Spring Budget 2023 Summary. Childcare to pensions – Hunt presents a “back to work” budget.

Dan Insley shares some of the key points of Jeremy Hunt’s Spring Budget:

From an accountant’s perspective, Hunt’s budget had little from a tax point of view, and there was certainly not a great deal beyond what we already knew or expected from the autumn statement.

Nonetheless, Hunt hammered home his message of “proving the doubters wrong” and announced measures intended to drive economic growth.

Key to this strategy was his pledge to get people back to work and by “people”, his target market were those parents (usually mothers) whose childcare costs made any attempt to resume a career after maternity leave financially infeasible; those retired as a result of ill-health and perhaps most importantly, skilled high earners, such as doctors, who have retired or are considering retirement early due to the restrictions of the pension life time allowance (LTA) making their later years’ earning tax inefficient.

To address the childcare dilemma, additional support is being provided towards childcare costs in what the government describe as a ‘childcare revolution’. This includes 30 hours of free childcare for every child over the age of 9 months, with support being phased in until every eligible working parent of under 5s gets this support by September 2025.

At the other end of the lifecycle, there was good news for those approaching retirement, or indeed retired, especially those still wishing to work but concluding it just did not make financial sense. The current pension lifetime allowance (LTA) charge is being abolished from 6 April 2023. The LTA has caused some high earners, particularly doctors, to retire early as tax charges apply on crystallisation of pension funds if the LTA (currently £1,073,100) is exceeded.  Hunt has also increased the amount you can save into your pension tax-free each year from £40,000 to £60,000 but there remains a cap of £268,275, which equates to 25% of the existing LTA of £1,073,100, on how much can be withdrawn tax free.

Labour has already claimed that this is a tax cut to the wealthiest “one per cent” and that it “will widen the cost-of-living chasm”.

Although childcare and pensions hit the headlines, Thursday’s statement also included other measures as the Chancellor looked as what my colleague and Streets Marketing Partner James Pinchbeck described as “everything for everyone, everywhere here and now.”

Income Tax: The personal allowance and basic rate band threshold are frozen until 5 April 2028.  The personal allowance continues to be partially and then fully withdrawn for higher earners, with £1 of personal allowance lost for every £2 of adjusted net income over £100,000.

Employment Taxes: Like the main income tax bandings, employer and employee NIC thresholds are now also frozen until 5 April 2028. However, the set percentages used to calculate company car benefits are fixed until 5 April 2025 before slight increases applying to most car types, including electronic and ultra-low emission, from 6 April 2025.

Corporate Taxes: From 1 April 2023, the rate of Corporation Tax will increase to 25% if a company’s profits exceed £250,000 a year. The current 19% rate will however continue to apply where profits are no more than £50,000 a year.

Benefits and State Pension: As confirmed in the autumn, the government will also increase benefits, including the State Pension, paid to recipients in the tax year to 5 April 2024 by 10.1%.

Capital Gains Tax: Also announced in the autumn, the £12,300 annual tax-free capital gains tax exemption (or allowance) will be reduced to just £6,000 in 2023/24 and only £3,000 in 2024/25.This change will mean that those disposing of capital assets will pay more tax, where the new lower allowance is exceeded.

Energy Costs:. It was announced that the £2,500 Energy Price Guarantee (EPG) will be extended by 3 months to 30th June 2023, before increasing to £3,000 until the end of the EPG period on 31 March 2024. This extra 3 months at £2,500 will be worth £160 for a typical household.

Tax Relief for expenditure on plant and machinery: The Annual Investment Allowance (AIA), giving 100% tax relief to unincorporated businesses and companies investing in qualifying plant and machinery, is now permanently set at £1million. The super-deduction, which gives enhanced 130% relief for new qualifying plant and machinery acquired by companies, will end on 31 March 2023.

Unincorporated businesses and their accounting year-ends: Unincorporated businesses that prepare annual accounts to a date other than 31 March or 5 April will soon need to adopt a new process for how the profits or losses arising in those accounts are reported to HMRC.

Research & Development (R&D) Reliefs: From 1 April 2023 a raft of changes is coming to the R&D tax relief regime including the Research and Development Expenditure Credit (RDEC) available to non-SME companies being increased from 13% to 20%; and for SME companies, R&D tax relief rates will be reduced from 230% to 186%.

Share Options: From 6 April 2023, the Company Share Option Plan (CSOP) employee share options limit will increase from £30,000 to £60,000. Additionally, restrictions on the types of shares eligible for CSOP options will be lifted. Simplifications will also be made to the process to grant Enterprise Management Incentive (EMI) options. From 6 April 2023, there will no longer be a requirement for the company to set out any restrictions to the shares being acquired in the option agreement and the employee will no longer have to sign a working time declaration.

Venture Capital Schemes: The amount of investment that companies will be able to raise under the Seed Enterprise Investment Scheme for start-up companies will increase from £150,000 to £250,000. The gross asset limit will be increased from £200,000 to £350,000 and the investment must be made within 3 years (increased from 2 years) of trade commencing. In a bid to support these changes, the annual investor limit will be doubled to £200,000. The changes take effect from 6th April 2023.

You can read further details on these measures and more in The Streets Spring Budget 2023 Guide which you download here.

You may also be interested in the recent webinar “The Spring Budget – what will it mean for you” which was organised by our specialist colleagues at Streets Chartered Accountants. You can download the webinar here.

If you would like to discuss any of these budget measures and how they may impact on your circumstances, please get in touch with me Dan Insley or my partners: Rachel Skells and Michael Greene.