Jeremy Hunt has presented his first full Budget since becoming Chancellor. Much of the detail was hidden away in the accompanying Budget supporting documents and we won’t know the full details/implications until the Finance Bill is published sometime in the next week or two.
The main measures as we currently understand them are as below.
The Office for Budget Responsibility (OBR) now says the UK will not enter a recession and inflation will fall to 2.9% by the end of 2023. The Chancellor said this is a Budget for growth – by removing barriers. He said the government is on track, with underlying debt to be 92.4% of GDP by next year, falling every year after until 2027-28.
The chancellor says they are “meeting our plan” to have debt falling by the fifth year of forecast and that debt as proportion of GDP remains lower than Canada, US, Italy and Japan. The Chancellor added that underlying debt in three years’ time is forecast to be lower than it was in the autumn of last year.
At the autumn statement he said public sector net borrowing must be below 3% over the same period. Today he says the OBR has confirmed we are meeting that rule with a buffer of £39.2bn and our deficit falls in every year of the forecast, borrowing falling from 5.1% in 2023-24 to 1.7% in 2027-28.
Widespread measures
Energy support to be maintained
Typical household energy bills were due to rise to £3,000 a year from April, but the £2,500 Energy Price Guarantee will now be extended to the end of June.
The government has also promised to bring prepayment energy charges in line with those for direct debit customers.
Help to reduce childcare costs
At the moment, working parents in England with three and four-year-olds are eligible for 30 hours of free childcare per week for 38 weeks per year. This is to be expanded to cover all children over the age of nine months. This will be phased in over the next two and a half years to ensure that there is sufficient provision available.
From April 2024, working parents of 2 year-olds will be able to access 15 hours of free childcare per week, benefiting parents of up to 285,000 children. This will be extended to working parents of 9 month to 2 year-olds from September 2024, benefiting parents of up to 640,000 children. From September 2025, all eligible working parents of children aged 9 months up to 3 years will be able to access 30 free hours per week.
Families on universal credit will get more help – receiving childcare funding upfront, instead of having to claim it back.
The cap on how much childcare support people on universal credit can claim is increased from the current level of £646 per child per month to £951 for one child and £1,630 for two children.
Abolition of tax-free pension allowance
The chancellor will abolish the lifetime allowance – the amount you can accumulate in your pension pot before paying extra tax. The lifetime allowance charge will be removed from April 2023 and the allowance abolished entirely from April 2024. An increase had been widely expected but this measure goes much further.
The amount workers can save into a pension every year will rise from £40,000 to £60,000 from April 2023.
Creation of 12 new Investment Zones
12 new investment zones have been announced. These will be new growth clusters across the UK, including four across Scotland, Wales and Northern Ireland. Each cluster will drive growth in key future sectors and bring investment to the local area. Each English Investment Zone will have access to interventions worth £80 million over five years, including tax reliefs and grant funding.
Business taxes
Corporation tax rate
The planned increase in CT rate will go ahead (rise to 25%) but only 10% of companies will pay this.
Capital expenditure and investment
Full expensing (FE)
New policy of expensing all capital expenditure. This will be initially for three years with the plan to make permanent. This will be worth £9 billion per year. This lets taxpayers deduct 100% of the cost of certain plant and machinery from their profits before tax. It is effective from 1 April 2023 to 31 March 2026.
It applies to spending on main rate equipment, which includes but is not limited to, warehousing equipment such as forklift trucks, tools such as ladders and drills, construction equipment such as bulldozers and excavators, machines such as computers and printers, vehicles such as tractors, lorries and vans, office equipment such as chairs and desks, and some fixtures such as kitchen and bathroom fittings and fire alarm systems.
FE means that companies can deduct 100% of the cost from their profits straight away – rather than more slowly over the life of the asset.
Similar to the super-deduction, FE also results in a 25p tax saving for every £1 invested (19% x 130% super-deduction rate = 25%). Before the super-deduction and with the 19% corporation tax rate, companies investing £10m in main rate assets received a £342,000 tax saving in year 1. Under full expensing, on a £10m investment, a company will receive a £2.5 million tax saving in year 1.
The 50% first-year allowance (FYA)
This lets taxpayers deduct 50% of the cost of other plant and machinery, known as special rate assets, from their profits during the year of purchase. This includes long life assets such as solar panels and thermal insulation on buildings.
The 50% FYA was introduced alongside the super-deduction and was due to end on 31 March 2023. It is being extended by three years to 31 March 2026. For each year following the first year, 6% of the remaining cost will be written off via writing down allowances (WDAs).
50% FYA allows for faster relief than under the default WDAs-only regime, which is worth 6% each year, including year one.
Research & Development – particularly for “R&D intensive” SMEs
The Chancellor announced a new R&D scheme for 20,000 SMEs in the UK – coming in from 1 April 2023 and worth around £500 million per year. At Autumn Statement 2022, as part of the review into the R&D tax reliefs, the Chancellor committed to considering the case for further support for R&D intensive SMEs.
The scheme is targeted specifically at loss making R&D intensive SMEs and focuses support towards those most impacted by the rate changes introduced at Autumn Statement 2022.
A company is considered R&D intensive where its qualifying R&D expenditure is worth 40% or more of its total expenditure.
Eligible loss-making 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. Around 1,000 claiming companies will come from the pharmaceutical and life sciences industry. This will support the development of life saving medicines.
Around 4,000 digital SMEs will be from the computer programming, consultancy, and related activities sector. This will support the development of AI, machine learning and other digital based technologies.
Around 3,000 other manufacturing firms, and another 3,000 professional, scientific, and technical activities firms will also qualify for the enhanced support.
This builds on previously announced changes to support modern research methods by expanding the scope of qualifying expenditure for R&D reliefs to include data & cloud computing costs.
The permanent increase from 13% to 20% for the R&D Expenditure Credit rate announced at Autumn Statement 2022 also means the UK now has the joint highest uncapped headline rate of tax relief in the G7 for large companies.
Enterprise Management Incentive Schemes
There will be changes to the Enterprise Management Incentives (EMI) scheme from April 2023 to simplify the process to grant options and reduce the administrative burden on participating companies. This includes, from 6 April 2023, removing requirements to sign a working time declaration and setting out details of share restrictions in option agreements.
Other measures aimed at small businesses
The Chancellor announced a series of admin changes to the simplify the tax system to make it easier for small businesses to interact with. The simplification package includes:
Delivery of IT systems to enable tax agents to payroll benefits in kind on behalf of their clients – allowing agents to better support their clients and reducing burdens on employers.
Consulting to the Help to Save scheme.
Measures to simplify the customs import and export processes, including improvements to the Simplified Customs Declaration Process, and the Modernising Authorisations project.
The Chancellor also announced a number of consultations to pave the way for future reform, including a commitment from HMRC to deliver a systematic review of guidance and forms for small businesses.
Our view
This was a Budget short on detail and less technical than many of us expected. There was nothing on capital gains tax, inheritance tax or stamp duty. Maybe things will emerge in the yet unpublished small print, or the forthcoming Finance Bill.
Perhaps unsurprisingly, there was no further detail on the merging of the two R&D tax relief scheme; after all, the consultation on this only closed two days ago! There is likely to be a further announcement on this in the coming months.
Whatever happens in the current days and weeks, we will be analysing it and sending out further updates as appropriate.
