Spring Budget 2023 – key points

The Chancellor of the Exchequer Jeremy Hunt announced his financial plan on Wednesday when he made his Spring Budget 2023 speech. We have summarised the main changes that will affect you and/or your business below:

Income Tax

As announced in the autumn budget, the personal allowance of £12,570 and basic rate thresholds are frozen until 5 April 2028.   

There continues to be a personal savings allowance of £1,000 for basic rate taxpayers and £500 for higher rate taxpayers. The dividend allowances is reducing from £2,000 to just £1,000 in 2023/24.

National Insurance

Employer and employee NIC thresholds are also frozen until 5 April 2028. This means that employers’ NIC will continue to apply at 13.8% to earnings in excess of £9,100 a year and employees will continue to pay 12% on earnings between £12,570 and £50,270, and 2% thereafter.

Pension tax relief

The current pension lifetime allowance (LTA) charge is being abolished from 6 April 2023. The LTA meant that some high earners e.g. doctors would retire early as tax charges apply on crystallisation of pension funds if the LTA (currently £1,073,100) is exceeded.  

Individuals may be able to receive 25% of their pension savings as a tax-free lump sum when they become entitled to their pension benefits. This is currently capped at 25% of the LTA and going forwards, for most individuals, will remain capped at £268,275.

In addition to this, the pension Annual Allowance (AA) will increase from £40,000 to £60,000 from 6 April 2023. The AA applies to the combined pension contributions made by the individual and their employer. There is a tax charge on the individual if annual pension contributions exceed the AA, however they can make use of any unused AA amounts from the 3 previous tax years, as long as they were a member of a pension scheme during those 3 years. 

For individuals with high income (adjusted income of over £240,000), the AA is currently tapered by £1 for every £2 in excess of £260,000, down to a minimum of £4,000.  From 6 April 2023 the ‘adjusted income’ threshold is increased to £260,000 and the minimum allowance will increase to £10,000.

Capital Gains Tax

As announced in the Autumn Statement, the £12,300 annual allowance for capital gains tax will be reduced to just £6,000 in 2023/24 and then to £3,000 in 2024/25.  Therefore, if you are planning any capital disposals, it’s important to consider the best strategy for the disposal.

Corporation tax

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 rate of 19% will continue to apply where profits are no more than £50,000 a year.  If a company’s profits are between £50,000 and £250,000 a year, the profits are taxed at the higher 25% rate, but a ‘marginal relief’ is given to reduce the liability, with the effective rate being closer to 19% for those with profits just over £50,000. 

Capital Allowances on Plant & Machinery

The Annual Investment Allowance (AIA) limit which provides 100% tax relief when investing in qualifying plant and machinery is permanently set at £1million.  The temporary super-deduction, which provides 130% relief for new qualifying plant and machinery acquired by limited companies will come to an end on 31 March 2023. 

A new ‘full expensing’ (100% First Year Allowance tax relief) will now be available to limited companies investing in new qualifying plant and machinery between 1 April 2023 and 31 March 2026.  However, this new FYA will only affect companies who have already used their full AIA allowance (£1milion)

Research & Development

The R&D tax relief regime will see many changes from April 2023, the key changes are as follows:

• For SME’s, R&D tax relief rates will be reduced from 230% to 186%.
• The R&D Expenditure Credit (RDEC) available to non-SME companies will be increased from 13% to 20%.
• For loss-making SME’s, the current payable credit of 14.5% will only be available for companies whose R&D expenditure constitutes at least 40% of their total expenditure. For any company that doesn’t meet the 40% test the payable credit will reduce from 14.5% to 10% of the eligible loss.