Jeremy Hunt’s ‘Return to Growth’ budget focused more on spending than on tax, as most tax rate changes and allowances had been announced in advance at the Autumn Statement.

Below we look at some of yesterdays main points:

Personal Tax

There were no changes to the tax free personal allowance or tax/NI thresholds which were previously announced in the Autumn statement.

The personal tax allowance and 40% tax rate threshold remain frozen at their 2022/23 levels until 2027/28, however the 45% threshold is lowered from £150,000 to £125,140 from the start of the 2023/24 tax year.

The Tax free dividend allowance falls from £2,000 to £1,000, while the CGT annual exemption falls from £12,300 to £6,000 for 2023/24. These are due to fall further in the next budget.

There has been an increase in limit for shares that can be granted under Company Share Ownership Plans (CSOP’s), to £60,000 (up from £30,000).

Pension Tax relief 

Perhaps the most significant part of yesterdays budget was the announcement of reforms to pension taxation. To sum up, the changes were as follows:

  • The government will abolish the Lifetime Allowance, which stands at £1,073,100. Lump sums over this amount were previously taxed at 55% to claw back the various tax reliefs associated with pension contributions.
  • The annual amount that individuals can contribute tax free is to be raised from £40,000 to £60,000 from April 2023. This will mean the effect of the tapering down of the annual allowance on those with higher incomes will be reduced.
  • For those already drawing down on their pension, the total amount they can save tax free under the Money Purchase Annual Allowance will from £4,000 to £10,000

Business Tax

The planned main Corporation Tax rate increase from 19% to 25% will come into effect as planned from 1 April 2023.

The ‘Super-deduction’ brought into effect from 1st April 2021 will be replaced by ‘full expensing’, which is essentially 100% first year allowances for plant and machinery, without an upper limit, for three years from 1st April 2023. The governments intention is to make this permanent.

This rule only applies to incorporated businesses, and will not be available to businesses that are subject to income tax (i.e Partnerships, Sole traders), for whom the Annual Investment Allowance limits will still apply.

Also confirmed in yesterdays budget was the 100% first year allowance for electric vehicle charge point equipment will be extended to the end of March 2025.

There were also some slight changes announced to Research and Development, with an extra tax credit of 27p for every £1 of qualifying R&D expenditure for SME’s who have R&D expenditure contributing to at least 40% of their total expenditure. Also announced was that from 1st August 2023, all R&D claims, regardless of the accounting period in question, will need to be filed using the new digital forms.

Other changes

There was an introduction of ‘Returnerships’, to encourage over 50’s back into work, while spending on childcare will double again by 2027. In a household where all working age adults are working at least 16 hours per week, all children over 9 months old will be entitled to 30 hours per week of free childcare by September 2025. This will be introduced in phases, with 15 hours of free childcare for working parents of 2 year olds coming into effect in April 2024 and 15 hours of free childcare for working parents of 9 month – 3 year olds in September 2024. It is hoped that this will help prevent a career break for women becoming permanent as a result of rising childcare costs.

Duty rates of Fuel and Alcohol will be frozen, with the 5p reduction in fuel duty maintained for another year.

The government will also consult on the introduction of a new criminal offence for promoters of tax avoidance who fail to comply with a legal notice from HMRC to stop promoting a tax avoidance scheme, while the maximum sentence for the most serious of tax fraud cases will be doubled from 7 years to 14 years.

To find out more about what the budget means for you and your business, please check out our article below.

Spring Budget 2023