On 15 March 2023, Chancellor Jeremy Hunt presented his first Budget. Below we set out some of the main points.
COST OF LIVING SUPPORT
Energy Costs
The Energy Price Guarantee (EPG) has been extended by 3 months to 30th June 2023, before increasing to £3,000 until the end of the EPG period on 31 March 2024. This extra 3 months at £2,500 will be worth £160 for a typical household.
A new scheme for businesses, charities and the public sector has been confirmed and will run until 31 March 2024, giving non-domestic customers discounts on their gas and electricity bills.
Childcare
Additional support is being provided towards childcare costs in what the government describe as a ‘childcare revolution’. This includes 30 hours of free childcare for every child over the age of 9 months, with support being phased in until every eligible working parent of under 5s gets this support by September 2025.
For Universal Credit claimants, the government will also pay childcare costs in advance rather than arrears, when parents move into work or increase their hours. The maximum they can claim will also be boosted to £951 for one child and £1,630 for two children, an increase of around 50%.
Benefits and State Pension
As confirmed at Autumn Statement 2022, the government will also increase benefits, including the State Pension, paid to recipients in the tax year to 5 April 2024 by 10.1%.
This increase in the State Pension means that most pensioners will receive £10,600 in 2023/24, where they have 35 qualifying years. Individuals are being urged to check their contribution record on their Government Gateway account and consider making Class 3 voluntary National Insurance (NI) contributions in respect of missing qualifying years. Until 31 July 2023, it is possible to go back as far as 6 April 2006 and pay additional contributions at the 2022/23 Class 3 rate of £15.85 per week.
INCOME TAX
Increasing liabilities
The personal allowance and basic rate band threshold are now frozen in place until 5 April 2028.
| Band | Taxable Income | Tax rate in 2023/24 | ||
| Other income | Savings income | Dividend income | ||
| Personal allowance | Up to £12,570 | 0% | 0% | 0% |
| Basic rate | £12,571 – £50,270 | 20% | 20% | 8.75% |
| Higher rate | £50,271 – £125,140 | 40% | 40% | 33.75% |
| Additional rate | Over £125,140 | 45% | 45% | 39.35% |
Other allowances
Savings income continues to benefit from a personal savings allowance of £1,000 for basic rate taxpayers and £500 for higher rate taxpayers. Dividend income attracts a £1,000 dividend allowance in 2023/24, down from the £2,000.
Pension tax relief
The current pension lifetime allowance (LTA) charge is being abolished from 6 April 2023. Individuals may be able to receive 25% of their pension savings as a tax-free lump sum when they become entitled. This is currently capped at 25% of the LTA and going forwards, for most, will remain capped at £268,275.
The Annual Allowance (AA) will increase from £40,000 to £60,000 from 6 April 2023. The AA applies to the combined pension input by the individual and, in the case of employees, their employer. Pension contributions in excess of the AA result in a tax charge on the individual.
The taxation rules for pensions are complex as there have been numerous changes in recent years so please talk to us about your pension contribution strategy.
Tax Efficient Savings
There were no changes to the annual limits for Individual Savings Accounts (ISAs), Child Trust Funds or the Junior ISA. These limits remain at £20,000, £9,000 and £9,000 respectively.
CAPITAL GAINS TAX
The £12,300 annual tax-free capital gains tax exemption (or allowance) will be reduced to just £6,000 in 2023/24 and only £3,000 in 2024/25. This change will mean that those disposing of capital assets will pay more tax, where the new lower allowance is exceeded.
Couples who are in the process of separating, or who have commenced divorce proceedings, need to be aware of new rules taking effect from 6 April 2023.
If you are planning any capital disposals, please contact us to discuss the best strategy for the disposal.
INHERITANCE TAX
In the 2023 Autumn Statement, the inheritance tax nil rate band was frozen at £325,000 until April 2028. The residence nil rate band will also remain at £175,000 and the residence nil rate band taper will continue to start at £2 million.
VAT
The VAT registration and deregistration thresholds continue to be frozen at £85,000 and £83,000 respectively, instead of increasing each year in line with inflation. This will remain the case until March 2026.
BUSINESS TAXES
National Insurance Contributions (NIC) for the self-employed in 2023/24
Self-employed individuals are required to pay Class 2 and Class 4 NICs if their profits exceed £12,570. These NICs are usually collected with the individual’s income tax self-assessment payments.
For 2023/24, Class 2 NICs are calculated at £3.45 per week and Class 4 NICs are calculated at 9% on profits between £12,570 and £50,750, and at 2% on profits over £50,750.
Tax Relief for expenditure on plant and machinery
The Annual Investment Allowance (AIA), giving 100% tax relief to unincorporated businesses and companies investing in qualifying plant and machinery, is now permanently set at £1million.
The super-deduction, which gives enhanced 130% relief for new qualifying plant and machinery acquired by companies, will end on 31 March 2023.
As a replacement for the super-deduction, ‘full expensing’ (effectively 100% tax relief, called a ‘First Year Allowance’ (FYA)) will be available to companies incurring expenditure on new qualifying plant and machinery between 1 April 2023 and 31 March 2026
The separate 100% FYA for electric vehicle charge points remains available for unincorporated businesses and companies until Spring 2025.
CORPORATE TAXES
New rates from 1 April 2023
From 1 April 2023, the rate of Corporation Tax will increase to 25% if a company’s profits exceed £250,000 a year. The current 19% rate will however continue to apply where profits are no more than £50,000 a year.
Where a company’s profits fall between £50,000 and £250,000 a year, the profits are taxed at the higher 25% rate, but a ‘marginal relief’ is given to reduce the liability, with the effective rate being closer to 19% for those with profits just over £50,000.
From 1 August 2023, additional information requirements will need to be fulfilled when making a R&D claim.
Creative industries tax reliefs
The government continues to support the creative industries by reforming and enhancing film, TV and video games tax reliefs. The government will also extend the temporary higher rates of theatre, orchestra, and museums and galleries tax reliefs for 2 further years until April 2025.
EMPLOYMENT TAXES
National Insurance Contributions (NICs)
Like the main income tax bandings, employer and employee NIC thresholds are now also frozen until 5 April 2028.