Following the Spring Budget on Wednesday 23 March 2023, we thought it would be helpful to have a business focused summary of the main outcomes. There were few surprises and none of the increases in allowances and tax bands that we normally associate with a budget.
The Office for Budgetary Responsibility believes that the UK will avoid recession in 2023 although the economy will shrink by 0.2%. Growth is predicted to be 1.8% in 2024, 2.5% in 2025 and 2.1 in 2026 with inflation falling to 2.9% by the end of this year.
The focus certainly appeared to be on getting people back to work at both ends of the working ages spectrum. Parents are being enticed to get back to work with free child care and it is believed that the removal of the lifetime pension allowance (from £1.07m) will encourage senior professionals back into industry particularly. The annual contribution limits into our pensions will increase from £40k to 60k before tax charges are applied.
Elsewhere, immigration rules will be loosened in the construction industry to ease labour shortages.
To visit HMRC’s dedicated spring budget page click here
Tax Specific Highlights
– Main rate of corporation tax to increase to 25% on taxable profits over £250,000
– Companies with profits between £50,000 and £250,000 to pay between 19% and 25%
– The super deduction capital allowance rate will end at 31 March 2023
– The “fully expensing” scheme will be introduce 100% relief for qualifying plant and equipment and is epxtected to last a minimum of 3 years.
– A 50% rate of relief will be available for special rate plant and machinery including long life assets.
– Small and medium companies who spend at least 40% of their expenditure on R&D will benefit from a 27% rate of tax relief.
– 12 Investment Zones across the UK, qualifying for tax breaks and other benefits. 8 economic zones have been identified. These are midlands / northern England based.
– Simplication of paperwork for international traders with increased submission times for customs documentation.
– Income and gains from crypto will need to be reported separately on the tax return.
- – There is a drive to ease the reporting and bureaucracy for smaller businesses including Enterprise Management Incentive schemes and cash accounting schemes.
- – Divorcing couples will now have three years to transfer assets between themselves without incurring capital gains tax.
Overall it is good to hear that the OBR believes that we will not be entering a recession. We know however that in real terms, behaviours often imitate a potential reality if there is a belief that we are in recession even before we are actually in one itself. With the recession narrative having been kicked around for a good 6 – 9 months, we think that the impact has already been felt and experienced for many business owners. That said, it is always good news to have blue sky and with the right mindset, consumer behaviour can change and the future outlook is positive for many.
It is good to see the increase on the pension annual contribution allowance as this is something that we regularly recommend to our clients who have large profits and cash in the bank as it can significantly reduce corporation tax. This will be worth even more as corporation tax rates increase and the R&D initiatives for investing businesses will also be very welcome.
We recognise from within our client base how difficult it has been for business owners to recruit and retain a sufficient team to keep businesses open and running effectively. We hope that these measures will open the doors up to many more people and will be a win / win for employees too with many struggling with the cost of living.
It is disappointing that there hasn’t been a U turn on the increase in corporation tax although we recognise that the UK’s level of corporation tax is significantly lower than many other countries.