Jeremy Hunt presented his 2023 Spring Budget on 15 March and described it as a “Budget for growth” in his speech. It will take time to see if the adjustments made address the UK’s low productivity and motivate the ‘economically inactive’ class to work.
The key announcements are summarised below.
Business taxes in Spring Budget
● Corporation tax rate
As anticipated, there’s no change in the 25% main rate of corporation tax that will come into action on 1 April, 2023.
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● Capital allowances
From 1 April, 2023, to 31 March, 2026, businesses investing in qualifying plants and machinery will be eligible for complete expensing relief or a 100% first-year allowance for most assets. For the same time frame, so-called “special rates” assets like integral components of buildings and items with a useful life of over 25 years will be eligible for a 50% first-year allowance.
The annual investment allowance gap will be fixed at £1 million. Additionally, businesses can use their annual investment allowance to get complete tax relief for up to £1 million on a special rate and/ or second-hand asset purchases in the year of acquisition. Mr Hunt intends to freeze these reliefs.
● Research and development intensive small and medium-sized enterprises (SMEs)
Small and medium-sized businesses will see changes starting from 1 April 2023, as stated in the Autumn Statement, that reduces the enhanced deduction available to SMEs generally for qualifying R&D expenditure from 130% to 86% while the payable credit the businesses can claim for consequential losses from 14.5% to 10%.
However, the chancellor announced that loss-making R&D-intensive SMEs (those who qualify for R&D expenditure accounting for 40% or more of their total spending) could continue claiming a payable credit of 14.5%.
From 1 April 2023, the net advantage of the R&D tax relief for small and medium-sized enterprises will decrease from 33.35% to 26.97% rather than going all the way down to 18.6%.
● R&D tax reliefs review
The SME and R&D Expenditure Credit (RDEC) scheme merger consultation has ended. In the summer of 2023, the government plans to release draft legislation for technical consultation on a merged scheme.
● Overseas expenditure in R&D tax relief restriction
Due to the aforementioned review, the prior announcement of restriction on R&D tax relief concerning the majority of spending on subcontractors or externally provided employees based outside of the UK is being postponed by 12 months until 1 April 2024.
● Additional information form for R&D claims
R&D claims require an additional information form, which must be submitted online starting 1 August 2023. The form must include details about the company’s research and development activities, the costs incurred, the identity of any agent who provided advice on the R&D claim, and the employee or officer of the company who is accountable for it.
● Audio-visual industry
From 1 April 2024, the tax reliefs for movies, TV shows and video games will change to an expenditure credit system (as opposed to additional deductions regime).
For high-end movies, TV shows and video games, a credit rate of 34% will be offered, while children’s TV and animated shows will have a credit rate of 39%. There will be an 80% cap for eligible expenses, and the fact that an expenditure credit is taxable by its very nature, so for most claimants, the actual benefit for £1 of qualifying expenses will be 20.4p and 23.4p respectively (which is currently 20p for all).
The change to an expenditure credit regime is anticipated to go into effect for accounting periods starting on or after 1 January 2024, roughly coinciding with the multinational top-up tax rules introduction resulting from International tax reforms and making sure that those rules do not leave an impact on the effective withdrawal of the benefits of the tax reliefs in the audio-visual tax industry.
● Theatre, orchestra, and museum and gallery exhibition tax relief
The present higher rates of tax relief levied on theatre, orchestra, museum and gallery exhibitions will continue for an additional two years. The headline rates for non-touring and touring theatrical productions and exhibitions will be 45% and 50%, respectively. These rates will decrease to 30% and 35% from 1 April 2025 before returning to 20% and 25% from 1 April 2026. For orchestra, the rate will be 50% until 1 April 2025 and then drop to 35% before returning to its original rate of 25% as of 1 April 2026.
● Investment zones
12 investment zones will be created nationwide. When the investment zone is established, the tax site will gain access to a 5-year package of tax benefits comparable to those offered in freeports, including the Stamp Duty Land Tax relief, increased capital allowance for plant and machinery, increased allowances for structures and buildings and relief from employers’ National Insurance contributions.
● Sovereign immunity
One significant change that many had anticipated the chancellor to declare had been postponed is related to sovereign immunity from direct taxation. The government has confirmed that Sovereign investors (like individual heads of state, foreign governments, and Sovereign wealth funds) will continue to generally be exempt from tax on income and gains generated in the UK, despite having conducted consultations on limiting the exemptions available.
Personal taxesPersonal taxes
● Non-tax measures
There were non-tax measures related to childcare expenses and the Energy Price Guarantee that will be well received by many households. More specifically:
○ The childcare system will be reformed. Starting September 2025, all children over nine months will qualify for thirty hours of free childcare per week until they enter school. In general, eligible households are those where both parents work for 16 hours per week. As a part of the attempt, all two years old children will qualify for 15 hours of free childcare as of April 2024; and
○ The Energy Price Guarantee will remain at £2,500 for an extended period of 3 months (April to June 2023), and a typical family will save an extra £160 from it. The anticipated rise to £3,000 per year will take effect on 1 July 2023.
● Pension allowances
As per pensions tax reform, the lifetime allowance for pension savings will be eliminated starting from April 2024. The annual income tax allowance for pension contributions will rise from £40,000 to £60,000 beginning on 6 April 2023, and the lifetime allowance fee will be eliminated on the same day. Other pension-related announcements are:
○ The yearly money purchase allowance for pension contributions by current retirees will rise from £4,000 to £10,000 from 6 April 2023; and
○ The Pension Commencement lump sum allowance will stay at 25% of the current lifetime allowance of £268,275 and will be fixed to that amount.
● Individual savings accounts (ISAs)
For the tax year 2023-2024, the annual subscription cap for adult ISAs is fixed at £20,000. The £9,000 cap will still apply to both junior ISAs and Child Trust Funds.
● Savings rate of income tax
For the tax year 2023-2024, the income tax starting rate limit on savings income is fixed at £5,000.
● Crypto assets
All amounts related to crypto assets must be listed individually on the self-assessment tax return from the 2024-2025 tax year.
● Charitable tax reliefs
From 15 March 2023, tax relief for non-UK charities, their donors and suppliers will end, although there will be a transition time until 20 April 2024, for eligible charities in the EU (European Union) and EEU (European Economic Area).
● Carers
Starting from 6 April 2023, the income tax relief amount available to foster carers and shared lives carers will rise. For the tax year 2023-24, the threshold above which care revenue will be taxed is to rise to £18,140 per year.
The weekly amounts per person being cared for will be £375 for children under the age of 11, £450 for children at the age of 11 or more and adults. Thereafter, the levels will rise in line with the Consumer Price index.
● Transfer of assets between separating partners
As per the prior announcement, the government will introduce regulations from 6 April 2023, extending the “no gain, no loss” rule for capital gains tax purposes to all asset transfers between divorcing spouses and civil partners for up to 3 years following the tax year in which they stopped cohabitating, as well as to all asset transfers made as a part of a formal divorce agreement.
Employment taxes
● Share schemes
It was confirmed that the amendments to Company Share Ownership Plans and Enterprise Management Incentives published in September 2022 would be included in the Finance Bill 2023 and take effect on 6 April 2023.
● National Insurance contributions relief for investment zones
Beginning with the royal ascent to the finance bill 2023, special tax sites in or connected to investment zones will be eligible for the Class 1 National Insurance Contributions relief for employers on the first £25,000 of annual earnings of eligible employees working in designated Freeport tax sites.
● Consultations
Several consultations will be released in the upcoming weeks, asking for feedback on the following:
- A potential rise in tax-based employer investment in occupational health services; and
- Simplification of the PAYE system.
VAT and Indirect taxes
● VAT
- Relief for energy-saving materials
A call for evidence regarding options to reform and broaden the VAT relief for installing energy-saving materials in the UK has been published.
- Drink Container Deposit Return schemes
VAT will no longer be assessed on deposits for Drink Container Deposit Return schemes; however, HMRC will still collect VAT on unredeemed deposits for containers that are not returned for recycling.
- DIY housebuilders scheme
This program will be digitised, and the three-month claim deadline will be increased to 6 months.
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● Other Indirect taxes
- Climate change agreement scheme
The government will conduct consultations to extend the Climate Change Agreement scheme by two years. Participants, including new ones in eligible sectors, who meet the agreed energy efficiency targets will then be eligible for reduced rates of the Climate Change Levy in 2025-26 and 2026-27.
● Customs and excise duties
- Alcohol duties and the draught relief
The current draught relief, which imposes lower excise rates on draught alcohol products, will be increased beginning on 1 August 2023, to further differentiate the duty costs of products sold in public establishments from those sold via other outlets like supermarkets.
Wines, spirit-based products and fermented draught products get a relief ranging from 20% to 23%, while the relief on draught beer and cedar products rises from 5% to 9.5%.
