'Budget was good news for many, but not everyone is a winner'

As anticipated, no tax cuts were announced. The two major tax announcements were a reform of pensions tax and ‘full expensing’ of capital investment for companies.

The headline tax measures are aimed at incentivising business investment and breaking down barriers to entering and staying in the workforce, focussing on various groups; young adults in care, the disabled and long-term sick, parents with children under five years old and early retirees, particularly NHS doctors.

'A big surprise'

To encourage early retirees and the ‘economically inactive’ to return to work a number of changes to pensions tax were announced.

The pension lifetime allowance charge will be removed from April 2023 and the LTA abolished from April 2024, which was a big surprise.

The pension contributions annual income tax allowance (the maximum permitted annual saving to avoid a tax charge) is to increase by 50 per cent from £40,000 per annum to £60,000 from the 2023/24 tax year, and the income level at which it will be tapered increases from £240,000 to £260,000.

Not everyone is a winner.

The minimum tapered annual allowance for pension contributions and the annual money purchase allowance for contributions by existing pensioners will increase to £10,000. 

The chancellor specifically referenced the target audience of NHS clinicians who are currently disincentivised from remaining at work because of punitive charges if the LTA is exceeded, but many wealthy individuals will benefit from this measure.

However, not everyone is a winner.

The freezing of personal income tax allowances until April 2028 and reduction in the capital gains tax exemption, both previously announced, together with wage inflation mean more taxpayers will be dragged into the tax net.    

'The big ticket item for business'

The chancellor did not bow to pressure to reduce the top corporation tax rate from 25 per cent, citing the fact that other economies with lower rates had not achieved higher levels of business investment.

But the big ticket item for businesses is full capital expensing relief for companies, a generous replacement of the super deduction which was due to end on March 31, 2023, effective from April 1, 2023.

It will provide a full deduction for qualifying plant and machinery investment in the year the investment is made, over the next three years.

This measure is to be made permanent as soon as economic conditions around debt levels permit.

The economic sentiment is that this measure is successful in boosting investment and will have the most positive impact on productivity levels.     

A 50 per cent first year allowance for special rates assets, ie long life assets (useful life of more than 25 years) such as solar panels and thermal insulation, is also being extended by three years to March 31, 2026.    

The government estimates that these reliefs will be worth an annual amount of £9bn.

For, every £1 invested in qualifying expenditure 25p of tax will be saved for companies paying the top rate of tax.  

However, developers and investors should be mindful of the period when expenditure is made to ensure it falls within the qualifying period, particularly for pre-trading expenditure. 

Frozen income tax allowances will mean more workers are dragged into the tax net and the higher tax brackets.

The annual investment allowance of £1mn, which provides 100 per cent first year relief for plant and machinery investment, which had been due to revert to its previous level of £200,000 from April 2023, will become permanent. 

To show commitment to small and medium enterprises, for research and development intensive companies (where qualifying R&D expenditure is more than 40 per cent of their total expenditure) there will be an increased rate of relief for loss-making SMEs.

These companies were subject to previous changes which reduced the level of R&D relief available to them. This loss relief mitigates that reduction.

Eligible businesses will be able to claim £27 from HMRC for every £100 R&D investment compared to £18.60 for non-R&D intensive loss makers. 

Levelling up also came with generous five-year tax breaks for investment zones to be created in 12 areas across the UK, including capital allowances, building and structure allowances, stamp duty and employer national insurance breaks.  

A giveaway for parents  

For parents the biggest giveaway was extending free childcare for up to 30 hours to all children over nine months old, and up to starting school, from September 2025.

With childcare costs in the UK being the one of the most expensive in the world this will be most welcome news for working parents.  

The Spring 2023 Budget was good news for many groups, including parents with pre-school children, businesses, NHS doctors, other early retirees.

But frozen income tax allowances will mean more workers are dragged into the tax net and the higher tax brackets.

Eugenia Campbell is tax director at RSM UK