Navigating the Spring Budget 2023: A look at some key points for Businesses and Individuals
The Spring Budget 2023 brings several significant changes to corporation tax, capital allowances, private pension contributions, and personal tax and capital gains. Some of the measures have been announced previously, but were effectively confirmed to go ahead by this budget. As a business owner or an individual, understanding these changes is crucial for optimizing your tax planning and making informed financial decisions. In this article, we will explore the key takeaways from the budget and discuss how they may impact you and your business.
Corporation Tax and Marginal Relief
Starting April 1, 2023, the Corporation Tax rate will change to 19% for taxable profits below £50,000 (small profit rate) and 25% for taxable profits above £250,000 (main rate). Marginal Relief provides a gradual increase in Corporation Tax rate between these two rates, allowing businesses to reduce their tax burden as they grow.
Companies with taxable profits between £50,000 and £250,000 may be eligible for Marginal Relief. To claim this relief, your company or organisation must meet specific criteria. Some companies or organisations may not be eligible for Marginal Relief, such as non-UK resident companies, close investment holding companies, or companies with profits exceeding £250,000 (including distributions from unrelated, unassociated companies).
If your accounting period is shorter than 12 months, the limits for Marginal Relief are proportionately reduced. Additionally, these limits are proportionately reduced by the number of associated companies your company has. For instance, if your company has three other associated companies, the limits are divided by four, resulting in a lower limit of £12,500 and an upper limit of £62,500.
Capital Allowances
From April 2023 to March 2026, companies can claim 100% capital allowances on qualifying plant and machinery investments. Full expensing allows businesses to write off the cost of investment in one go, cutting their taxes by up to 25p for every pound invested. This measure aims to make the UK's capital allowances regime world-leading and encourage business investment. In reality, little has changed.
As a result of the Spring Budget 2023, businesses will now benefit from:
- Full expensing – which offers 100% first-year relief to companies on qualifying new main rate plant and machinery investments from April 1, 2023, to March 31, 2026.
- The 50% first-year allowance (FYA) for expenditure by companies on new special rate (including long life) assets until March 31, 2026.
- The Annual Investment Allowance (AIA) providing 100% first-year relief for plant and machinery investments up to £1 million, available for all businesses, including unincorporated businesses and most partnerships.
These measures are designed to encourage investment and when coupled with the corporation tax increases, form a ‘carrot and stick’ approach. It will be interesting to see if this approach is effective.
Private Pension Contributions
The government is making changes to private pension contributions to incentivise highly skilled individuals, such as NHS clinicians, to remain in the labour market. From April 2023, the Annual Allowance (the annual limit on tax-relieved pension savings) will increase from £40,000 to £60,000. This increase means that around 80% of NHS doctors will no longer face an unexpected tax charge concerning accruals under the 2015 career-average NHS pension scheme.
Moreover, the government plans to remove the Lifetime Allowance charge, the maximum amount of tax-relieved pension savings an individual can have, before completely abolishing it in a future Finance Bill. This change will provide significant relief to individuals who have accumulated substantial pension savings over their careers.
Personal Tax and Capital Gains
The Spring Budget 2023 introduces several changes to personal tax and capital gains. The Income Tax additional rate threshold (ART) will be lowered from £150,000 to £125,140 from April 6, 2023. This change will apply to taxpayers in England, Wales, and Northern Ireland for non-savings and non-dividend income and UK-wide for savings and dividend income.
Additionally, the Dividend Allowance will be reduced from £2,000 to £1,000 in April 2023 and further to £500 in April 2024. The Capital Gains Tax Annual Exempt Amount will be reduced from £12,300 to £6,000 in April 2023 and to £3,000 in April 2024. The government says these measures are expected to raise over £1.2 billion a year from April 2025.
Individuals with significant dividend income or those planning to realise capital gains should consider the impact of these changes on their personal tax liabilities and make appropriate adjustments to their financial planning.
Enhanced Midlife MOT and Money Purchase Annual Allowance
The government is increasing the Money Purchase Annual Allowance (MPAA) from £4,000 to £10,000 to support individuals who have left the labour market but wish to return and supplement their income or build up their retirement savings. This change will be beneficial for individuals who have flexibly accessed their defined contribution pension savings.
Furthermore, the government is providing an enhanced digital midlife MOT offer and expanding the Job Centre Plus midlife MOT offer. These initiatives aim to provide in-person financial planning and awareness sessions for Universal Credit claimants aged over 50, helping them better prepare for their retirement and make informed financial decisions.
Wrapping Up
The Spring Budget 2023 brings a host of changes that may impact both businesses and individuals. By understanding the implications of these changes and adapting your financial plans accordingly, you can make the best of a bad situation presented by the new budget.
As a business owner, it is essential to consider the benefits of investing in new plant and machinery to take advantage of the capital allowances on offer. Meanwhile, individuals should review their pension contributions, personal tax liabilities, and capital gains strategies in light of the new rules.
If you are uncertain about how the Spring Budget 2023 may affect you or your business, it is advisable to consult with a professional accountant or financial advisor to ensure you are making the most of the opportunities available and minimising your tax liabilities.
Helpful Links:
Government Legislation - https://www.legislation.gov.uk/ukpga/2021/26/schedule/1/paragraph/3
HMRC Guidance for Marginal Relief - https://www.gov.uk/guidance/corporation-tax-marginal-relief
Labour Market Factsheet - https://www.gov.uk/government/publications/spring-budget-2023-labour-market-factsheet/spring-budget-2023-factsheet-labour-market-measures
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