The 2023 Spring Budget

This post covers the key announcements made by the chancellor in the 2023 Spring Budget. Unfortunately as predicted in our coverage of the 2022 Autumn Statement there were very few positive changes introduced.

As with our previous posts, we have focused our coverage on those changes of most interest and relevance to you.

The 2023 Spring Budget

The 2023 Spring Budget - pension changes

There had been much speculation about a proposed increase to the lifetime allowance in the media in the run-up to the budget. Perhaps these changes were introduced because of a concern about the exodus of NHS doctors and an initiative to encourage the over 50's back into work? Sadly, working longer is more likely to be a case of necessity rather than any desire to do so, for most people. Although presumably the chancellor will also lead by example..

Lifetime allowance

The lifetime allowance limit is abolished from 6 April 2023 effectively meaning that there is no cap on the level of contributions that can be paid into your pension. As this has been steadily reduced and fixed at it's current level of £1,073,100 since April 2020 this is a welcome move. This means that from 6 April 2023 no-one should face a lifetime allowance charge on their pension fund a potential issue previously faced by long serving doctors with NHS pension funds.

Conversely, the maximum pensions tax-free lump sum is frozen at 25% of the current lifetime allowance (LTA) limit of £1,073,100 above, except those individuals who have previously applied for Pension Commencement  Lump Sum protection.  Therefore following the proposed abolition of the lifetime allowance  the pensions tax-free lump sum will be limited to 25% of the current lifetime allowance (LTA) limit or £268,275.

Once the proposals to abolish the lifetime allowance are implemented, the pensions tax-free lump sum will be limited to 25% of the current lifetime allowance (LTA) limit or £268,275 for those without the protection detailed above.

Annual allowance

Put simply, the annual allowance is the maximum amount that an individual can save into their pension in a tax year with tax relief without suffering a tax charge. This is now increased from £40,000 to £60,000 per year from April 2023.

Additionally, those individuals with income above a certain level (the adjusted income level) who are subject to a tapered annual allowance for taxpayers will see this increased from £4,000 to £10,000. The adjusted income level for the tapered allowance is also increased from £240,000 to £260,000.

There are also new rules affecting those who have money purchase schemes and occupational pensions implemented under a net pay arrangement.

Those business owners with surplus profits, may want to consider using their companies to make pension contributions directly -  a topic we've covered previously. The increase in the corporation tax rate, together with these changes may make this a more attractive proposition from now on.

The 2023 Spring Budget - free childcare

It is fact of life these days that it's necessary for both parents to work full time to support their childcare costs. Therefore any financial support or incentives provided by the government for working parents should be welcomed.  

Although, this revamped proposal grabbed a lot of the headlines, these changes will not start to take effect until April 2024. It is also worth mentioning that the free hours of childcare are only available for 38 weeks a year.

These changes will be implemented in three phases (see below) and any applications for free childcare can be submitted online.

  • From April 2024 children from the age of two will be entitled to 15 hours of free childcare. Those children aged from 3 to 4 will be entitled to 15 hours of childcare, which can be increased to 30 provided the parents are eligible - see below.
  • Starting from September 2024, children from the age of 9 months will be entitled to 15 hours of free childcare. Children from 3 to 4 years old will be entitled to 15 hours of childcare, which can be increased to 30 subject to their parents eligibility.
  • Effective from September 2025 working parents of all children over 9 months and under 5 years will be entitled to 15 hours of free childcare. This can be increased to 30 hours again provide the parents are eligible.

Criteria for eligibility

Eligibility for 30 hours of free childcare are subject to the following conditions:

  • Both parents must be working
  • Over the next three months both parents expect their earnings to be equivalent to at least 16 hours at the applicable National Minimum or Living Wage. Those individuals who are self-employed can use averaging. If you've become self-employed in the last 12 months, you can earn less and potentially still be eligible.
  • Neither parent can have an adjusted net income in excess of £100,000. If you are a high earner you may want to take steps to reduce your adjusted net income to ensure eligibility.
  • A Parent (and their partner) must have a National Insurance Number, be either a British or Irish Citizen, have settled or pre-settled status (or waiting on a decision) or permission to access public funds

The 2023 Spring Budget - Company taxes

The Chancellor announced several key changes to Capital Allowances in his Spring 2023 Budget. These proposals are due to take effect from April 2023.

Full expensing

From 1 April 2023, companies incurring qualifying expenditure on new plant and machinery  will be able to claim 100% First Year Allowances  (full expensing). Additionally, 50% First Year Allowances can be claimed for special rate expenditure, including long-life assets. 

The allowances will not apply to second-hand assets, cars or most plant and machinery acquired for leasing and and the exclusions set out in the existing Capital Allowances legislation framework.

Disposals of plant or machinery where full expensing or a 50% FYA have been claimed will be subject to an immediate balancing charges. These will either be 100% of the disposal value in the case of full expensing or 50% of the disposal value in the case of the 50% FYA.

Balancing charges will be reduced proportionately if an allowance is claimed in respect of a proportion of the expenditure.

Additionally, an anti-avoidance provision will apply to counteract those arrangements which are contrived, abnormal, or lacking a genuine commercial purpose.

These proposals will cover all qualifying expenditure incurred during the period 1 April 2023 to 31 March 2026 - effectively a 3 year period. 

Providing tax breaks to encourage businesses to invest is always welcome. However these new proposals are a poor relation to the super deduction allowance which is due to end on 31 March 2023. The cynical amongst us might suggest these new proposals have been announced as a diversionary tactic  

Annual Investment Allowance

As previously announced in the 2022 Autumn statement measures will be implemented to make permanent the temporary £1m Annual Investment Allowance limit. Additionally, existing transitional rules applying to chargeable periods straddling 1 April 2023 will be repealed.

First Year Allowances on electric vehicle charge points

Spring Finance Bill 2023 will include measures to extend the 100% FYA for electric vehicle charge-points by two years to 31 March 2025 for Corporation Tax purposes and 5 April 2025 for Income Tax purposes. There has been a lot of controversy regarding the paucity of electric car charging points in the UK recently. So perhaps these measures will result in further improvement to the electric car charging structure across the UK?

R & D tax relief

Those measures announced previously in the 2022 Autumn Statement, have been confirmed to take effect from 1 April 2023. Therefore the scope of qualifying expenditure will be extended to include datasets and cloud computing.

In an attempt to combat abuse, companies will need to inform HMRC in advance if they intend to make an R&D claim. This is consistent with HMRC's, recent much harder line approach to R&D claims.

The Chancellor also announced additional tax relief from 1 April 2023 for what are termed R&D intensive SMEs. From this date an increased tax credit of 14.5% will be available for those SMEs that are R&D intensive. An R&D intensive company is one with a qualifying expenditure to total (tax adjusted) expenditure (intensity) ratio of 40% or more.

The credit available currently is decreasing from 14.5% to 10% from 1 April 2023. For R&D intensive companies, the credit will remain at 14.5%. There will be draft legislation and guidance will be released later in the year. There will also be further clarification of what constitutes an 'R&D intensive' company. 

When assessing the R&D intensity ratio (see above) the whole accounting period will be taken into consideration, even where this falls partly before 1 April 2023.

Given HMRC' current stance on R&D claims, it would be prudent to either wait for details of the new legislation to be published to ensure qualification, or initially submit a claim applying the reduced rate.

We have previously indicated that HMRC propose to impose restrictions on overseas expenditure. However the implementation of these proposals has now been postponed and moved from 1 April 2023 to 1 April 2024. This is apparently to allow further consideration of the interaction of this measure and the proposed merger of the SME relief and RDEC regimes.

Seed Enterprise Investment Scheme

For company shares issued on or after 6 April 2023 the company investment limit will increase from £150,000 to £250,000. 

The gross asset limit asset will be increased from £200,000 to £350,000 and the trading time limit increased from two to three years.

Finally, the individual annual investor limit will be raised from £100,000 to £200,000. These are all welcome proposals to encourage inward investment in businesses.

The 2023 Spring Budget - extending the tax basis

HMRC have published a new consultation on Extending the Cash basis for Self Employed taxpayers. Any responses to this should be sent by 7 June. The consultation, which was published with the Budget 2023 documents asks for your views on options to extend and simplify the cash basis.

The proposals include extending the cash basis to more sizeable businesses, relaxing the loss relief rules and setting the cash basis as the default method of calculating trading income for those relevant business.

Giving the issues with the implementation of Making tax Digitalcould this be a move designed to 'assist' businesses with the transition to Making Tax Digital? Once implemented, this will effectively mean  'real time' reporting by businesses and individuals to HMRC.

The 2023 Spring Budget - Share schemes

Enterprise Management Incentives.

There are several changes to this scheme which are intended to  ease administrative burden:

  • From 6 April 2023, the requirement for a  company to set out within the EMI option agreement the details of any restrictions on the shares to be acquired under the option and that an employee has signed a working time declaration will be removed. However it should be stressed that the working time requirement still applies.
  • Effective from 6 April 2024, the deadline for notifying an EMI option will be extended from 92 days following grant to the 6 July following the end of the tax year.

Company Share Option Plans

From 6 April 2023,  qualifying companies will be able to issue up to £60,000 worth of options to employees - the limit is currently £30,000.

Currently where a company has more than one class of ordinary share capital, shares included in a Company Share Option Plan scheme must be from a share class that is ‘worth having’, by being either open market shares or Employee-control shares.

The above restriction will be automatically removed from April 2023, there is no need to revise existing share scheme plans.  Additionally, those unexercised options granted prior to 6 April 2023 will benefit from the changes to the share options limit and share class restrictions.

The 2023 Spring Budget - Capital Gains Tax

There were several changes, though the principle ones are set out below.

Completion of unconditional contracts

From April 2023 certain time limits will be extended where there has been a transfer under an unconditional contract that completes after the end of the tax period of the disposal.

These provisions will apply to company disposals from 1 April 2023 where the asset is transferred at least a year after the accounting period the disposal is taxed in.

They will apply to individuals from 6 April 2023 where the asset is transferred at least 6 months after the tax year the disposal is taxed in.

The time limits for notifying HMRC of chargeability, the raising of assessments and making claims will be extended to reference the period the transfer of the asset falls in, rather than the tax point of the disposal:

Transfer of assets between separating spouses and civil partners

There have been a number of changes which are set out below:

  • Separating spouses or civil partners be given up to three years after the year they cease to live together in which to make no gain/no loss transfers. Previously this was confined to the tax year of separation
  • No gain/no loss treatment will also apply to assets that separating spouses or civil partners transfer between themselves as part of a formal divorce agreement.
  • A spouse or civil partner who retains an interest in the former matrimonial home be given an option to claim Private Residence Relief when it is sold.
  • Individuals who have transferred their interest in the former matrimonial home to their ex-spouse or civil partner and are entitled to receive a % of the proceeds when that home is eventually sold. They will also be able to apply the same tax treatment to those proceeds when received that applied when they transferred their original interest in the home to their ex-spouse or civil partner.

The 2023 Spring Budget - VAT

There have been changes to the VAT drink and deposit return schemes, DIY Housebuilder Schemes and proposals to extend VAT Energy Saving Materials relief

However the most notable new measures are those relating to harmonised interest rules and late payment penalties for VAT, which took effect from 1 January 2023.

When HMRC makes an assessment to recover monies where they have made a payment or repayment to a taxpayer which is too high, late payment interest will be charged from the date HMRC made the original payment, whereas currently interest is charged 30 days after the date of the assessment.

For businesses using the VAT Annual Accounting Scheme, late payment interest and late payment penalties will not be charged on instalments that are paid late, however late payment interest and penalties will still apply to any balancing payments that are not paid on time.

These rules will apply From 15 March 2023 for late payment interest, 1 January for late payment penalties and when the Finance Bill 2023 obtains Royal assent this year (on or around July) for repayment interest:

The 2023 Spring Budget - Administrative changes

HMRC have paying closer attention to cryptocurrencies recently and as part of this process, from the 2024/25 tax year onwards Self Assessment tax returns will require these transactions to be identified separately on any capital gains schedules accompanying the return.

Additionally From 15 March 2023 you are no longer able to legally assign to a third party your income tax repayment, right to an income tax repayment. As a result, assignments of income tax repayments will have no legal effect and the repayment will remain the property of the taxpayer.

The 2023 Spring Budget - summary

To reiterate, we have not covered every single change in the budget, only those which we think will be most relevant to you. Perhaps the most dramatic changes are those relating to pensions tax relief which have already sparked controversy. It will be interesting to see if these remain in force, should there be a change in government at the next General Election.

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