Perhaps its a sign of age that just as policemen get younger, budgets come around sooner. It doesn’t seem that long since the last time I was writing one of these summaries.
Here are some first thoughts on today’s – 15th March 2023 – budget. As usual, first, E&OE, as its all just been released, second, this is not a comprehensive review, instead it picks out what might be of interest to a typical Whitefield Tax or YogaTax client fiscally.
- It was widely reported beforehand that there would be few surprises in this budget, and it was one to maintain the direction of UKs recovery from covid, global inflation and the political instability of the last 12 months. Whilst this was true in terms of big rabbits from the hat, there was an extraordinary amount of technical detail either mentioned in passing the speech or released in separate announcements – in fact this is one of the most detailed sets of budget releases I’ve seen in some years, and it has taken some picking through.
- The abolition of the Pension Lifetime Allowance was probably the biggest and most welcome surprise.
- Freezing of fuel duty and the extension of the Energy Price Guarantee until the end of June are all welcome as well.
- Not a surprise, given political tone beforehand, was the retention of the Corporation Tax rise to 25%. Remember this isn’t a flat rate. Profits below £50k are still taxed at 19% and there is a taper to the 25% rate applying at £250k – this means if, for example, your business has profits of £100k the blended rate will be 22.75% – more than 19% but not as dramatic as 25%.
– our previous briefing on this topic is still current. 2023 Corporation Tax Changes
- Generally the two themes in the budget were labour market easing – getting people back to work – and growth. Neither were a surprise. Time will judge whether this will work – labour market in particular is tricky – for all the Government interventions, post pandemic many people want slower quieter lives, and all the incentives and prodding in the world won’t get them back to work on anything but their terms.
Business Direct Taxation
- Capital Allowances
– a new “full expensing” to replace the Super Deduction, between 1st April 2023 and 31 March 2006. It may sound generous, but there was already expensing in place up to £1m anyway via Annual Investment Allowance, so this is very much for big business. Small business owners – don’t get your cheque books out in excitement!
– 50% First Year Allowance on Special Rate assets extended to 31st March 2026. It was due to end on 31st March 2023. Again this is only applicable if your capital expenditure in any given tax year is over £1m as you get full deduction beneath that level.
– Extension of 100% First Year Allowances on Electric Vehicle Charging Points until March 2025.
– Not announced in this Budget, but of more relevance to small businesses, is the making of the £1m Annual Investment Allowance permanent which was announced back in Autumn 2023. This means that other than cars and buildings, most capital expenditure up to £1m a year is tax relieved as incurred, rather than the old system of Writing Down Allowances. WDAs still apply on cars, and Buildings and Structure allowance on Bricks and Mortar of buildings.
- A new R&D Credit Scheme for loss making R&D Intensive SMEs (Small and Medium Entities) – this gives a cash credit. It is aimed squarely at the Life Sciences, Pharmaceuticals and Technology sectors. It is laudable, but R&D relief is already an extremely complex area, with many businesses disappointed by the gateway definition of R&D.
- Administrative reforms to R&D claims, including a requirement for businesses to notify HMRC of their intention to make a R&D claim within six months of the end of the accounting period, starting from August 2023. Research and Development Tax relief reform changes. It is perhaps no coincidence that its an area where considerable HMRC investigation activity takes place, and where unscrupulous advisers have taken advantage of businesses.
- Changes to simplify the Enterprise Management Scheme – which one of the main Employee Share Ownership plans for SMEs. Our experience is that the scheme isn’t really of interest to smaller businesses as staff tend to prefer cash now over share price growth tomorrow.
- Consultation on extending the Cash Basis for Self Assessment for small unincorporated businesses. With Making Tax Digital for Self Assessment coming in from 2026, this could be a useful simplification to align MTD reporting with tax assessment, but paradoxically as it stands Cash Basis doesn’t get a great take up as it tends to cause more problems than it solves.
- Other business taxation simplification promises including “A commitment from HMRC to deliver a systematic review of guidance and forms for small businesses” – sounds good, but lets not hold our breath.
- Proposed new R&D Credit style set of reliefs for the Film, Televisions and Video Game Sector – Audio–visual tax reliefs
- Consultation around “Taxation of environmental land management and ecosystem service markets” – yes I had to google that as well. Farming, woodlands, environmental schemes like carbon offset.
- Increases in tax emptions for Foster Carers.
- Increases to thresholds under Seed Enterprise Investment Scheme and Company Share Ownership Plan.
- Other than the Corporation Tax rise, no other significant changes to rates or thresholds.
- No mention of IR35 reform, which after the burst of optimism last autumn, seems to be parked again.
Business Indirect Taxation
- Consultation around VAT energy saving materials relief – improving energy efficiency and reducing carbon emissions
- No other changes to AT rates or thresholds.
- Pensions Lifetime Allowance being abolished. The LTA has been most keenly felt in the NHS where it has penalised higher earners and acted as a disincentive to taking on extra shifts and clinics, but its effect has been wider and acted as a disincentive to pension saving and a complexity for those with reasonable sized pension pots. This is a useful and sensible measure – anything which inhibits long term saving can only be detrimental to the longer term state of public finances. The abolition is from April 2024, but the tax charge on pension amounts in excess of the Lifetime Allowance will be removed from April 2023 (2023/24).
- Annual Pension Allowance – the amount you can invest a year – is being increased from £40k to £60k from April 2023 (2023/24). For those in Defined Contribution schemes the Annual Allowance was straightforward, but for those in Defined Benefit Schemes- typically public sector and large company superannuations schemes – it was more complex, and again this has been an issue for some higher earners in the NHS representing a disincentive to work.
- Taken together these two changes are a sensible approach to address a number of issues – brakes on pension savings, disincentives to work and complexity in the tax system. They may also take some heat out of current pay disputes and strike action in some sectors.
- Simplification of taxation for small estates and trusts – exempting income of up to £500 from being reported.
- More generous time limits for no gain / no loss transfers of assets during separation and divorce. At present no gain/no loss treatment applies in the year of separation – it will now apply for up to three years (this seems to be year of separation and the two following years) plus an unlimited period where there are formal divorce proceedings. There is also a new extension to CGT Private Residence Relief for situations where a Spouse or Civil Partner retains a share of the former matrimonial home long term – this can now be subject to PPR at the time of sale.
- No other changes to personal Tax or NI rates other than what we knew.
- No changes to IHT, CGT or S
Benefits and Social Security
- Package of increased childcare support, aiming to get parents back into the workplace:
– lowering the child’s age for entry into the scheme from 3 years to 9 months – phased in between now and 2025:
– increases to the amounts paid to Childcare providers under the scheme
– grants to new childminders to set up in business
– additional funds for English Local Authorities for “wraparound childcare” – after school clubs
– upfront payment of Universal Credit childcare support when parents move into work or increase hours
- Changes to Universal Credit rules around work search, including requiring more claimants to meet with work coaches, and strengthening sanctions for claimants not looking for / taking up work. Clearly this is aimed at getting people off benefit and back into the workplace.
– this is part of a Health and Disability White Paper – the summary feels quite complex, and you have to wonder how people accessing this complex set of rules, now or in the future, feel? Maybe this is a lost opportunity to simplify a lot of things – that always comes with the risk of abuse, but the wider savings in administration and benefits from simplification must be worth considering.
- Changes in benefit rules and provision for the Disabled and those with Long Term Health Conditions. The aim is to support people back to work by reducing the number of assessments and supporting claimants to try work without fear of losing their financial support.
- Expansion in work related health support, including Occupational Health for SMEs; Musculoskeletal hubs to improve access to treatment; Employment support for people with mental illness and musculoskeletal health issues.
- Targeted relaxation of migration rules for construction and hospitality sectors.
- “Returnships” – skills and development, similar to apprenticeships, for the over 50s.
- Proposed simplification of regulation for digital technology businesses (Pro–innovation Regulation of Technologies Review) and Long-term Investment For Technology and Science (LIFTS) initiative
- Business Rates – several sets of proposals and consultations around information flows and reporting – no changes to the underlying system or exemptions.
- A National Quantum Strategy proposal.
- Further detail on Refocussing Investment Zones – Investment Zones Policy Prospectus and Investment Zone special tax sites with enhanced tax and National Insurance contributions reliefs
- Energy Price Guarantee will remain at £2,500 a year for a typical household until the end of June.
- Funding for Public Swimming Pools – £60m to address cost pressures and energy efficiency.