British finance minister Jeremy Hunt set out his budget today (Wednesday 15th March), with a view to pull the world’s sixth-biggest economy out of its run of stagnant growth.
All eyes are on the first budget in 18 months, with people struggling during the cost of living crisis and businesses concerned about economic stability. Here is everything that was covered today at a glance.
Key Points
- Energy price guarantee extended
- Pension lifetime allowance abolished
- Pensions annual allowance increased from £40,000 to £60,000
- 30 hours of free childcare for children over nine months
- Inflation will fall to 2.9%
- Super-deduction replaced with ‘Full Expensing’ (FE) which will allow businesses to ‘write off’ the cost of certain capital spending against their taxable profits
- Availability of 50% First Year Allowances on other assets extended by 3 years to 31st March 2026
- New R&D scheme for c.20,000 SMEs in the UK – coming in from 1 April 2023 and worth around £500 million per year
Inflation and Growth
“Despite continuing global instability, the Office of Budget Responsibility report today that inflation in the UK will fall from 10.7% in the final quarter of last year to 2.9% by the end of 2023.”
- Hunt says this will be a budget for “long-term, sustainable, healthy growth”, and it will deliver “prosperity with a purpose”.
- Hunt believes there will be a growth of 1.8% next year, 2.5% in 2025 and 2.1% in 2026.
- Hunt says growth is one of the PM’s five priorities, but defends his commitment to returning inflation to the 2% target and says it now looks poised to diminish to 2.9% by the end of the year.
“In November, the (OBR) expected that the UK economy would enter recession in 2022 and contract by 1.4% in 2023. That left many families feeling concerned about the future.
“But today, the OBR forecast we will not enter a recession at all this year with a contraction of just 0.2%. And after this year the UK economy will grow in every single year of the forecast period: by 1.8% in 2024; 2.5% in 2025; 2.1% in 2026; and 1.9% in 2027.”
Business tax and incentives
Hunt says he wants to create “the most pro-business, pro-enterprise tax regime anywhere”, despite confirming that he will go ahead with the planned increase in corporation tax – first announced by Sunak – from 19% to 25% in April.
Support for Business:
- A new £9bn policy of “full capital expensing”, initially for the next three years, which allows firms to write off all investment against their tax bills – OBR believes this will boost business tax by 3% a year.
- A new “enhanced credit” for research-intensive businesses, worth £27 for every £100 they invest.
- An extension to “draught relief”, so that the duty paid in pubs will be up to 11% lower than elsewhere. He calls this a “Brexit pubs guarantee,” saying it would not have been possible inside the EU.
- A a new medicine regulator, which will give “rapid, often near-automatic approval for medicines and technologies already approved by trusted regulators in other parts of the world such as the US, Europe and Japan.
- £1m a year prize for the next 10 years for the most innovative research in AI.
Full Expensing (FE)
- This lets taxpayers deduct 100% of the cost of certain plant and machinery from their profits before tax. It is effective from 1 April 2023 to 31 March 2026.
- It applies to spending on main rate equipment, which includes but is not limited to, warehousing equipment such as forklift trucks, tools such as ladders and drills, construction equipment such as bulldozers and excavators, machines such as computers and printers, vehicles such as tractors, lorries and vans, office equipment such as chairs and desks, and some fixtures such as kitchen and bathroom fittings and fire alarm systems.
- FE means that companies can deduct 100% of the cost from their profits straight away – rather than more slowly over the life of the asset.
- Similar to the super-deduction, FE also results in a 25p tax saving for every £1 invested (19% x 130% super-deduction rate = 25%).
- As part of his commitment to maintain a stable economy, the Chancellor’s long-term ambition is to make full expensing permanent.
The 50% first-year allowance (FYA)
- This lets taxpayers deduct 50% of the cost of other plant and machinery, known as special rate assets, from their profits during the year of purchase. This includes long life assets such as solar panels and thermal insulation on buildings.
- The 50% FYA was introduced alongside the super-deduction and was due to end on 31 March 2023. We are extending it by three years to 31 March 2026. For each year following the first year, 6% of the remaining cost will be written off via Writing Down Allowances (WDAs).
- 50% FYA allows for faster relief than under the default WDAs-only regime, which is worth 6% each year, including year one.
- As part of his commitment to maintain a stable economy, the Chancellor’s long-term ambition is to make 50% FYA permanent.
Corporation tax rise
Mr Hunt confirmed he is pressing ahead with a rise in corporation tax effect from April.
- The corporation tax rate with climb from 19% to 25%.
- This will hit businesses with profits of more than £250,000, while those with profits of between £50,000 and £250,000 get marginal relief.
- Those with profits of less than £50,000 will see no change – they will continue to pay corporation tax at 19pc.
Mr Hunt claims says just one in ten companies will pay the full 25% rate. Read more here: Changes in Corporation Tax 2023 – Exchange Accountancy Services (exchangeaccountants.com)
Pension Reforms
In a move to lure over-50s who took early retirement back to work, the Chancellor unveiled generous pension tax changes.
The surprise move abolishes the lifetime allowance – the maximum amount that workers can put into their pension pots before they are taxed – instead of simply raising the threshold, as had been predicted.
- Currently, there are limits placed on the total tax-relieved pension savings an individual can make each year and over their lifetime.
- To incentivise highly skilled individuals such as NHS clinicians to remain in the labour market by reducing the risk of incurring significant pension tax charges, the government will raise the Annual Allowance, the annual limit on tax-relieved pension savings, from £40,000 to £60,000 from April 2023.
- The government will also remove the Lifetime Allowance charge, the maximum amount of tax-relieved pension savings an individual can have, before completely abolishing it in a future Finance Bill.
“No one should be pushed out of the workforce for tax reasons,” the Chancellor said.
Research & Development
- Additional R&D tax support announced for eligible ‘research-intensive’ startups in fields like AI, life sciences and fintech that spend more than 40% of their total expenditure on R&D.
- The new scheme is targeted specifically at loss making R&D intensive SMEs; focusing support towards those most impacted by the rate changes introduced at Autumn Statement 2022.
- A company is considered ‘R&D intensive’ where its qualifying R&D expenditure is worth 40% or more of its total expenditure.
- Eligible loss-making companies will be able to claim £27 from HMRC for every £100 of R&D investment, instead of £18.60 for non R&D intensive loss makers.
- It is estimated that around 1,000 claiming companies will come from the pharmaceutical and life sciences industry, which will support the development of life saving medicines. A further 4,000 digital SMEs will be from the computer programming, consultancy, and related activities sector which will support the development of AI, machine learning and other digital based technologies. Leaving around 3,000 manufacturing firms and 3,000 professional, scientific & technical activities firms which will also qualify for the enhanced support.
- This builds on previously announced changes to support modern research methods by expanding the scope of qualifying expenditure for R&D reliefs to include data & cloud computing costs.
- The permanent increase from 13% to 20% for the R&D Expenditure Credit rate announced at Autumn Statement 2022 also means the UK now has the joint highest uncapped headline rate of tax relief in the G7 for large companies.
Energy bills support
The Government’s Energy Price Guarantee, which subsidies household energy costs above a certain threshold, was previously scheduled to become less generous from April 1, however Mr Hunt confirmed that support will now continue at the same level. It will save the average family £160 on their energy bills and cost the Treasury around £3bn.
He also confirmed that the so-called “prepayment premium” – where customers who use energy prepayment metres pay more than those on direct debit – would be scrapped from July.
The move is expected to save about four million households £45 a year.
Parents and Childcare
Costly childcare has become a major burden on parents, and often prevents parents from getting back to work. Experts have claimed it is one of the most important issues that the Government needs to tackle for a long time.
Today it was announced that current free childcare provision will be expanded and extended to children aged as young as nine months, or when a mother’s maternity leave ends, which will have far-reaching effects on getting mother’s back in to work.
This is an extension to the current system, where some eligible working parents with three-to-four-year-old’s can claim up to 30 hours of free childcare per week during term time. The new rules will see all parents who work at least 16 hours per week soon being able to claim 30 hours of childcare, for children aged between nine months and four.
This new system will be introduced in stages over the next two years.
Employment
A significant package of measures aimed at tackling economic inactivity has been announced and dubbed the “back to work budget”.
- Scrapping the work capability assessment – though details of its replacement are not yet clear.
- Introducing a new voluntary employment scheme for disabled people, universal support, worth £4,000 for up to 50,000 people.
- A £400m scheme to make more support for mental and physical health available to workers with health problems.
- Focusing on the over-50s, Hunt says he will increase the number of people who get “mid-life MOTs” from the Department for Work and Pensions, helping them assess their financial situation.
- There will be a new apprenticeship, called “returnerships”, for over-50s wanting to return to work in a new sector.
- The annual limit on tax-free pension contributions from £40,000 to £60,000 and abolish the lifetime cap, to tempt higher-paid older workers, such as doctors, to remain in the workplace.
More to follow.
If you are concerned about how any of these changes might affect you or your business, get in touch today info@exchangeaccountants.com
