A Budget for Growth - Spring Budget 2023

Jeremy Hunt opened by announcing that the OBR forecasts predict the UK will avoid going into recession this year.

Following the Autumn Statement which aimed to deliver stability, Jeremy Hunt’s Spring Budget aims to deliver growth for the UK economy.

The budget for growth aims to achieve long-term sustainable growth, half inflation and reduce debt.  There are also incentives aimed at getting people back to work in order to boost productivity.

Business Taxes

First Year Allowances

Super deduction ends on 31 March 2023.  In its place from 1 April 2023 to 31 March 2026 Companies will benefit from:

• Full expensing - A 100% First Year Allowance on investments in qualifying plant and equipment in the main rate pool.
• Special rate - A 50% First Year Allowance for investments in special rate pool (including long-life assets).

Exclusions from First Year Allowances are second-hand plant and equipment, cars and plant and equipment bought to lease to someone else. 

Annual Investment Allowance

The Annual Investment Allowance provides 100% first-year relief for plant and machinery investments up to £1m for all businesses including unincorporated businesses and most partnerships.

Companies incurring expenditure on second-hand assets or those bought for leasing will qualify for Annual Investment Allowance.

Investment Zones

The government will establish 12 low-tax Investment Zones across the UK, subject to successful proposals. Once designated, special tax sites will benefit from a package of tax reliefs including Stamp Duty Land Tax (SDLT) relief, business rates and employers national insurance contributions.

VAT

Review of VAT treatment of financial services

An industry working group had previously been established to consider the future of VAT and financial services due to complications within the financial services sector. The government will continue working with industry stakeholders to consider possible reforms to simplify the VAT treatment, looking to reduce inconsistencies and provide businesses with greater clarity and certainty.

VAT Late payment interest and penalties

The basis for the accrual of late payment interest on certain VAT amounts will be amended to ensure interest is charged, and any late payment penalty is applied as intended. The changes for late payment interest come into effect from 15 March 2023 and for late payment penalties from 1 January 2023.

VAT relief for energy-saving materials

The government is publishing a call for evidence on options to reform the VAT relief for the installation of energy-saving materials. This will consider the inclusion of additional technologies and the possible extension of the relief to include buildings used for a relevant charitable purpose. The call for evidence will close on 31 May 2023.

VAT: DIY Housebuilders Scheme

The government is seeking to digitise the system for VAT DIY housebuilders’ scheme and will also extend the time limit for making claims from 3 to 6 months. These measures should improve the overall customer experience, reducing the administrative burden for both claimants and HMRC.

Alcohol duty reform

Legislation will be introduced to make changes to the duty structure for alcohol products. These changes will take effect from 1 August 2023. HMRC will also take forward plans to modernise the approval, return and payment processes for domestic producers of alcohol products. These changes are currently scheduled to take effect from late 2024 with the introduction of a new digital system.

Alcohol duty rates

The duty rates under the revised duty structure on all alcoholic products produced in, or imported into, the UK will be increased in line with the Retail Price Index (RPI).

The government will also legislate to increase the new Draught Relief from 5% to 9.2% for qualifying beer and cider products, and from 20% to 23% for qualifying wine, spirits based and other fermented products. These changes will take effect from 1 August 2023.

Fuel duty rates

The government will extend the cut in the rates of Fuel Duty introduced at the Spring Statement in March 2022 for a further 12 months. This will maintain the cut in the rates for heavy oil, unleaded petrol, and light oil by 5 pence per litre. The changes will take effect from 23 March 2023.

Pensions

The government has today announced two substantial reforms to the pension regime.

Currently, there are limits placed on the total tax-relieved pension savings an individual can make each year and over their lifetime.

To stop these limits from acting as a barrier to remaining in work, the government will remove the Lifetime Allowance charge in April 2023, before completely abolishing the Lifetime Allowance in a future Finance Bill (expected April 2024). The Annual Allowance will also increase from £40,000 to £60,000 from April 2023.

Furthermore, the Money Purchase Annual Allowance and the minimum Tapered Annual Allowance (TAA) will both be increased from £4,000 to £10,000, while the adjusted income threshold for the TAA will also be increased from £240,000 to £260,000. 

These reforms will significantly increase the amount each tax year which can be contributed to your pension savings (without incurring charges), alongside this the abolishment of the Lifetime Allowance will provide you with an opportunity to significantly increase your ability to invest in a highly tax-efficient and Inheritance Tax protected environment.

Foster Carers

The government is increasing the amount of income tax relief available to foster carers and shared lives carers. The threshold of income at which qualifying carers begin paying tax on care income will be increased to £18,140 per year plus £375 to £450 per person cared for per week for 2023-24 and these thresholds will then be index-linked, representing a tax cut worth approximately £450 per year on average.

Starting Rate and ISA

The starting rate for savings will be frozen at £5,000, enabling individuals with less than £17,570 in employment income to receive up to £5,000 of savings income free of tax.

Annual subscription limits for Junior Individual Savings Accounts (ISA) and Child Trust Fund accounts will remain at £9,000 and the annual subscription limit for adult ISAs will remain at £20,000.

Social Investment Tax Relief (SITR) expiry

The government will not renew the SITR, following the end of the previous two-year extension. The SITR will close to any new investments from 6 April 2023.

Research & Development

The planned reduction in the R&D tax benefits for SMEs will be partly mitigated for loss-making, R&D intensive companies from 1 April 2023.  These companies will continue to be able to claim the 14.5% R&D credit, giving a £27 tax credit for every £100 of qualifying expenditure (previously £33).  SMEs must spend 40% of their total annual expenditure on R&D to qualify.

As previously announced in the Autumn 2022 Statement, the Research and Development Expenditure Credit (RDEC) rate will increase from 13% to 20%.  The SME additional deduction rate will reduce from 130% to 86% for all SMEs and the SME payable credit rate will decrease from 14.5% to 10% for non R&D intensive companies.

Low income trusts and estates

Following a Government consultation that closed in July 2022, from 6 April 2024 onwards, trusts and estates with income of less than £500 of income for a given year will be treated as having no income at all for the purpose of assessing the trustees’/personal representatives’ liability to Income Tax for that year.

Where a settlor has made a number of trusts which are still in existence this £500 de minimis will be divided proportionately subject to a minimum amount of £100 but for this purpose interest in possession (‘life interest’) trusts, settlor-interested trusts, vulnerable beneficiary trusts and heritage maintenance funds will not be taken into account.

The current ‘standard rate band’ of £1,000 for trusts will as a result be abolished. Note that discretionary trusts which make discretionary payments of income to beneficiaries will still have to account for sufficient tax out of the trust’s ‘tax pool’ in order to attach a 45% Income Tax credit to any distributions which include such untaxed income.

Beneficiaries of estates where the estate has not paid Income Tax as a result of the new £500 limit will not be liable to tax personally on that income. However, where interest in possession trusts or settlor-interested trusts have similarly not been required to pay tax for the year their beneficiaries/settlor will still need to account for tax personally on that income as appropriate.

 Agricultural Property Relief (APR) and Woodlands Relief (WR)

The Government is publishing a call to evidence and consultation which includes exploring whether the availability of APR for Inheritance Tax (IHT) purposes might be expanded to cover certain types of environmental land management.

With effect from 6 April 2024 property located in the EEA, the Channel Islands and the Isle of Man will no longer qualify for APR and WR, only property situated in the UK will qualify.

Capital Gains Tax (“CGT”)

In certain instances where shares and securities in a non-UK company are acquired in exchange for shares or securities in a UK close company, the newly acquired shares will be deemed to be located in the UK. These provisions will only apply where the individual has a material interest in both the UK and non-UK company and where the transaction was carried out before or after 17 November 2022.

From 6 April 2023, persons eligible to claim roll-over relief and principal private residence relief will be extended to include LLPs and Scottish Partnerships upon an exchange of an interest in land or where a private residence is held by a partnership. The effect is to make the provisions the same as where the land is held by the partners personally.

From 6 April 2023, the time limits for CGT-free transfers between spouses in the process of separating will be extended to 3 years from the date on which they cease to live together and unlimited time where the assets are transferred as part of a formal divorce agreement.

Charity Definition

The definition of a charity or Community Amateur Sports Club will be legislated (CASC). This measure will exclude non-UK charities and CASC’s from tax reliefs from 15 March 2023. A transitional period to 1 April 2024 will apply for Charities or CASC’s which have previously been accepted for charitable reliefs.

If you would like to discuss any of these matters or talk to us about your tax affairs in general, please contact our Tax Experts at js.tax@jsllp.co.uk.