Tax-Free Childcare: All You Need to Know
The Government offers a variety of tax schemes for families, but one of its lesser known is the Tax-Free Childcare ...
spring budget 2023 KEY TAKEAWAYS
15 March 2023
The Chancellor Jeremy Hunt delivered his first Spring Budget this lunchtime (Wednesday 15th March), proclaiming it to be ‘a budget for growth’.
The biggest headline? Perhaps that The Office for Budget Responsibility (OBR) forecasts the UK won’t be entering a ‘technical recession’ this year. But Jeremy reinforced the fact we need to remain vigilant for economic stability.
Many of the tax announcements were made in last year’s Autumn Statement, and so the tradition of announcing tax rates seems to have moved on. What stays the same though is the tax burden, which continues to be at the highest it’s been for 70 years.
As we do following every statement, our Fortus team have distilled the key headlines that may impact you and/or your business.
we won’t enter a technical recession…
The Office for Budget Responsibility (OBR) suggested the UK won’t enter a technical recession in 2023. It forecasts the economy will contract in the first quarter of 2023 by 0.4% and not grow in the second quarter, before growth returns for the remainder of the year.
Looking closely at the percentage points…
GDP will fall by 0.2% on an annual basis over 2023, but has been revised up by 1.2 percentage points compared to the OBR’s November forecast, before growing by 1.8% in 2024 and 2.5% in 2025.
Meanwhile, the OBR said inflation’s set to drop from 10.7% at the end of 2022 to 2.9% by the end of 2023. It means that, if correct, inflation peaked in October 2022 at 11.1%.
The OBR then expects inflation to fall to 0.9% in 2024 and to remain near 0% until mid-2026, before returning to the Bank of England’s 2% target by 2027-28.
increase to pension tax-free annual allowance
As much heralded, the pensions annual allowance has been increased from £40,000 to £60,000.
This means that up to £60,000 can be paid into a pension in a tax year with tax relief available on the contributions and no adverse pension tax charge.
This could potentially save additional income tax of £4,000 a year for higher rate taxpayers and increase the possibility of protecting your personal allowance, which is particularly important when the 45% tax rate will be charged on those earning £125,140 (down from £150,000).
The tapered annual allowance, which affects very high earners, will also rise by the same amount, whilst the ‘adjusted income’ threshold used to determine when the taper kicks in will increase by £20,000, from £240,000 to £260,000.
The maximum tax-free cash someone can take will be frozen at the current level of £268,275 as part of the reforms.
The removal of the allowance also showcases the Inheritance Tax (IHT) benefits of building up a large pension pot – money held in a pension sits outside the estate on death and therefore it’s not subject to the 40% IHT rate.
pension lifetime allowance abolished (from 2024)
The lifetime cap on the amount workers can save in their pensions without paying tax has been abolished (effective 2024 onwards).
The lifetime allowance for tax-free pension savings was £1.07m and the rumours were that it’d be increased to £1.8m for 2023/24, but much to our surprise Hunt’s scrapped it altogether from 2024.
Any excess over £1.07m would’ve been taxed at 55% if you took a lump sum, or 25% if taken any other way. So, by removing the lifetime allowance, this tax charge will no longer apply.
The Chancellor said he was primarily encouraging doctors, who have for many years been impacted by the tax rules on their pension contributions, to remain working. However, the reality is, everyone can potentially benefit from this change – not just doctors.
new ‘full expensing’ investment allowance
Hunt said he wants the UK to have ‘the most pro-business, pro-enterprise tax regime anywhere’.
So, he’s introducing a new investment allowance which he says will offset the Corporation Tax rise. This scheme replaces the enhanced reliefs for investments in new capital spending which was introduced during the Covid pandemic.
Every pound invested in IT equipment, plant or machinery, can be deducted straight away from taxable profits, rather than over several years. This will be in place from 1st April 2023 to 31st March 2026, but the Chancellor’s long-term ambition’s to make full expensing permanent.
The Office for Budget Responsibility (OBR) says it’ll increase business investment by 3% every year, and Hunt shared the UK will be the only European country with full expensing like this, making it more attractive for a company to invest in new buildings and/or new machinery.
There were no other imminent changes affecting personal taxes, but it’s worthwhile noting the changes from the Autumn Statement which will be coming into effect.
pressing ahead with corporation tax rise
As announced in the Autumn Statement, Corporation Tax will rise to 25% from 19%, but only 1 in 10 businesses will actually pay the full amount. Many companies will continue to pay tax at the current rate of 19%.
Even with the Corporation Tax rise, the UK will have the lowest headline rate in the G7.
Here’s a reminder of the changes to Corporation Tax and the super-deduction for capital allowances.
new scheme for ‘r&D intensive‘ smes
To make the UK the best place in the world to start and grow a business, the Chancellor announced a new R&D scheme for 20,000 SMEs in the UK which comes into play from 1st April 2023.
The R&D scheme’s targeted at loss-making R&D intensive SMEs, with focused support towards those most impacted by the rate changes introduced at Autumn Statement 2022.
A ‘R&D intensive’ SME is a business where its qualifying R&D expenditure’s worth 40% or more of its total expenditure. Eligible companies will be able to claim £27 from HMRC for every £100 of R&D investment, instead of £18.60 for non R&D intensive loss makers.
ongoing r&D tax relief review
The government’s consultation on merging the R&D Expenditure Credit (RDEC) and SME schemes closed on 13th March – they’re currently considering the responses but a decision’s not yet been made. The intention’s to keep the option open of implementing a merged scheme from April 2024.
We’ll see draft legislation on a merged scheme for technical consultation alongside the publication of the draft Finance Bill in the Summer, with a summary of responses to the consultation. Any further changes as part of the ongoing R&D tax reliefs review will be announced at a future fiscal event, including a final decision on whether to merge the RDEC and SME schemes.
R&D tax reliefs: Delay to restrictions on overseas expenditure
The previously announced restriction on some overseas expenditure will now come into effect from 1st April 2024 instead of 1st April 2023. This will allow the government to consider the interaction between this restriction and the design of a potential merged R&D relief.
It’ll mandate that companies must inform HMRC of their intention to make a claim for R&D tax relief using a new digital form.
It’ll also require companies to provide an additional digital information form with their claims, supporting HMRC’s compliance work. This requirement, only, will apply to all claims made on or after 1st August 2023.
what about vat?
Services supervised by pharmacists – The government will extend the VAT exemption on healthcare to include medical services carried out by staff directly supervised by registered pharmacists. This simplification will take effect from 1st May 2023 and will ensure the VAT system keeps up with changes on how the NHS operates and is in line with the government’s commitment to ease the pressure on GP services.
VAT treatment of Patient Group Directions – The government will extend the zero rate on prescriptions to medicines supplied through Patient Group Directions. The proposed change would reduce costs for the NHS, ensure the tax system keeps pace with changes to healthcare delivery, and is in line with the government’s commitment to ease the pressure on GP services.
VAT and Deposit Return Schemes – The government will legislate to simplify the VAT treatment of deposits charged under a deposit return scheme for drinks containers. This ensures that, where a deposit’s charged on a drink that’s within the scope of a deposit return scheme and the container’s returned for recycling, VAT will not be applied to the deposit amount. Where the container isn’t returned for recycling, HMRC will collect the VAT on the unredeemed deposit.
VAT DIY Housebuilders Scheme Digitisation Project – The government will legislate to digitise the DIY housebuilders’ scheme and also extend the time limit for making claims from 3 to 6 months. These measures should improve the overall customer experience and reduce the administrative burden for claimants and HMRC.
childcare support
The chancellor announced new measures for parents, with more than £4.1bn of spending by 2027-28 to fund 30 free hours per week for working parents with children aged 9 months up to 3 years in England. The Chancellor said it’ll reduce childcare costs by around 60%.
energy bill support extended
To ease the cost-of-living crisis and address added pressure on family finances, the government’s extending its Energy Price Guarantee (£2,500 for the typical household) until June 2023. This will save the average family a further £160 on top of support measures already announced.
Those on pre-payment meters, who typically pay more than those on direct debits, will have their charges brought in line with comparable direct debit charges.
isas
Nothing new here. The annual allowances for ISAs remains at £20,000 for cash and stocks & shares ISAs, and £9,000 for a junior ISA.
duties – fuel & alcohol
Fuel duty’s frozen, with the 5p cut extended for another year.
Alcohol taxes are also frozen until August 2023 when they’ll rise in line with the retail prices index.
How the Spring Budget impacts you
With the above updates in mind, we can help you review and re-assess your personal and/or business’s tax planning.
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