Snapshot of the Spring Budget 2023
Chancellor Jeremy Hunt delivered a ‘Budget for Growth’ after the Office for Budget Responsibility forecast a stronger than expected performance from the UK economy this year with inflation continuing to fall. What will this mean to your business?
Super Deduction Tax
To support the economy in response to coronavirus, the government introduced the ‘Super Deduction’ in April 2021 allowing companies investing in qualifying new plant and machinery assets to claim enhanced capital allowances up to 130%.
The Chancellor announced the replacement of the Super-Deduction Scheme with full expensing (a 100% First Year Allowance on qualifying new main rate plant and machinery investments) introduced between 1 April 2023 and 31 March 2026, with an ambition to make this permanent. Companies investing in special rate (including long life) assets will also benefit from a 50% first-year allowance in the year of investment.
Full Expensing is only available to incorporated businesses, meaning unincorporated businesses will revert to the £1m Annual Investment Allowance scheme, meaning investment in qualifying assets under this amount can be fully written down against taxable profits in the year of investment.
The government hopes to make the full expensing rules permanent when fiscal conditions allow. Under full expensing, for every pound a company invests, their taxes are cut by up to 25p.
So, it was good news for those businesses looking at capital investment and gives more certainty for the longer term.
Corporation tax will increase from 19 per cent to 25 per cent from April. The impact of the tax rise will hit businesses with profits of more than £250,000. Companies with profits of between £50,000 and £250,000 will get some relief. And for small businesses making profits of less than £50,000 there will be no change. Even though the UK has the lowest corporation tax rate in the G7, even after the April’s rate rise, the impact of this could be that the UK will be seen as a less attractive location for international businesses.
Research and development intensive SME’s
The Chancellor has announced a partial softening on measures to slash R&D tax credits for small businesses. In the Autumn Statement, the Chancellor reigned-in a scheme which allowed start-ups to claim back taxes from their research spending.
Now businesses in the most high-tech sectors, including fintech and artificial intelligence, which invest up to 40 per cent of their spending in R&D, will continue to receive an enhanced tax credit worth an extra £27 for every £100 spent.
In his Budget, the Chancellor confirmed the reduction that was introduced in March 2022 will continue for another 12 months. The Chancellor also confirmed fuel duty is not going to increase in line with inflation. This is some good news for businesses with high fuel costs, although the continual cost of this compared to previous years means it will remain a high concern for many companies.
Recruiting & Retaining Staff
One of the ongoing issues for many SMEs has been the ability to recruit and retain staff. The Chancellor announced some measures to support with this, including:
● Helping disabled and people on long term sick to get back into work.
● Support specifically for carers, welfare recipients and people with special educational needs
● Ways to help over 50’s remain in work. One of the headlines of this was ‘Returnships’ – an apprenticeship scheme aimed at this older demographic, but also announced a mid-life MOT strategy through the Department of Work and Pensions, and as a financial incentive to work longer, abolishing the lifetime pension allowance and raising the annual pension allowance to £60,000 per year.
● For parents, additional childcare support for very young children to allow newer parents to come back to work quicker.
There was no further help for businesses announced to tackle high energy costs. The only announcements on energy were:
● The extension to the climate change agreement scheme helping to reduce energy costs for companies in eligible industrial sectors by offering discounts to participating business on their Climate Change Levy (CCL).
● A series of announcements from Mr Hunt around gaining energy independence including measures for carbon capture and storage and nuclear energy.
Whilst many of these things will be welcomed by businesses, the rise in Corporation Tax and current high fuel prices will remain a big concern.
We are helping many businesses navigate the current economic uncertainty, in ways that include tax funding options, managing cashflow and business planning, and can help outline the implications and opportunities surrounding the new ‘Full Expensing’ offering that replaces the ‘Super Deduction Tax’ that ends on 31st March 2023