Wednesday, March 29th, 2023
Here at Copia Wealth & Tax, your Wolverhampton tax experts, we believe the main focus of the Budget was on managing inflation and government debt, encouraging people who have left the job market to return to work and also increasing business investment.
The Chancellor resisted pressure from his own MPs to reduce taxes, no doubt saving this up for the Budget prior to the next election (or are we just being cynical?).
Key points to note and their implications are set out below:
The current £40,000 cap on annual pension contributions that qualify for Income Tax relief is being increased to £60,000 from 6 April 2023. The current Lifetime Allowance on pension pots is being abolished completely. Both changes are intended to incentivise older employees who might now continue in work and top up their pension too.
Also, the Money Purchase Annual Allowance increases from £4,000 to £10,000, with the minimum Tapered Annual Allowance increasing from £4,000 to £10,000 from 6 April 2023. Furthermore, from 6 April 2023, the adjusted income threshold for the Tapered Annual Allowance increases from £240,000 to £260,000.
This creates planning opportunities in terms of reducing the taxable profits in your business with increased pension contributions that will attract corporation tax relief, especially timely with the forthcoming increase to corporation tax rates. Pension pots also remain a useful way to reduce inheritance tax exposure. The only note of caution is that the Labour party has vowed to reinstate the Lifetime Allowance if they get back into power.
Childcare support in England is being expanded to include children from the age of 9 months and above. There will eventually be 30 hours of free childcare for every child over 9 months; support is being phased in with the effect that from September 2025, every single eligible working parent of under-fives will get support.
This phased introduction means 15 hours of free childcare for working parents of 2-year-olds with effect from April 2024 and 15 hours of free childcare for working parents of children older than 9 months from September 2024.
In addition, parents in receipt of Universal Credits who are also employed will receive financial support including an upfront payment for childcare costs. The maximum claim will also be increased to £951 for one child and to £1,630 for two children which is an increase of around 50%.
This is another incentive to get individuals back to work but will be dependent on the childcare sector being able to ramp up to meet the additional demand. This could prove problematic given that many nurseries have been closing down due to very high running costs.
There was also a significant increase in the tax allowances available to foster carers, in an attempt to make the profession more attractive, as, unfortunately, there remains a significant shortage of carers compared to existing demand.
The Energy Price Guarantee cap of £2,500 will be extended until 30 June 2023. This means that a typical household may now pay on average £3,000 a year (an increase of £500) from 1 July 2023 as opposed to from 1 April 2023 as previously announced.
The Energy Price Guarantee premium that over 4 million households pay for their prepayment meter is also being adjusted, bringing their charges into line with comparable customers who pay by direct debit.
The proposed 11p rise in fuel duty will be cancelled thus maintaining last year’s 5p cut for another 12 months.
Draught Relief has also been extended from 5% to 9.2%, so that the duty on an average draught pint of beer served in a pub, from 1 August 2023, will be up to eleven pence lower than the duty in supermarkets to help out the pubs/bars sector.
One major announcement that will help reduce the impact of the forthcoming increase in Corporation Tax from April 2023 is that companies will be able to “fully expense” the purchase of any qualifying plant and other equipment.
This includes spending on items such as.
Qualifying purchases can effectively be entirely written off against company taxable profits.
This policy will be introduced from 1 April 2023 until 31 March 2026, coinciding with the cessation of the super-deduction scheme. Timing of capital expenditure needs to be considered, balancing the use of the super-deduction scheme whereby 130% of the cost of new equipment can be recovered against the impact of rising corporation tax rates from 1 April 2023 when full expensing policy kicks in.
Annual investment allowance will, as previously announced, be retained for up to £1m of annual capital expenditure.
This current allowance allows a 50% deduction of the cost of other plant and machinery, known as special rate assets, from their profits during the year of purchase e.g. long-life assets including solar panels and thermal insulation on buildings.
This 50% FYA which was due to end on 31 March 2023, will now be extended by three years to 31 March 2026. For each year following the first, 6% of the remaining cost will be written off as Writing Down Allowances (WDAs). There was a long-term commitment to make FYA permanent.
Through changes to R&D tax credits, there is now a new £500 million per year support package for 20,000 research and development (R&D) intensive businesses. The scheme is targeted specifically at loss making R&D intensive SMEs and pushes support towards those most impacted by the rate changes introduced in the Autumn Statement 2022.
To qualify, a company must be R&D intensive, that is, its qualifying R&D expenditure must be worth 40% or more of its total expenditure. Any eligible loss-making companies can now claim £27 from HMRC for every £100 of R&D investment – this compares to £18.60 for non-R&D intensive loss makers.
The Chancellor confirmed that the main rate of corporation tax will rise from 19% to 25% on 1 April 2023 (for profits over £250,000), but the small profits rate will stay at 19%. (For profits up to £50,000).
As we have previously pointed out, the effective marginal rate of corporation tax will be 26.5% on profits in the marginal relief band between £50,000 and £250,000. Note that this marginal band can start at a much lower level of profits where there are associated companies involved, or where an accounting period is less than 12 months.
It is worth considering whether there are any associated companies that can be eliminated and looking at ways of reducing taxable profit to below £50,000, for instance with additional employer pension contributions.
Probably not a Budget that will live long in the memory, but, as usual, the devil is in the detail and there are some planning opportunities to look at around the use of pension contributions, the timing of capital expenditure, and levels of taxable profit. We always believe that tax planning can result in real savings for you and your business, and we are always here to help our clients as and when required.
To understand more about the impact of these changes on you and/or your business or to get some solid advice on how to effectively manage your way through them, call our professional team here at Copia Wealth & Tax Ltd, Wolverhampton on 01902 783172 and speak with one of our friendly experts.
Alternatively, just click HERE to contact us via our website and we will be in touch.
We look forward to hearing from you.