Spring Budget 2023-the ‘back to work’ Budget

The key measures announced by the Chancellor as summarised below:

Corporation tax

The Chancellor confirmed that he is still pushing ahead with the previously announced Corporation Tax increase.

From April 2023, the planned increase in the corporation tax rate to 25% for companies with over £250,000 in profits will go ahead. Small companies with profits up to £50,000 will continue to pay corporation tax at 19%.

Companies with profits between £50,000 and £250,000 will pay tax at the main rate reduced by a marginal relief providing a gradual increase in the effective corporation tax rate.

Annual Investment Allowances

Annual Investment Allowances were previously confirmed at a permanent rate of £1m from April 2023. Nothing has changed in this respect.

‘Full expensing’ deduction

In addition to the AIAs, to replace the super-deduction, a new ‘Full Expensing’ deduction has been announced from 1 April 2023 until 31 March 2026. The relief allows companies to claim 100% first-year deduction from profit before tax (50% for special pool rate) on qualifying new main-rate plant and machinery purchases.

Pensions reform – Lifetime Allowance (LTA)

We were fully expecting the pension LTA to be frozen at £1,073,100 until 2025/2026 with only modest hikes anticipated thereafter. Jeremy Hunt today, however, announced that this limit will be scrapped from 6 April 2023.

This means that from 6 April 2023 there will be no punitive measures for pension schemes that exceed the LTA (because there now is no LTA). Previously a punitive 55% tax charge would typically be triggered whenever benefits were taken from a scheme which exceeded the LTA.

The Chancellor has, however, restricted the tax-free lump sum that can be taken to £268,275 which is 25% of the 2022/2023 LTA of £1,073,100.

Pension reform – Annual Allowance (AA)

The pension AA is increased from £40,000 to £60,000 from April 2023.

Money purchase annual allowance is increased from £4,000 to £10,000, which applies if you have already started drawing a pension.

There is also a mechanism whereby AAs can be restricted when certain income thresholds are breached. Adjusted income is basically all your income in the year, in addition to any employer pension contributions that have been made. To the extent that this is exceeded then AAs (above) are tapered by £1 for every £2 of adjusted income over the limit. The adjusted income threshold has today also been increased from £240,000 to £260,000.

Research and Development (R&D)

Changes have been announced to the R&D rules targeted at maintaining tax incentives for UK companies undertaking qualifying R&D activities.

For expenditure incurred on or after 1 April 2023, R&D tax reliefs will be changed as follows:

• The small and medium-sized enterprises (SME) additional deduction will decrease from 130% to 86%
• The SME payable credit rate will decrease from 14.5% to 10%
• R&D expenditure credit for large companies rises from 13% to 20% and
• The R&D Intensive SME payable credit is introduced from April 2023 at the rate of 14.5%. A company is considered R&D intensive where its qualifying R&D expenditure is worth 40% or more of its total expenditure.

Help with childcare

A phased package of support has been announced for help with childcare costs for accessing 30 hours of childcare for children over nine months old. The free childcare will be available for 38 weeks of the year.

Income tax

No changes were made to the proposed Personal tax thresholds – ie personal allowance, basic and higher-rate thresholds for income tax – are maintained until April 2028 at a current level of £12,570 and £50,270.

The additional rate threshold is reduced from £150,000 to £125,140 from 6 April 2023.

Where annual income exceeds £100,000, personal allowance is lost at a rate of £1 for every £2 of income above £100,000. This is the threshold where the entire personal allowance is lost.

National insurance

The national insurance thresholds for all classes will be maintained until April 2028 at the current level. The employment allowance is set to the current level of £5,000.

National Living Wage

From 1 April 2023, the National Living Wage is increased to £10.42 an hour, for those aged 23 and over.

Dividend allowance

Dividend allowance is reduced from £2,000 to £1,000 from April 2023 and to £500 from April 2024. The threshold of £2,000 has been in place since April 2018. From 6 April 2022, dividends are taxed at 8.75% (basic rate), 33.75% (higher rate) and 39.35% (additional rate).

Capital gains tax: reduction to the annual exempt amount

As previously announced, the annual exemption amount for capital gains tax for individuals will change, from £12,300 to £6,000 from April 2023, then £3,000 from April 2024.