WHAT DOES IT MEAN FOR YOU?
- Halving Inflation
- Growing The Economy
- Reducing Debt
- Energy Subsidy Extended
- Pensions Lifetime Allowance Abolished
- Pensions Annual Allowance Increase
- Research and Development
- Capital Allowances – The End of the Super Deduction
- Corporation Tax
- Extension to the Seed Enterprise Investment Scheme (SEIS)
- Get in Touch
HALVING INFLATION
The latest forecast from the Office for Budget Responsibility (OBR) shows that inflation will more
than halve this year. Inflation is now expected to fall from a peak of 11.1% in October 2022 to 2.9% in 2023. The OBR then expects inflation to fall further to 0.9% in 2024.
GROWING THE ECONOMY
The economy is expected to avoid a technical recession in 2023, with a contraction of 0.4% in the
first quarter of the year and then no growth in the second quarter.
Growth of 1.8% is expected in 2024 and 2.5% in 2025, reflecting lower expectations for wholesale energy prices and interest rates, translating into an increase in private consumption as household
incomes rise.
The outlook for business investment remains weak, with the OBR forecasting a fall of 2.8% in 2023, but
a return to growth in 2024 of 1.3% and a jump to 6.1% in 2025.
Effectively a 100% First Year Allowance, companies can write off the full cost of qualifying main rate plant and machinery in the year of investment. A series of measures were introduced to encourage 6.7m of working age people, who are currently inactive and not looking for work, back into the workplace. Universal Credit claimants are going to be given Work Coach support and help with looking after children.
Workers who exited the labour market in huge numbers during the pandemic are being enticed back with enhanced tax relief on pensions.
The Lifetime Allowance charge is going to be removed and the Annual Allowance lifted to
£60,000 from April 2023. To try and help people who are unemployed because they are looking after young children, the
Government is expanding the support on offer by providing 30 hours a week of free childcare for 38 weeks a year, for eligible working parents of children aged 9 months to 3 years.
Investment Zones will focus growth in twelve geographical areas around the UK, including four across Scotland, Wales and Northern Ireland.
Each English Investment Zone will have access to £80m over 5 years, including tax reliefs and grants. Enhanced rates of Capital Allowance, Structures and Buildings Allowance will apply, as will relief from Stamp Duty Land Tax, Business Rates and Employer National Insurance Contributions.
New Levelling Up Partnerships are going to provide over £400m of investment across 20 areas in
England. £200m has been made available for 16 regeneration projects in England.
REDUCING DEBT
The UK’s debt burden is now £2.5trn, or 98.9% of GDP. Higher inflation has increased the cost of servicing the debt, with interest charges totalling £96bn between April 2022 and January 2023 alone.
The OBR expects spending on debt interest to reach £114.7bn this year.
Energy Subsidy Extended
The Energy Price Guarantee (EPG) is going to be extended by a further 3 months, from April to June 2023, maintaining the current price limit of £2,500 per year.
The planned increase in the price limit to £3,000 per year will take effect from 1 July 2023. Fuel duty is going to be frozen for another twelve months.
Pensions Lifetime Allowance abolished
The cap on amount workers can accumulate in pensions savings over their lifetime before having to pay extra tax (currently £1.07m) will be removed allowing unlimited contributions without tax charges, except for the annual charges above.
This will be excellent news to all savers, but especially for medical professionals.
Pensions annual Allowance increase
Tax-free yearly allowance for pension pot to rise from £40,000 to £60,000 – having been frozen for nine years. This represents a 50% increase on the annual allowance.
This will be very good news to taxpayers in the higher rates who can claim relief on contributions made to pensions. It will also be good news for Owner Managed Businesses for whom employer pension contributions are an allowable expense.
Research and Development
The Chancellor has announced changes which should encourage large companies to continue to be innovative and achieve advancements in science or technology. However, for SMEs the relief available has been lowered.
For completeness, HMRC defines a large company as one with either:
- More than 500 employees
- Or an annual turnover of over €100 million
- And a balance sheet of over €86 million
Businesses below these thresholds will count as an SME.
From 1 April 2023, the following changes will apply:
- For large companies, the Research and Development Expenditure Credit (‘RDEC’) rate will increase from 13% to 20%
- For SME’s, the additional deduction ate will reduce from 130% to 86%, with the SME credit also decreasing from 14.5% to 10%.
- Loss making SMEs who spend a minimum of 40% of their total expenditure on R&D activities will retain the 14.5% rate for payable credits.
As of 1 August 2023, companies should also be aware of new requirements to submit an additional information form which provides HMRC with further information on their claims and to notify HMRC in advance if they wish to claim R&D tax relief. This notification will need to be made using a new digital service within 6 months of the period end.
Capital Allowances – the end of the super deduction
The 2021 Spring Budget introduced the temporary ‘super-deduction’ which enabled companies to utilise a 130% deduction against taxable profits for qualifying expenditure incurred on main pool plant and machinery, along with a 50% first year allowance for special rate pool expenditure between 1 April 2021 and 31 March 2023.
This was a welcomed move to encourage investment from companies in a period where the economy was recovering from the impact of the covid 19 pandemic.
The super deduction also encouraged companies not to delay their anticipated planned expenditure until after 31 March 2023 where a deduction for expenditure would attract relief at 25% as opposed to the previous corporation tax rate of 19%.
Moving forward, the Chancellor has announced that the outgoing ‘super deduction’ will now be replaced with an uncapped 100% first-year allowance for qualifying main pool expenditure, and a 50% first-year allowance for special rate pool expenditure.
This relief will apply to qualifying expenditure incurred between 1 April 2023 and 31 March 2026. The Chancellor also expressed his commitment to permanently keeping the Annual Investment Allowance at its current level of £1m.
Immediate balancing charges will be applied to disposals of plant and machinery for which full expensing or the 50% first year allowance has been claimed against.
This will be equal to 100% of the disposal value in the case of full expensing and 50% of the disposal value in the case of the 50% first year allowance.
Corporation Tax
There had been increasing whispers prior to the budget that the Chancellor would look to make a u-turn on pledges made in his Autumn Statement relating to his plans to raise the corporation tax to 25%.
Despite his emphasis on wanting to ensure that the UK was attractive as a place of investment, he has confirmed that there will be no u-turns on the previously announced hike in corporation tax.
He has however emphasised that the rise in Corporation Tax should not deter investment into the UK, with the UK headline rate still remaining the lowest of the G7 as well as the fact that the increased rate rise will only apply to 10% of all companies.
Small companies earning less than £50k will continue to pay corporation tax at 19%.
Despite the increased rate of corporation tax remaining, the Chancellor has made commitments to providing reliefs for companies investing in technology and innovation.
Extension to the Seed Enterprise Investment Scheme (SEIS)
SEIS schemes aim to encourage investment into small companies at the beginning of their growth cycle.
The Budget announced the following extensions:
- Each investor can now claim income tax and capital gains tax reinvestment relief of £200,000 each year. This has increased from £100,000.
- The limit on the amount SEIS companies can receive from investors over a period of three years has been increased from £150,000 to £250,000.
- The number of companies that will qualify has been widened by increasing the maximum gross assets a company can have before the share issue from £200,000 to £350,000. The activity receiving the investment must be a new qualifying trade, with ‘new’ now being defined as not more than three years old, up from two years.
GET IN TOUCH
Our expert team are only a call away!
If you’re feeling concerned about the effects of the current climate on your business, get in touch.
Phone: 0333 009 0801
Email: info@signaturetax.co.uk