Chancellor Jeremy Hunt delivered a ‘Budget for Growth’ after the Office for Budget Responsibility forecast a stronger than expected performance from the UK economy this year with inflation continuing to fall.
In many ways little was announced affecting owner managed businesses, with no changes to the previously announced rates and allowances for income tax, national insurance, capital gains tax and corporation tax. The major announcements related to pensions, childcare provision, fuel duty, and for individuals, the Energy Support Guarantee (the price cap remaining at £2500 until June). There will also be some significant changes to research and development tax relief, and for larger companies, capital allowances.
We have summarised below the most important tax rates, allowances and changes for business owners.
But do please contact us before taking any action as a result of the contents of this summary.
Income Tax
The personal allowance
The income tax personal allowance remains fixed at the current level until April 2028 at £12,570. There is a reduction in the personal allowance for those with ‘adjusted net income’ over £100,000. The reduction is £1 for every £2 of income above £100,000. So there is no personal allowance where adjusted net income exceeds £125,140.
The marriage allowance permits certain couples, where neither party pays higher or top rate tax in the tax year to transfer £1,260 of their personal allowance to their spouse or civil partner.
Tax bands and rates
The basic rate of tax is 20%. In 2023/24 the band of income taxable at this rate is £37,700 so that the threshold at which the 40% band applies is £50,270 for those who are entitled to the full personal allowance.
Once again, the basic rate band is frozen at £37,700 up until April 2028. The National Insurance contributions upper earnings limit and upper profits limit will remain aligned to the higher rate threshold at £50,270 for these years.
From 6 April 2023, the point at which individuals pay the additional rate will be lowered from £150,000 to £125,140.
Note that different rates and allowances apply to individuals resident in Scotland.
Tax on dividends
The dividend allowance will be reduced from £2000 to £1000 for 2023/24 and then again to £500 for 2024/25. Dividends received above the allowance are taxed at the following rates for 2023/24:
- 8.75% for basic rate taxpayers
- 33.75% for higher rate taxpayers
- 39.35% for additional (top) rate taxpayers.
Corporation tax due on directors’ overdrawn loan accounts remains at 33.75%.
Pension tax limits
The government announced major changes to the taxation of pensions. The changes were made as part of the government’s efforts to encourage inactive individuals, particularly those aged over 50, to return to work. They also seek to remove the tax incentive for doctor and other senior public sector workers to reduce their hours.
However the changes will also provide business owners with significantly more flexibility to extract money, tax efficiently, to their pension funds. The following changes will be made from 6 April 2023.
- The Annual Allowance is increased to £60,000 (from £40,000). It will still be possible to carry forward unused allowances from the previous three tax years.
- The Lifetime Allowance is effectively abolished. But unless the individual has previous personal protection, the tax free lump sum will be capped at £268,275 which is 25% of the current Lifetime Allowance.
- The income level for the tapered Annual Allowance will increase from £240,000 to £260,000
- And for those who have previously accessed pension pots, the Annual Allowance increases to £10,000.
Employment
National Insurance Contributions (NICs)
Most NIC thresholds and allowances will be frozen at current levels until April 2028, but Class 2 and Class 3 NICs rates for 2023/24 will increase to £3.45 per week and £17.45 respectively.
Minimum wage / Living Wage
The applicable rates from 1 April 2023 will be as follows:
- £10.42 for those 23 years old and over
- £10.18 for 21-22 year olds
- £7.49 for 18-20 year olds
- £5.28 for 16-17 year olds
- £5.28 apprentice rate for apprentices under 19, and those 19 and over in their first year of apprenticeship.
Taxable benefits for company cars for 2023/24
The rates of tax for company cars remain frozen until 2024/25. Future car benefit rates have been announced for 2025/26 to 2027/28:
- For 2025/26, the rates for emissions under 75gm/km increase by 1%.
- For 2026/27, the rates for emissions under 75gm/km increase by a further 1%.
- For 2027/28, the rates for emissions under 75gm/km increase by a further 1%.
The charge for electric cars will rise from 2% to 5% over that period.
For cars with emissions of 75gm/km and above, there will be a 1% rise in 2025/26 only, subject to a maximum of 37%.
From 6 April 2023 the figure used as the basis for calculating the benefit for employees who receive free private fuel from their employers for company cars is increased to £27,800.
Company vans
For 2023/24 the benefit increases to £3,960 per van and the van fuel benefit charge where fuel is provided for private use increases to £757. If a van cannot in any circumstances emit CO2 by being driven, the cash equivalent is nil.
Tax advantaged share option plans
The government is making some minor changes to the Enterprise Management Incentive (EMI) and Company Share Option (CSOP) schemes to make them more attractive.
Business
Corporation tax rates
The expected increase in the rate of corporation tax for many companies from April 2023 to 25% will go ahead. This means that, from April 2023, the rate will increase to 25% (on all profits) for companies with profits over £250,000. The 19% rate will become a small profits rate payable by companies with profits of £50,000 or less. Companies with profits between £50,001 and £250,000 will pay tax at a rate of 26.5% on profits in that band.
The £50,000 and £250,000 thresholds are split between all associated companies.
Capital allowances
The super-deduction regime, which gives a 130% enhanced first year allowance (FYA) to companies on the purchase of qualifying plant and machinery, comes to an end on 31 March 2023.
The Annual Investment Allowance (AIA) is available to both incorporated and unincorporated businesses. It gives a 100% write-off on certain types of plant and machinery up to certain financial limits per 12-month period. The limit has been £1 million for some time but was scheduled to reduce to £200,000 from April 2023. The government has announced that the temporary £1 million level of the AIA will become permanent and the proposed reduction will not occur.
The government has announced that “Full Expensing”, a 100% FYA, which allows companies to deduct the cost of qualifying plant and machinery from their profits straight away with no expenditure limit will be available between April 2023 and March 2026. However this will be of use mainly to large businesses as almost all owner managed business will already have their capital expenditure fully covered by the AIA.
Research and Development (R&D) relief
Generally R&D for SME’s will become less generous and more difficult to claim. Unfortunately HMRC believes that the relief has been abused and in addition to making these changes, HMRC is also increasingly investigating R&D claims already made.
For expenditure on or after 1 April 2023, the R&D additional deduction will decrease from 130% to 86% and the SME credit rate will decrease from 14.5% to 10%. However for larger businesses and SME’s not able to claim under the small companies regime, the Research and Development Expenditure Credit (RDEC) rate will increase from 13% to 20%.
A higher rate of SME payable credit of 14.5% will apply to loss-making SMEs which are R&D intensive. To be R&D intensive the ratio of the company’s qualifying R&D expenditure must be 40% or above the company’s ‘total expenditure’ for the period. This equates to a receipt of £27 for every £100 of R&D expenditure.
Other announced changes to the R&D regime include expanding qualifying expenditure to include the costs of datasets and of cloud computing. All claims for R&D reliefs will have to be made digitally and be accompanied by a compulsory additional information form. Companies will also need to notify HMRC that they intend to make a claim within six months of the end of the period of account to which the claim relates, generally if they have not made an R&D claim in the previous three years. These changes apply to claims in respect of accounting periods which begin on or after 1 April 2023 apart from the additional information form, which will be required for claims made on or after 1 August 2023.
The restriction to relief on overseas expenditure, designed to refocus support towards UK innovation, will now come into effect from 1 April 2024 instead of 1 April 2023.
Making Tax Digital (MTD) for income tax
It was announced in December that the mandation of MTD for ITSA would be delayed until April 2026, and that it would apply initially to businesses, self-employed individuals and landlords with income over £50,000. Those with income over £30,000 are due to be brought within scope from April 2027.
The government has also stated that it will review the needs of smaller businesses and landlords (those with turnover of less than £30,000) and look in detail at whether the MTD for ITSA service can be shaped to meet the needs of smaller businesses.
Investment Zones
An Investment Zones programme is being launched to encourage investment in 12 high-potential knowledge-intensive growth clusters across the UK. It is expected that eight sites will be in England and four across Scotland, Wales and Northern Ireland.
A five-year tax package will allow businesses located on special tax sites within Investment Zones to benefit from a number of tax reliefs including Stamp Duty Land Tax relief, enhanced capital allowances, structures and buildings allowances and secondary Class 1 NICs relief for eligible employers.
Freeports
Eight Freeports, including one in the Liverpool area, already exist in various locations in England.
Freeports are special areas within the UK’s borders where different economic regulations apply. They are part of the government’s work to ‘level up’ and boost economic activity across the UK. The aim is to create innovative hubs, boost global trade, attract inward investment, and increase productivity.
Seed Enterprise Investment Scheme
From April 2023, companies will be able to raise up to £250,000 of Seed Enterprise Investment Scheme (SEIS) investment, a two-thirds increase. To enable more companies to use SEIS, the gross asset limit will be increased to £350,000 and the age limit from two to three years. To support these increases, the annual investor limit will be doubled to £200,000.
VAT
The VAT registration and deregistration thresholds will not change until at least 1 April 2026, staying at £85,000 and £83,000 respectively.
Changes to VAT penalties and interest
For VAT periods starting on or after 1 January 2023, the default surcharge regime has been replaced by new penalties if a VAT return is submitted late or VAT is paid late. There are also changes to how VAT interest is calculated. The changes are as follows:
- VAT returns submitted late – late submission penalties will work on a points-based system. For each VAT return submitted late one penalty point will be imposed. Once a penalty threshold is reached, a £200 penalty will apply, with a further £200 penalty for each subsequent late submission.
- Late payment of VAT – the rate of penalty will depend on how late the payment is. However, to give businesses time to get used to the changes, HMRC will not be charging a first late payment penalty for the first year from 1 January 2023 until 31 December 2023, if the VAT is paid in full within 30 days of the payment due date.
- How late payment interest will be charged – for VAT periods starting on or after 1 January 2023, HMRC will charge late payment interest from the day the payment is overdue to the day the payment is made in full.
- Introduction of repayment interest – the repayment supplement was withdrawn from 1 January 2023. For VAT accounting periods starting on or after 1 January 2023, HMRC will pay repayment interest if they are late in making a refund.
Capital Taxes
Capital gains tax (CGT) rates
No changes to the current rates of CGT have been announced. This means that the rate remains at 10%, to the extent that any income tax basic rate band is available, and 20% thereafter. Higher rates of 18% and 28% apply for certain gains, mainly chargeable gains on residential properties, with the exception of any element that qualifies for Private Residence Relief.
The £1m lifetime allowance for Business Asset Disposal Relief remains in place.
CGT annual exemption
The government has announced that the capital gains tax annual exempt amount will be reduced from £12,300 to £6,000 from 6 April 2023 and to £3,000 from 6 April 2024.
Chargeable gains: separated spouses and civil partnerships
The current legislation applying to the transfer of assets between an individual and their spouse or civil partner provides that such transfers made in any tax year in which they are living together are on a no gain/no loss basis. Where spouses or civil partners separate, no gain/no loss treatment is currently only available in relation to disposals made in the remainder of the tax year in which they cease to live together. After that, transfers are treated as normal disposals for CGT purposes.
A number of changes are proposed to the rules that apply to transfers of assets between spouses and civil partners who are in the process of separating and no longer living together. These include the following:
- Separating spouses or civil partners will be given up to three years after the year they cease to live together in which to make no gain/no loss transfers.
- 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 will 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 percentage of the proceeds when that home is eventually sold will 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 changes are expected to apply in relation to a disposal made on or after 6 April 2023.
Inheritance tax (IHT) nil rate bands
The nil rate band has been frozen at £325,000 since 2009 and this will now continue up to 5 April 2028. An additional nil rate band, called the ‘residence nil rate band’ (RNRB) is also frozen at the current £175,000 level until 5 April 2028. A taper reduces the amount of the RNRB by £1 for every £2 that the ‘net’ value of the death estate is more than £2 million. Net value is after deducting permitted liabilities but before exemptions and reliefs. This taper will also be maintained at the current level.
Other matters
Back to work
Major themes in the Budget were getting people to enter work, increase their working hours and extend their working lives. These include numerous proposals detailed below.
Childcare
Working parents in England will be able to access 30 hours of free childcare per week, for 38 weeks of the year, from when their child is nine-months old to when they start school.
This will be rolled out in stages:
- From April 2024, all working parents of two-year-olds can access 15 hours per week.
- From September 2024, all working parents of children aged nine months up to three-years old can access 15 hours per week.
- From September 2025 all working parents of children aged nine months up to three-years old can access 30 hours free childcare per week.
Where parents need childcare for more than 38 weeks a year, they are able to spread their free hours entitlement over a higher number of weeks.
The government will substantially uplift the hourly rate paid to providers that deliver the existing free hours. It will also change the staff-to-child ratios for two-year-olds, moving from 1:4 to 1:5 and provide start-up grants for new childminders, including for those who choose to register with a childminder agency. Childminders who register with Ofsted will receive a start-up grant of £600, whereas those who register with a childminder agency will receive £1,200.
In addition, parents on Universal Credit childcare support will receive payment upfront when they are moving into work or increasing their hours, rather than in arrears. Also, the Universal Credit childcare cap will increase to £951 for one child (up from £646) and £1,630 for two children (up from £1,108).
Universal Credit claimants
Changes include:
- Increasing the Administrative Earnings Threshold, the minimum amount a person can earn without being asked to meet regularly with their Work Coach, from the equivalent of 15 to 18 hours of earnings at the National Living Wage.
- Expanding work search requirements.
- Strengthening the application of the Universal Credit sanctions regime, including additional training for Jobcentre Work Coaches to ensure they are applying sanctions effectively, including for claimants who do not look for or take up employment.
- Extending the Youth Offer until 2028, which will support young people looking for work.
For disabled people and those with long-term health conditions
The government is introducing measures to further help those who are not working due to long-term sickness but want to, with a focus on cardiovascular disease, mental health and musculoskeletal conditions as the leading causes.
Employing older workers
Older workers will be supported to work for longer and to return to work via changes to the pension rules, access to an enhanced digital midlife MOT and an expansion of the Jobcentre Plus midlife MOT offer, which provides in-person financial planning and awareness sessions for Universal Credit claimants aged over 50.
Get in touch
Please do get in touch if you have any queries about the implications the budget may have on you or your business on
T: 01625 669669 F: 01625 669880 E: info@harts-ltd.com
