On Wednesday last week, the Chancellor of the Exchequer, the Rt Hon Jeremy Hunt MP, delivered his long-awaited Spring Budget speech. His stated underlying aim is to keep the economy and household finances stable.
The Budget set out a number of tax measures designed to drive enterprise through boosting investment, support employment by incentivising work and spread the benefits of economic growth across all sectors of the economy. The Chancellor also announced a range of administrative changes to make it easier for small businesses to interact with the tax system along with planned consultations to pave the way for future reform.
Further information on all of the measures announced can be found here, however, we have pulled together some of the key highlights and their impact for individuals, the self-employed and businesses in this blog.
- Personal tax allowances: remains frozen at £12,570 and the basic rate band at £37,700 until 5 April 2028. This freeze also applies to the thresholds for National Insurance contributions and Inheritance Tax. There will be a cut in the threshold at which the 45% additional rate of income tax applies from £150,000 per year to £125,140.
- Pensions Life Time Allowance (LTA) and increase to the Annual Allowance: Abolishment of the LTA (limit of savings over £1.07m) and an increase in the Annual Allowance, the annual limit on tax-relieved pension savings, from £40,000 to £60,000. These changes which take effect from April 2023 however are only going to impact a small percentage of the overall population.
- Dividend tax: Dividend threshold to drop from £2,000 to £1,000 next year, then to £500 from April 2024. This reduction in the dividend allowance to £500 will mean that people who have never completed a tax return before will need to register and complete a tax return to pay this additional tax.
- Capital Gains Tax (CGT): allowance halved in 2023-2024 from £12,300 to £6,000 then lowers to £3,000 from April 2024 (as announced in 2022 budget statement). Tighter rules will be introduced around reporting and disclosure of disposal of assets to HMRC to allow them time to assess tax due on such capital gains.
- Corporation Tax rate changes: will increase from 19% to 25% from April 2023. This increase will hit businesses with profits of more than £250,000. Companies with profits of between £50,000 and £250,000 will get some relief. For smaller businesses making profits of less than £50,000 there will be no change. · Capital allowances – full expensing: the government is introducing full-expensing which will allow companies to claim 100% of the cost of certain plant and machinery against profits in the year of expenditure, effective from 1 April 2023 to 31 March 2026. Be aware that this allowance has exclusions such as cars and items classed as integral features within buildings.
- Additional tax relief for R&D intensive SMEs: from 1 April 2023 an increased tax credit of 14.5% will be available for 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.
- Fuel Duty: frozen. Normally fuel duty increases by inflation each year. However, the cut in the rates of Fuel Duty introduced at Spring Statement in March 2022 will be extended for a further 12 months.
- Alcohol Duty: the government will legislate in the Spring Finance Bill 2023 for a new structure for alcohol duty. Duty rates under the revised structure on all alcoholic products produced in, or imported into, the UK are being increased in line with the Retail Price Index (RPI).
- Childcare: parents of children aged nine months to three years will be offered 30 hours a week of free childcare in term time – as long as both parents are working at least 16 hours a week. The change will be phased in gradually until fully implemented by September 2025.
- Energy: the energy bill price cap increase is going ahead in April. This means businesses will receive a discount on wholesale prices of gas and electricity rather than a fixed price. There is also an extension of the household energy support scheme to June 2023. The Energy Price Guarantee will be kept at £2,500 for an additional three months from April to June, saving a typical household c. £160.
- Back to Work Incentives: the introduction of new ‘returnerships’ providing flexible skills training for the over-50s, which takes account of previous experience. This new programme will run alongside existing skills boot camps and sector-based work academies.
What will be the impact on my business?
Whilst the Spring Budget has been welcomed by many for the incentives introduced, small businesses will continue to feel the burden, in particular with the cost of energy continuing to be the biggest threat to them. If you need help to understand how changes announced in the Spring Budget will impact your business and want support to plan for them, please get in touch.
At First Call Ffinancials we provide cost-effective, professional accountancy advice to small businesses across a range of sectors.
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This post was written by Steph Roffey