Update: Spring Budget 2023

The latest Chancellor delivered his Budget report today. There is very little support for small businesses in the report, but there are a few announcements that may provide opportunities for business leaders.

Most significantly, it was announced that some working parents are going to receive free or subsidised childcare. As employers, this could make it easier to retain and recruit.

The amount you can contribute to your pension each year has increased - and the total lifetime contribution limit has been removed. Pension contributions could therefore be an even more attractive strategy for offsetting the hike in Corporation Tax rates from next month.

Most people will not be better off as a result of this budget as income tax thresholds have been frozen previously.

The other main takeaways for business leaders from the Budget today are:

• Corporation Tax still going up to 25% from April
• Incentives to invest in assets announced
• Some changes to how R&D tax credits are calculated
• No major new changes to personal taxation
  

Here is some further insight on each of these announcements.

Childcare provision for working parents

Free childcare for working parents in England will be expanded to cover all children under five by September 2025.

The free childcare will be introduced in stages:

• Working parents of two-year-olds will get 15 hours of free care from April 2024
• Children from nine months will get 15 hours free childcare from September 2024
• All eligible under-5s will get 30 hours free childcare from September 2025

To qualify, all adults in the household must be working at least 16 hours per week and any individual income must not exceed £100,000.

If deliverable, extended free childcare could mean that it is more feasible for working parents to return to work after parental leave, increasing the available talent pool for businesses.

Corporation Tax and Capital allowances 

Corporation Tax will still increase to 25% from April 2023 for companies with profits of over £250,000. For companies with profits between £50,000 and £250,000, you will pay a hybrid rate. Companies with profits less than £50,000 will continue to pay Corporation Tax at 19%.  

The government has introduced ‘full expensing’. This will mean that companies will be able to write off the full cost of qualifying assets, allowing for immediate tax relief on the investment companies make in infrastructure. This will initially be for a three year period from 1 April 2023 until 31 March 2026. This replaces the super deduction capital allowance scheme which comes to an end on 31 March 2023. 

The Annual Investment Allowance (AIA) will remain at £1 million, this can be used to accelerate tax relief for special rate assets which cannot be covered by the new full expensing, choosing to utilise the AIA before the 50% first year allowance on special rate assets will ensure the maximum and quickest tax relief is achieved. 

Changes to calculation of R&D tax credits

As previously announced, from 1st April 2023, the credit you get for R&D expenditure, such as salaries, subcontractors and software, will have reduced rates. The 130% extra deduction you currently receive will reduce to 86% and the R&D tax credit will decrease from 14.5% to 10%, for small businesses. You can find more information here.

However, for loss-making companies who spend at least 40% of their total expenditure on R&D, they will be able to claim a higher payable credit rate of 14.5%

The Chancellor has also confirmed that the restrictions on overseas expenditure for R&D will now come into effect from 1st April 2024, instead of 1st April 2023. 

Finally, the government confirms that they are continuing to review the R&D schemes with the possibility of implementing a merged scheme from April 2024, with the overall aim of simplifying the relief. We expect draft legislation to be released in the summer.

Pensions

The £1m lifetime allowance (LTA) that you can contribute to your profession has been scrapped. The LTA tax charge will be removed from April 2023 and the LTA itself will be abolished from April 2024.

Whilst the LTA will be abolished from April 2024, the maximum Pension Commencement Lump Sum (Tax-free lump sum) will be retained at the current level of £268,275 and be frozen at this level. 

The annual allowance for pension contributions will increase from £40,000 to £60,000 from 6th April 2023. This presents a great opportunity for business owners to increase their retirement provision whilst benefiting from an increased Corporation Tax saving.

Pre-announced changes

From April 2023:

• The dividend tax free allowance is reducing from £2,000 to £1,000, then again to £500 for 2024/25.
• The dividend tax rates remain unchanged from the 2022/23 increases, 8.75% in the Basic Rate band, 33.75% for the Higher Rate band and 39.35% in the Additional Rate.
• The annual Capital Gains Tax exemption, currently standing at £12,300 will be cut to £6,000 for 2023/24 and halved again to £3,000 for 2024/25.
• The Additional Rate tax threshold will be reduced from £150,000 to £125,140, this will result in those earning above this threshold paying income tax at 45% sooner than in previous years.The optimum director salary in most cases will be £12,570 (currently £11,900) from April 2023. This will be different if you have benefits such as a company or private medical cover. For Wow clients, we can help you calculate the exact figure.
  
  General announcements
  
  There were several other general announcements made in today’s Budget including that fuel duty will be frozen for further 12 months, check-out this BBC article for a full run down. 
  
  Further advice
  
  The information included in this article does not constitute advice. If you would like further advice on any of the changes discussed in this article, please get in touch.