The last chancellor to preside over a ‘proper’ Budget was Mr Sunak in 2021. How things have changed!
When Mr Hunt first took office, the economy was in a state of turmoil following the disastrous efforts of Truss and Kwarteng. Mr Hunt’s first task was to bring stability to bear with a raft of reversals and U-turns – being boring if you like. This was certainly his platform in the run up to today’s Budget, a continued desire to be boring.
As with every chancellor before him, Mr Hunt had several challenges to wrestle with when considering his tax and economic initiatives. On the positive side, government borrowing is £30 billion lower when compared with the forecast from the OBR published in November last year.
However, there were a few material, negative issues; the clamour to reverse the corporation tax increase planned for April, the continuing cost of living and fuel cost ‘crisis’, and industrial action in many sectors creating an ever present air of uncertainty.
Unlike Mr Sunak’s budget announcements in March 2021, when firstly he had to apologise to the house for the repeated and possibly strategic pre-Budget leaks, the pre-announcement detail of Mr Hunt’s likely measures has been limited.
Striving for stability
The expectation was no headline grabbing tax cuts, no reversal of the corporation tax increase, further help with fuel and childcare costs and targeted public spending increases. Steady as she goes!
Mr Hunt started his speech by confirming that the measures which were introduced in the autumn have created stability with inflation now projected to fall to 2.9% by the end of 2023. The projection is that there will be no technical recession in the UK, with Mr Hunt claiming that this is confirmation that the initiatives which have been introduced are working.
Four pillars of growth declared
Today Mr Hunt set out his proposals for growth with a strategy consisting of four pillars:
- Enterprise;
- Education;
- Employment; and
- Everywhere.
In what follows I will concentrate on the tax measures Mr Hunt dealt with under the four pillars.
There will be plenty of detail elsewhere on the other measures announced covering funds set up for various purposes, initiatives with regard to carbon capture and nuclear energy and further support for the vulnerable and less well off.
Two stand out comments were the creation of twelve enterprise zones – nine in England and one each in Wales, Scotland and Northern Ireland. In England there will be zones in the West and East Midlands with £80 million of support available to each zone over a period of five years. In addition Mr Hunt announced a £11 billion boost to defence spending over the next five years.
Tax measures announced today
Personal taxation
As you will see below no changes were announced with regard to the main taxes.
Income tax rates
No changes were announced.
National insurance contributions
No changes were announced.
Capital Gains Tax
No changes were announced.
Inheritance Tax
No changes were announced.
Pensions
The lifetime allowance charge will be removed from 1 April 2023.
The pension lifetime allowance will be abolished from 1 April 2024. Prior to the budget announcements, it was £1,073,100.
The annual allowance has been increased from £40,000 to £60,000 with effect from 6 April 2023.
Business taxation
Corporation tax (‘CT’)
Mr Hunt did not bow to pressure and did not reverse the proposed increase in the rate of CT which is increasing to 25% for a lot of businesses with effect from 1 April 2023.
Mr Hunt opted instead for introducing incentives for business which may help to reduce the effective rate of CT for many businesses – 99% he claimed.
However, the new incentives may only be relevant for certain sectors of the business community leading to a degree of inequality which may create tax pressures for those unfavoured businesses.
Capital expenditure
New rules were announced with effect from 1 April 2023 to allow for the full expensing of capital expenditure on main rate plant and equipment against taxable profits.
This measure has been introduced for the next three years, with a promise from Mr Hunt that the change will be made permanent as soon as possible. Mr Hunt added that this is the most generous investment incentive offered by any nation in Europe.
Research & Development
Please see further below for the changes to R&D reliefs which have already been announced.
In today’s announcements, Mr Hunt confirmed that SMEs which spend more than 40% of their expenditure on R&D activity will be allowed a repayable 27% credit for losses surrendered.
Creative tax reliefs
The reliefs available to those companies involved in the creative sectors (museums, art galleries, theatres, orchestras etc.) were doubled in the October 2021 Budget.
There was to be a tapered reduction back to the pre-increase rates from 1 April 2023 to 1 April 2024.
However, the reduction has now been halted with the increased relief extended for another two years, as shown in the following table:
In addition, Mr Hunt announced increased credits for those companies involved in the audio-visual sector. There will be an expenditure credit with a rate of 34% for film, high end television and video games and 39% for the animation and children’s TV sectors. The qualifying threshold for high-end television will remain at £1 million.
Other issues
VAT
No changes were announced.
Stamp Duty Land Tax
No changes or further reliefs were announced.
Zero emissions vehicles
No changes or further reliefs were announced.
Fuel duties
Fuel duty has been frozen for another year until April 2025.
The reduction in fuel duty of 5 pence per litre has been retained for another year.
Energy costs
The energy price guarantee, which limits energy bills for a typical household to £2,500, has been extended for another three months to the end of June.
For those with prepayment meters, the charges will be reduced so that they are in line with the charges for those paying for their energy by way of direct debit
Childcare
Free childcare of 30 hours per week for 38 weeks is currently available for qualifying parents of three to four-year-olds. This is to be extended to cover children aged nine months to three years for working parents each of whom is working 16 hours per week.
The new rules for the younger children well be introduced on a staged basis from April 2024 so as to allow the sector to gear up for the additional demand.
Draught beer
The duty charged on a typical pint of beer in the pub will be frozen from 1 August and it will always be at a level lower than in the supermarket.
Personal taxation – what we know
Income tax rates
The personal allowance and higher rate thresholds are frozen until April 2028:
- The personal allowance is £12,570;
- The 40% higher rate of income tax will apply on income over £37,700; and
- The 45% additional rate of income tax will apply on income over £125,140.
Dividend tax rates
The following rates apply from 6 April 2023:
- 8.75% for dividends in the basic rate band;
- 33.75% for dividends in the higher rate band; and
- 39.35% for dividends in the additional rate band.
The dividend allowance is £1,000 from 6 April 2023 and £500 from 6 April 2024.
The rate of tax payable by companies on any overdrawn director’s loan account (‘DLA’) is 33.75% as this rate is linked to the rate of tax payable on dividends. As always DLA planning is important for all owner managed businesses.
Owner managers should review their profit extraction strategies for the current and future tax years so as to maximise any tax saving opportunities which may be available.
Reviewing the company’s shareholding structure may give owner managers tax planning opportunities with the use of ‘alphabet shares’. With all such planning the practical and commercial factors should not be overlooked.
National insurance contributions (‘NIC’)
The earnings threshold for employer’s NIC, payable at a rate of 13.8%, is now frozen at £9,100 until 2028.
The employment allowance is £5,000.
Capital Gains Tax
The annual exemption is £6,000 from 6 April 2023 and £3,000 from 6 April 2024.
Inheritance Tax
The nil-rate band is £325,000 and will remain at this level until April 2028.
Stamp Duty Land Tax (‘SDLT’)
The starting value at which SDLT becomes payable is £250,000 for residential properties.
Business taxation – what we know
Corporation tax
The rate of corporation tax will increase from 19% to 25% with effect from 1 April 2023 for companies with taxable profits of more than £250,000.
For small companies, with taxable profits below £50,000, the rate of corporation tax will remain at 19%. The rates will taper for companies with taxable profits between £50,000 and £250,000. This will provide a gradual increase in the effective rate of corporation tax. The rate of corporation tax in the margin will depend on the level of profits in the margin.
The lower and upper limits will be proportionately reduced for short accounting periods and where there are associated companies. Group loss relief planning is likely to become important for many groups.
The above changes mean that company tax planning may become more important for a lot of companies in coming years.
Research & Development
From 1 April 2023 the R & D reliefs are:
- SMEs: the deductible uplift is 86% and the payable tax credit is 10%; and
- Large companies: the RDEC is 20%.
Companies wishing to make an R & D claim for the first time, or that have not made a claim in the previous three accounting periods, must notify HMRC within six months of the end of the relevant accounting period that they wish to make a claim.
We have no detail as yet as to what information would need to be provided as part of the notification.
VAT
The VAT registration threshold is frozen at £85,000 until 2028.
Windfall tax
The current windfall levy, which applies to profits made from extracting UK oil and gas, is 35% and will remain in place until March 2028.
The Electricity Generator Levy applies to revenues from ‘in scope’ electricity generated until 31 March 2028. It is at a rate of 45% on extraordinary returns from low-carbon electricity generation.
Other reminders for tax measures already in place
There are certain tax changes which have already been announced, or which are already in place, which are detailed below.
Residential property sales
The reporting and payment requirements for CGT in connection with residential property sales are still causing problems for taxpayers with investment property and/or second homes. The sale of a main residence does not normally need to be reported in this way.
The reporting deadline is now 60 days from the date of completion.
Many taxpayers are still unaware of the new rules.
With suitable planning, the calculations taxpayers need to complete should be straightforward to complete, perhaps with a little help from their accountant!
Once a taxpayer has set up their CGT account with HMRC, it is then easy enough for them to appoint an agent to make the necessary return on their behalf. Once that has been completed the payment process is routine.
TIP: If you have a UK residential disposal which is due to complete before 5 April 2023, you can avoid the above if you can file your 2023 income tax return within 60 days of completion. The other benefit of this approach would be that the tax due would be payable in accordance with the self-assessment regime, i.e., by the 31 January 2024, and not 60 days from completion.
Making tax Digital (‘MTD’)
MTD for VAT is now mandatory for all VAT registered businesses. All new VAT registrations will result in an automatic inclusion within the MTD regime.
MTD for income tax has been deferred yet again with 2026 the new target date. Given the problems which HMRC have experienced to date with this initiative even 2026 may not be achievable.
MTD for corporation tax will be the last of the MTD initiatives and will not be in place for some years yet.
Penalties
With the progression of the MTD initiatives we now have a new points-based penalty regime for filing failures.
The new regime is effective as follows:
- For VAT accounting periods starting on or after 1 January 2023;
- For businesses, and property owners with income over £10,000 from 6 April 2024; and
- For other personal taxpayers from 6 April 2025.
The new regime is intended to ‘punish’ more harshly those who miss deadlines regularly, rather than those who occasionally default due to a simple oversight. The penalties are clear because they are fixed.
With the delay to the introduction of MTD for income tax, no ‘soft landing’ is expected with the new penalty rules, so all taxpayers will need to be aware of them in time to avoid unexpected fines.
Basis period reform – sole traders and partnerships
The reform will involve businesses moving from the ‘current year’ basis to a ‘tax year’ basis. This will mean that business profits will be calculated for the tax year rather than for the accounting year ending in the tax year. This will align the treatment of trading income with non-trading income.
There will be a transitional year for sole traders and partnerships that do not use 5 April or 31 March as their accounting date. This will advance tax liabilities for many businesses.
The change will be effective for the tax year starting 5 April 2024. The tax year starting 5 April 2023 will be a transitional year.
Zero emissions vehicles
There are 100% first year capital allowances for business expenditure on business cars, and zero emissions good vehicles for expenditure incurred prior to 1 April 2025.
With the company car benefit in kind percentage at 2% for 2023-24 and 2024-25, now could be a good time to be considering switching to an electric company car.
Vehicle excise duty will be payable on electric vehicles from April 2025.
Conclusions
In Mr Hunt’s pursuit of stability and growth there were very few surprises in today’s announcements.
The only ones of note were perhaps the full expensing of capital expenditure for three years and the complete removal of the pension lifetime allowance which was only expected to rise to £1.8 million.
For businesses in service sectors the capital expenditure initiative will be of little use when they review their tax planning for the coming years. Looking forward companies will need to actively manage their corporation tax liabilities more so than they have done in the past because of the increased burden from 1 April this year.
I personally am not convinced that the pension scheme changes will encourage folk back to the workplace as Mr Hunt hopes.
I cannot help but think that Mr Hunt is saving up some tax cuts for a little closer to the Election!
The announcements today do not necessarily create any need for immediate action, rather points to consider with future personal and corporate tax planning.
Contact
If you have any questions, or other points, in connection with the contents of this summary of the Spring Statement 2023, please do not hesitate to get in touch through the normal channels.
Disclaimer
Please bear in mind that this is a general overview of the budget announcements.
Please take appropriate detailed professional advice before acting on any of the points made in this overview.