Chancellor Jeremy Hunt billed his Budget yesterday as a ‘Budget for Growth’, expanding upon and introducing new measures to support his ‘four pillars of industrial strategy’: Enterprise, Employment, Education and Everywhere.
His position was eased by the Office for Budget Responsibility (OBR) forecasting a stronger than expected performance from the UK economy this year, with inflation continuing to fall, although growth forecasts for later years have been revised down.
Measures announced under these four pillars included:
Enterprise – full expensing (aka 100% first year allowance) of main rate plant and machinery (and 50% first year allowance for long life assets and integral features) for companies for three years (but the increase in the main rate of Corporation Tax to 25% from 1 April 2023 remains).
Employment – 50% increase in pensions Annual Allowance and scrapping of Lifetime Allowance (but restriction of 25% tax free lump sum) – it is hoped that this will incentivise doctors and other highly-skilled workers to remain in the labour market.
Education – major extension of free childcare (phased in), to reduce the barriers to work for parents.
Everywhere – twelve Investment Zones to be established.
As high energy costs continue, the Chancellor extended the Energy Support Guarantee at £2,500 for another three months while fuel duty was frozen once more.
The improvement in the OBR forecasts for the near term enabled him to fund these measures without having to increase borrowing – the OBR now expects the economy is to contract by only 0.2% this year rather than 1.4%. As the Institute for Fiscal Studies noted, he chose to spend the extra money he had in these ways rather than, say, to better fund public sector pay deals to end the ongoing series of strikes. Some commentators have also lamented the lack of action of housing and climate change.
The UK has had a long-standing problem with low growth in the economy since the time of the financial crisis of 2007. A major part of that is due to low levels of productivity growth, so measures to encourage business investment make sense. Businesses will welcome the changes to capital allowances as a replacement for the capital allowances super-deduction scheme, which ends on 31 March 2023. However, the limited three-year period may not be long enough (relative to the periods businesses plan for) to make much difference, except perhaps to bring forward planned investment.
Personal and Employment Taxes
- Income Tax – basic rate of income tax remains at 20% indefinitely.
- Income Tax – the personal allowance and basic rate band for Income Tax are frozen until 2027/28.
- Income Tax – the 45% additional rate of income tax is retained and the point at which it starts is lowered from £150,000 to £125,140 from 6 April 2023.
- Taxes on dividends – remain at current rates (so retain the increase by 1.25% from April 2022) and the Dividend Allowance falls (from £2,000 to £1,000 from April 2023 and to £500 from April 2024).
- National Insurance Contributions – thresholds frozen from April 2023 until April 2028 (but Class 2 and Class 3 NICs rates are uprated).
- Pensions – increase in pensions Annual Allowance from £40,000 to £60,000 and scrapping of Lifetime Allowance, but capping of 25% tax free lump sum.
- Corporation Tax (currently 19%) – as announced in March 2021 this will increase to 25% from April 2023 for companies with profits over £250,000 (19% small profits rate still applies for profits up to £50,000; there is tapering between the two limits).
- Capital allowances – 100% first year allowance for main rate plant and machinery and 50% first year allowance for long life assets and integral features for companies for three years from 1 April 2023, replacing super-deduction scheme which ends 31 March 2023.
- Research and Development – the Research and Development Expenditure Credit (RDEC) rate increases from 13% to 20%, but for small and medium-sized enterprises (SME), the SME scheme additional deduction decreases from 130% to 86% and the SME credit rate will decrease from 14.5% to 10%, except for loss-making SMEs which are “R&D intensive” (these retain the 14.5% credit rate) – changes apply to expenditure on or after 1 April 2023.
- Making Tax Digital for Income Tax – deferred again until April 2026.
- Investment Zones programme.
- Capital Gains Tax annual exempt amount will be reduced from £12,300 to £6,000 from April 2023 and to £3,000 from April 2024.
- Inheritance Tax nil-rate band and residence nil rate band frozen until April 2028.
- Major extension of free childcare (phased in).
- Other proposals seeking to increase the labour force.
If you have any questions regarding the information covered in this summary, or would like advice on a particular area, please get in touch with either your usual contact or any of the UNW Tax partners. Contact details can be found on the final page of this summary PDF.