On 15 March 2023, Chancellor Jeremy Hunt started his Spring Budget speech by informing Members of Parliament that the British economy is defying sceptics and being resilient. He highlighted that the Office for Budget Responsibility (OBR) forecasts no recession, despite the pessimistic projections made in the autumn.
Given that it has been 18 months since the last budget, during which time the UK has had two different Chancellors, this budget has been critical for those struggling with the cost of living crisis and businesses concerned about economic stability.
1. VAT
The turnover threshold for VAT registration will remain fixed at £85,000 until 31 March 2026. This threshold has remained constant since 2017. As a result, more businesses have been added to the VAT system over time. If inflationary increases had persisted, the threshold would have been approximately £103,000 from April 2023, which is 20% higher.
2. Childcare
Parents with children between nine months and three years will receive 30 hours of free childcare per week during term time, provided both parents work at least 16 hours per week.
The program will be phased in gradually by September 2025 to allow for the development of new facilities. Universal credit beneficiaries can obtain childcare funding upfront instead of in arrears, and the amount available will be increased.
The funding for free nursery places is anticipated to get a boost by an average of 30%, with an increase of £204 million in September 2023 and £280 million in 2024.
3. Employment
As many as 50,000 disabled individuals can now avail of a new voluntary employment scheme, known as Universal Support, worth up to £4,000 per person who signs up for the scheme a year. In addition, a £400 million initiative has been sanctioned for providing additional mental and physical health support to employees suffering from health issues.
4. Income Tax
Individuals who are basic rate taxpayers will not face any reduction in their Income Tax, with the rate remaining fixed at 20% for non-savings and non-dividend income between £12,570 and £50,270. However, high earners who pay a tax rate of 45% on income over £150,000 will see this trigger level decrease to £125,140, resulting in some taxpayers paying an additional 5p per pound on top of the existing 40% rate.
5. Back to work
The Chancellor has dubbed this the “back to work” budget, with a particular focus on discouraging individuals over 50 from retiring early. He has pledged to raise the limit on tax-free pension contributions from £40,000 to £60,000 per year and eliminate the lifetime cap.
This is also intended to entice high-earning older workers, such as doctors, to stay in the workforce, as no one should be forced out of the workplace due to tax reasons.
6. Energy costs
The energy price guarantee will remain at £2,500 until July 2023 instead of rising to £3,000 as planned. This move is projected to save the average household £160. The 5p cut in fuel duty implemented by PM Rishi Sunak in March 2022 has been extended for another year.
Additional support for individuals with prepayment metres has been declared. A £63 million fund to assist leisure centres and pools in covering their energy expenses and an additional £100 million for charities facing escalating costs have also been sanctioned.
7. R&D tax relief
To prevent misuse, the tax incentives offered for Research and Development (R&D) will be restricted, with the cash credit for loss-making businesses being reduced from 14.5% to 10%. At the same time, larger businesses and select SMEs will receive higher payments through a special program.
In addition, a new £9 billion policy of “full capital expensing” for the next three years, allowing firms to deduct all investments from their tax bills. This budget has also announced a £1 million yearly prize for the next decade to recognize the most innovative research in Artificial Intelligence.
8. Climate change
The UK government will invest £20 billion in carbon capture and storage, starting with projects in Merseyside and Wales.
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9. Business Rates
With a freeze in place, Business Rates will remain unchanged in 2023-24. Moreover, qualifying retail, hospitality, and leisure enterprises will be granted additional aid in the form of 75% business rates relief, with a maximum limit of £110,000 per business rather than 50%.
10. Super Deduction
The “Super Deduction” scheme, which allows businesses to claim 130% of the cost of new equipment investments, will conclude on 31 March 2023, reverting to the pre-pandemic rate of 100% for plant and equipment expenditures.
11. Public finances
Previously, the public sector net debt was projected to peak at 97.6% of GDP in 2025-26 before decreasing to 97.3% two years later. However, it is now expected to peak slightly lower at 97.3%, falling to 94.6% by 2027-28. Chancellor Hunt confirmed that, as stated in the autumn statement 2022, the day-to-day spending will rise by 1% annually in real terms from next year until the end of the projection period.
12. Corporation Tax
Starting from April 2023, the Corporation Tax hike that was previously disclosed will result in a graduated rate structure. The rate will begin at 19% for profits up to £50,000 and increase to a maximum of 25% for companies with profits over £250,000, deviating from the previous flat rate of 19%.
13. Inheritance Tax
The Inheritance Tax threshold, set at £325,000, will remain fixed until 2027-28, along with the extra £175,000 that can potentially be passed on for primary residences.
14. Dividend Allowance
Starting from April 2023, the Dividend Allowance will be reduced from £2,000 to £1,000 and then further reduced to £500 in April 2024. However, the tax rates for dividends will remain unchanged, with Basic Rate dividends taxed at 8.75% for total earnings below £50,270, Higher Rate dividends taxed at 33.75% for earnings between £50,270 – £125,140, and Additional Rate dividends taxed at 39.35% for earnings exceeding £125,140. These taxes will be implemented after the company has paid its Corporation Tax.
15. National Insurance (NI)
Although there will be no actual hikes in NI rates for either employees or employers, the thresholds will remain fixed until 2027-28. This may result in a stealth tax hike if incomes rise, pushing more individuals into higher tax brackets.
Furthermore, the Employer NI threshold will be frozen at £9,100, affecting owner-director companies that set payroll salaries based on this limit. However, businesses with two or more workers on the payroll can still take advantage of the £5,000 employer NI allowance.
16. Capital Gains Tax (CGT)
Starting from April 2023, the annual exemption – the amount of gains that can be earned without attracting taxes – will be reduced to £6,000 and then further reduced to £3,000 in April 2024 from the current £12,300. This change will significantly affect individuals selling second homes and investments.
17. Stamp Duty Land Tax (SDLT)
Effective 23 September 2022, the threshold for paying SDLT when purchasing residential properties in England and Northern Ireland has been raised from £125,000 to £250,000. In addition, first-time buyers will receive a higher threshold, with the point at which they become liable to pay SDLT now set at £425,000, up from £300,000.
Furthermore, the maximum property value for first-time buyers claiming relief has been raised to £625,000. These adjustments will remain in effect until April 2025.
18. Annual investment allowance
The temporary increase in tax allowances for plant, machinery, and equipment, allowing 100% of the cost to be offset against taxable profits in the year of purchase, has been made permanent and will remain at £1 million.
Over to you
We understand that the tax system can be complex and daunting, and it is essential to have a trustworthy resource for information and advice to ensure compliance and avoid penalties or fines. If you have any queries or concerns about the latest budget updates or need expert assistance in evaluating and managing your personal or business tax position, our team is available to assist you. Contact us today.
