changes introduced to R&D submissions, the key one being that a new claimant of R&D credits (a company that has not claimed R&D credits in the past three years) will need to notify HMRC of their intention to make a claim within 6 months of the end of the relevant accounting period. While it will still be possible to make a claim up to 24 months after the end of the period no claim will be valid if there is no notification of intention.
More information on these changes can be found here (https://www.gov.uk/government/publications/reform-of-research-and-development-tax-reliefs) and here (https://www.gov.uk/government/publications/additional-tax-relief-for-research-and-development-intensive-small-and-medium-sized-enterprises).
