Sean Wiegand – Budget 2023 comments

I listened to Jeremy Hunt’s statement today wondering if there would be any surprise announcements. It seems to me that gone are the days where you find out on Budget day the changes that are going to be made, as most of them are leaked in the build up to the Budget and this certainly was the case this week.   

Mr Hunt confirmed the expected economic growth over the next few years and we are led to believe that we will miss a technical recession this year. What was encouraging to hear was the expectation of inflation to fall to 2.9% by the end of 2023 compared to 10.7% in the last quarter of 2022. We can but hope that reality falls in line with this prediction.

The main announcements which hit the headlines were as follows:

Pension Contributions:

The annual pension contribution allowance has been increased from £40,000 to £60,000 per annum from April 2023 along with the proposed removal of the lifetime allowance which is currently at £1.073m. The number of people the lifetime allowance really effects is minimal in my opinion, but if it encourages good doctors and consultants to work rather than take early retirement, then that can only be a good thing. People will retire for a variety of reasons but I believe it is correct to try and ensure retirement is not due to tax reasons. 

Business Tax:

Corporation Tax is increasing to 25% on profits over £250,000. Subject to associated company rules the lower rate of 19% remains for profits up to £50,000, but this does create a marginal rate of tax on profits from £50,000 to £250,000 of 26.5%. This needs to be considered when businesses undertake tax planning.

The Chancellor has announced a new measure for full capital expensing for three years in respect of IT and plant & machinery investment. I believe this to be a good thing but we need to consider the small print to see if there are restrictions, like those relating to the 130% deduction which comes to an end on 31 March 2023. For many owner-managed businesses, this announcement will make no difference as the Annual Investment Allowance was already enough to provide the equivalent of full capital expensing.

Childcare

I am pleased with the efforts to provide free childcare where both parents work at least 16 hours per week. This is to be a phased rollout with 15 hours per week being awarded to 2 year olds in April 2024, 15 hours for all children from 9 months in September 2024, increasing to 30 hours in September 2025. I have heard comments like why does it not start now? In my experience nurseries are already busy. This announcement is likely to cause a shift in demand and time is needed to build a supply chain that can cope with this demand.

I have heard the owners of nurseries say that the money received from government for free childcare hours barely covers the costs of providing them. There was a comment by the Chancellor around funding and so I do hope the announcement above is financially viable for the nurseries to run.

There is currently a rule that if either parent earns more than £100,000, the 30 hours free childcare is not available. I suspect this will be the case under the new plans and so it may not be all children that get 30 hours free childcare from 9 months of age.

Previous announcements

We must remember Mr Hunt’s Autumn Statement which needs to be considered at the same time as there were several announcements which will start to apply in April 2023. These were as follows:

• Lowering of the additional rate (45%) tax starting rate from £150,000 to £125,140.
• Freezing of the personal allowance, basic rate and higher rate thresholds until 2028. With inflation as high as it is, where pay rises are awarded you may be pushed into higher rate tax when you was not before.
• The £2,000 tax-free dividend allowance is being reduced to £1,000 in April 2023 and then £500 in April 2024.
• Every individual’s capital gain allowance of £12,300 is being slashed to £6,000 in April 2023 and then £3,000 in April 2024.
• Electric cars will no longer be exempt from road tax from April 2025 and the company car benefit will increase 1% each year for 3 years from April 2025.
• Business National Insurance Contributions starting threshold is frozen until April 2028. In addition the business employment allowance towards the national insurance cost is frozen at £5,000.
• The VAT threshold where businesses’ must register to charge VAT will remain at £85,000 until March 2026.

 If you have any questions regarding the Spring Budget 2023, please get in touch with your local Lambert Chapman contact on 01376 326266