Chancellor Jeremy Hunt delivered his first full Budget on 15 March 2023 against the backdrop of a fluctuating economic landscape.
The Chancellor believes that this is a Budget which will deliver growth for UK Plc in the short to medium term, but we will leave it to the economists to trawl through the data to see how realistic that is. This was certainly a return to a more traditional Budget, with a raft of detailed measures which are tinkering with large areas of the tax legislation.
Our primary focus for the Budget as ever, is understanding the likely impact on our clients, whether they are individuals, businesses, charities, or other organisations.
The main headline changes had partly been leaked in advance, such as the impact of pensions, the provision of childcare, and capital expenditure for larger businesses.
The pension changes are a little unusual, as the pressure for the change has been brought about by a relatively small subset of workers, being those in the NHS who are in final salary schemes.
A significant number of NHS doctors and consultants have been retiring early, and it is believed that the main driver has been the, sometimes swingeing, tax charges that these individuals can incur in the later years of their careers due to the interaction of final salary schemes and the annual input allowance and lifetime limits.
The Chancellor announced the complete abolition of the lifetime limit (currently circa £1m), plus the annual input allowance will be increased from £40k to £60k per annum, which he hopes will completely remove the pensions tax-related motivation for early retirement.
The abolition of the lifetime limit will be a welcome change for other taxpayers as well, both in terms of encouraging future saving into pensions and also removing the complexity of the lifetime limits, and the various levels of protected limits that some taxpayers have had to claim over the years.
Whilst the pension input allowance has increased to £60k, it will still be subject to an annual earnings cap, though it has been increased from £240k to £260k. The impact of the cap means that from April 2023 if a taxpayers’ adjusted income is over £380k, their maximum pension contributions in that tax year will be £10k. If their income is between £260k and £380k the maximum contribution will be somewhere between £60k and £10k on a reducing scale.
The extension for costs of childcare will extend from 9 months old to the start of school. The changes are being phased in, so the main cost of these measures will not be felt by the treasury until after the next general election.
The main tax giveaway of the Budget was targeted at the 1% of businesses that invest more than £1m a year in capital expenditure. A new uncapped 100% expense deduction will be available for any capital expenditure incurred between April 2023 and March 2026 that would ordinarily fall into the main pool for capital allowance purposes. A 50% expense deduction will be available for similar costs that fall into the special rate pool. These measures will soften the impact of the 25% corporation tax rise that will apply from April 2023 to more profitable businesses.
On the Corporate Tax side, the changes to Capital Allowances mentioned above, R&D tax reliefs, and Corporate Interest Restriction look particularly interesting.
For income tax, other than pensions there appeared to be little of immediate impact, however, the government launched a consultation on the future direction of income tax administration and PAYE administration for employers, which we will be following with interest.
The changes to tax-approved share schemes, both EMI and CSOPs, look largely welcome and certainly may increase the take up of CSOPs.
Our tax specialists will be analysing the tax changes over the days and weeks ahead and we will be contacting clients to explain how any measures impact them.
Please look out for our detailed Budget summary, which we will be sharing with you very soon.
If you have any questions about the Budget and how it impacts you or your business, please don’t hesitate to get in touch.