Spring Budget 2023 Update

On 15th March 2023 the Chancellor or the Exchequer delivered his spring budget.  Here is a summary of the most important announcements.

Corporation tax

The corporation tax rate will increase from 19% to 25%, as planned, with effect from 1st April 2023. Businesses with profits below £50k will continue to pay tax at 19%, this will then taper for profits between £50k and £250k.  The rate of corporation may also be impacted if you control more than one company.  Where there are a number of associated companies the thresholds for applying the main rate are split between these companies.

Associated companies

An associated company is if one company has control of another or both are under the control of the same person(s), this includes non-UK resident companies.  Dormant companies are excluded.

Capital Allowances

The super-deduction regime will end on 31st March 2023.

The temporary £1m Annual Investment Allowance has been made permanent.

100% first year allowances on electric vehicle charge-points have been extended to 31st March 2025 for corporation tax purposes and 5th April 2025 for Income Tax purposes.

Income tax

There were no changes to the income tax rates.

National Insurance

The annual level at which employees and the self-employed start to pay National Insurance has been raised to £12,570, inline with the personal allowance for income tax.

Class 2 National Insurance will only be payable by sole traders with profits in excess of £12,570.

Employment allowance

The employment allowance, available to eligible employees to reduce their employer’s National Insurance liability, will be increased to £5,000 for the 2023/24 tax year.

Capital Gains Tax

The annual allowance will be reduced to £6,000 from 6th April 2023, from £12,300.  It is planned to be further reduced to £3,000 from 6th April 2024.

Basis period reform

Currently, if an unincorporated business (eg sole trader/partnership) has a year end other that 31st March or 5th April, it can use the profit/losses from the year end accounts that end in the tax year as the basis for the tax return.  Under the new system (starting with transitional rules in the 2023/24 tax year), actual profits or losses arising in a tax year must be reported to HMRC.  This will not necessarily require a change in accounting year end.

Pension contributions

The current pension lifetime allowance (£1,073,100) has been abolished.

The Annual Allowance on pension savings will increase to £60k from 6th April 2023.  It is currently £40k.   Pension contributions (employee and employer) in excess of the annual allowance give rise to a tax charge for the individual.  Unused annual allowances can carried forward from 3 previous tax years.

If your adjusted income exceeds £260k (currently £240k), the annual allowance is tapered by £1 for every £2 over £260k.  This is capped, so your annual allowance cannot be reduced to below £10k (currently £4k).

If you would like any further guidance please contact us

This information is correct at the point of publishing

This article includes advice that is generic in nature and should not be interpreted as legal advice.  Please contact us for specific tax planning advice.

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