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Chancellor Jeremy Hunt delivered his inaugural Budget to Parliament on Wednesday, 15th March, primarily focusing on revitalizing the UK economy. The Government aims to cut inflation in half by the end of 2023 and alleviate the cost-of-living crisis. In addition, the Budget was designed to ease financial pressures on small businesses and taxpayers. This article provides the salient components of the Budget that could have significant repercussions for you or your enterprise.
Pension Tax Reforms: The Chancellor announced significant changes to pension tax limits to encourage individuals to rejoin the workforce. The Government’s latest measures are designed to address the increasing number of individuals choosing to exit the labour force by promoting the cultivation of retirement funds and improving incentives for work.
From April 2023, those with larger pension pots or those who need to catch up on contributions will benefit from the increased Annual Allowance of £60,000, up from £40,000. In addition, the Annual Allowance’s tapered income level will now be increased to £260,000 from £240,000, and the minimum amount for Tapered Annual Allowance will be raised to £10,000 from £4,000.
In addition, there will be an increase in the Money Purchase Annual Allowance from £4,000 to £10,000. Notably, the Lifetime Allowance will be abolished, effective April 2023, as the Chancellor announced.
Corporation Tax Increase: The main corporation tax rate will increase for the financial year commencing 1st April 2023, with no last-minute changes announced by the Chancellor. For more information on the corporation tax increase, please click here.
Capital Expenditure for Companies: Reforms have been made to the relief that companies can obtain capital expenditure incurred between 1st April 2023 and 31st March 2026. Companies can continue to utilize the £1m Annual Investment Allowance (AIA) and two new temporary first-year allowances for qualifying plant and machinery expenditure. In addition, companies will receive 100% relief on capital expenditure falling within the main rate of capital allowances, known as “full expensing,” and 50% tax relief on expenditure within the special rate pool for capital allowance purposes. As before, relief will only be granted if the equipment is new rather than second-hand. Certain exceptions to the expenses qualify for full expensing, specifically for cars and leased plant and machinery. These changes will likely have a greater impact on larger companies.
Research & Development (R&D): Despite changes announced by Jeremy Hunt in his Autumn Statement on 17th November, cuts to R&D reliefs for small and medium-sized enterprises (SMEs) will proceed. However, the Chancellor announced additional support for eligible research-intensive companies spending over 40% of their total expenditure on R&D. Eligible companies could claim £27 for every £100 of qualifying R&D expenditure. In addition, the Research & Development Expenditure Credit will increase from 13% to 20%, while the SME deduction rate will decrease from 130% to 86% with a credit rate of 10%. However, R&D-intensive companies can claim 14.5% instead of 10%.
Foster and Shared Lives Carers: Chancellor Hunt increased the allowances qualifying carers can offset against their qualifying care receipts. The new allowances, effective from 6th April 2023, include a fixed amount of £18,140 per annum (up from £10,000), a weekly amount of £375 (up from £200) for under 11s, and £450 (up from £250) for over 11s. These rates will be adjusted annually based on the Consumer Price Index.
Childcare Support Reforms: The Chancellor outlined reforms to the current system to encourage more parents to return to the workforce. The Government is expanding support by offering 30 hours a week of free childcare for 38 weeks a year to eligible working parents of children aged nine months to three years. This initiative will be implemented in phases from April 2024, in addition to the existing 30 hours a week provided for eligible working parents of three to four-year-olds. The Government will also increase the hourly rate paid to childcare providers who deliver free hours of care. Free childcare will be accessible to parents who work at least 16 hours per week.
Additional Announcements in the Budget:
- The Chancellor announced the creation of 12 new low-tax investment zones across the UK, designed to “supercharge” hi-tech growth. Successful applicants will receive £80 million in support over five years. These zones will be located near universities and research centres to accelerate growth in key industries such as life sciences, technology, and creative industries.
- A ‘Brexit Pubs Guarantee’ was also introduced, setting draught duty prices at 11p lower than those in supermarkets. This guarantee ensures that the hospitality sector always pays less tax on pints of beer than supermarket chains.
- Fuel duty will remain frozen, maintaining the 5p cut across the UK.
- The Energy Price Guarantee has been extended three months to the end of June, ensuring the average household continues to pay no more than £2,500 per annum on their energy bills.
The inaugural budget announcement by Chancellor Jeremy Hunt is centred on bolstering the UK’s economy by providing assistance to small businesses and taxpayers and encouraging individuals to re-enter the workforce. The Budget proposes substantial modifications to pension tax limits, increased corporation tax and alterations to capital expenditure, research and development, and childcare support policies. These measures aim to reduce the financial burden on various sectors while promoting economic growth.