Budget 2023

A number of measures that will affect individuals have already been announced but will come into effect from 6 April 2023, such as:

• Reduction in the additional (45%) rate band to £125,140 (down from £150,000)

• Reduction in the dividend allowance, currently £2,000 to £1,000 (with a further reduction to £500 April 2024)

• Personal allowance and higher rate tax thresholds frozen until April 2028

• Reduction in the capital gains tax annual exemption from £12,300 to £6,000 (with a further reduction in April 2024)

• Inheritance tax threshold and residence nil rate bands remain frozen at £325,000 & £175,000 respectively until April 2028

The Chancellor announced measures relating to pensions tax limits including a scrapping of the Pension Lifetime Allowance (LTA) from 6 April 2023.

The LTA was a cap on the amount of pension savings that could be accumulated tax free, and a tax charge arose on any excess funds when pension was taken. The tax charges were a disincentive to many workers, particularly doctors, to continue working once they had reached an age at which they could draw their pension.

There is also an increase in the pension annual allowance, the maximum amount that can be saved in a pension that qualifies for tax relief each year. From 6 April 2023, this will increase from £40,000 to £60,000, and the increase is coupled with a rise in the adjusted income level from £240,000 to £260,000 over which the allowance tapers away.

The Money Purchase Annual Allowance (MPAA), which is the amount an individual can save into a pension after they have started to access their money purchase pension savings and the tapered Pension Allowances were both also increased from £4,000 to £10,000.

The Government has confirmed that proposed changes to the treatment of Capital Gains Tax for spouses and civil partners who are in the process of separating will come into effect from 6 April 2023.

Under current legislation, the exemption for inter-spousal transfers ends at the end of the tax year in which separation occurs.

Following consultation, the following measures will apply from 6 April 2023:

• Separating spouses or civil partners will have up to three years after the year they cease to live together in which to make no gain/no loss transfers.

• No gain/no loss treatment will also apply to assets that separating spouses or civil partners transfer between themselves as part of a formal divorce agreement.

• A spouse or civil partner who retains an interest in the former matrimonial home will be given an option to claim private residence relief (PRR) when it is sold.

• Individuals who have transferred their interest in the former matrimonial home to their ex-spouse or civil partner and are entitled to receive a percentage of the proceeds when that home is eventually sold, will be able to apply the same tax treatment to those proceeds when received that applied when they transferred their original interest in the home to their ex-spouse or civil partner.

In all the measures are fairer and give couples more time to transfer assets between themselves without the potential for a Capital Gains Tax liability arising.

It is confirmed that payments made to farmers under the Lump Sum Exit Scheme will be treated as capital receipts and chargeable to Capital Gains Tax or, for companies, to Corporation Tax as chargeable gains.

Eligible farmers who apply for the payments, which replaces payments due to them under the Basic Payment Scheme (BPS) until 2027, will therefore be able to benefit from capital gains tax relief in the same way as they could for the sale of BPS entitlements in the past.

In a bid to enhance and expand the investment in SEIS schemes, the amount of investment that companies will be able to raise under the SEIS will increase from £150,000 to £250,000. To enable more companies to use the scheme, the gross asset limit will be increased from £200,000 to £350,000 and the age limit on a qualifying trade from 2 to 3 years. To support these increases, the annual investor limit will be doubled to £200,000. The changes will take effect from 6 April 2023.

Despite much pressure from businesses, the Chancellor stuck firmly to his plan of raising the rate of corporation tax. From 1 April 2023, only those companies with taxable profits of up to £50,000 or less will be eligible for the current 19% corporation tax rate. Companies with profits in excess of £50,000 will pay an effective tax rate of 26.5% on the slice of profits between £50,000 and £250,000 and 25% on profits of £250,000 and over.

For accounting periods starting on or after 1 April 2023, we will see the return of the ‘associated companies’ rules. These rules will impact the way in which the applicable corporation tax rate thresholds are determined and the threshold at which companies are brought into the quarterly instalments regime (for earlier payment of corporation tax liabilities).  

Perhaps the biggest news for companies was the introduction of a “new” first year allowance which the Chancellor described as “full expensing”. Whilst this is a new allowance by name, its effect is essentially to offer the same relief as was given by the “super- deduction” which officially ceases on 31 March 2023.

As with the super deduction, the new allowance will only be available to companies. A 100% first year allowance will be available for expenditure on qualifying plant and machinery (such as computers, office furniture, vans/ lorries, tools, construction equipment) and there will be no limit on the amount of expenditure that will qualify. This allowance will apply from 1 April 2023 and is scheduled to run until 31 March 2026, by which time the Chancellor hopes to make it permanent.

The effect of this new allowance is that companies no longer need to rush to spend money on assets before 31 March, when the super-deduction ends because the overall tax relief given is essentially the same.

The Chancellor also confirmed that the 50% first year allowance for expenditure on special rate assets (such as electrical systems, hot and cold water systems and air conditioning) would continue.

As previously announced, the Annual Investment Allowance (AIA) will also remain in place. This will now remain at £1m permanently, rather than fluctuating from year to year as it has done in the past. Companies investing in special rate assets should claim the Annual Investment Allowance where possible as 100% tax relief will be available on these up to an investment limit of £1m, whereas only 50% tax relief is available under the new first year allowance rules.

Announced for R&D Intensive companies that spend more than 40% of their total expenditure on R&D is a new scheme whereby eligible loss making companies will be able to claim £27 from HMRC for every £100 of R&D investment.

As previously announced, three new measures will be coming into effect from April 2023 in order to tackle perceived abuse of R&D claims in the recent past. These will be:

• Reducing the SME R&D ‘enhancement’ amount from 130% to 86%

• Increasing the Research and Development Expenditure Credit from 13% to 20%

• Decreasing the amount of repayable credit under the SME scheme to from 14.5% to 10%

The impact is not immediately obviously, because the impact will be different for profitable or loss making companies. However, it is clear that profit making companies will be less worse off under these measures than loss making companies.

As previously announced, from April 2023 two changes will be made to the CSOP. Firstly, the maximum employee share option grant limit is to be doubled, meaning that options valued at up to £60,000 as at the date of grant will be eligible for the scheme. Secondly, the current rules restricting options to classes of shares which either give employees control of the company or are ‘open market shares’ majority held by outside investors will be scrapped. The relaxation of these rules will broaden the appeal of the CSOP in the future.

Changes will be made to the EMI scheme from April 2023 to simplify the process to grant options and reduce the administrative burden. This includes, from 6 April 2023, removing requirements to sign a working time declaration and setting out details of share restrictions in option agreements.