How the 2023 Spring Budget Affects Small Business Owners

Chancellor Jeremy Hunt’s 2023 Spring Budget on 15 March introduced some big changes for individuals and businesses.  We’ve summarised below the parts that we believe are most relevant to small business owners, bringing in tax changes previously announced in the Autumn Statement, that will be effective from 6 April 2023.

Taxation

Corporation Tax Increases

As previously announced, Corporation Tax will increase.  From 1 April, the corporation tax rate a company pays in any accounting period will depend on its profits as follows:

• below £50,000 – small profits rate of 19% 
• above £250,000 – main rate of 25% 
• between £50,000 and £250,000 – main rate of 25% less marginal relief.

The limits may be even lower for some companies, as they need to be:

• reduced proportionately if an accounting period is less than 12 months, and 
• divided by the total number of associated companies. 

For example, a company with three associated companies will have a lower limit of only £12,500 (£50,000 divided by four) and an upper limit of £62,500 (£250,000 divided by four).

Two companies will be associated if:

• one has control of the other, or
• the same person, or persons, have control of both of them.

Changes to Capital Allowances

From 1 April 2023, the current super deduction will be replaced with “full expensing relief” for companies for three years to 31 March 2026.

This will provide for 100% relief for the cost of most items eligible for capital allowances. A 50% rate will continue to apply to special rate assets.

Like the super deduction, relief will only be available on new and unused assets. It will not be available on assets acquired for leasing to another party, on cars (new or used), or assets received as a gift.

Unincorporated businesses will only be eligible for the £1m annual investment allowance, or full expensing using the cash basis of taxation, which HMRC is considering extending. 

The 50% first year allowance for “special rate assets” applies to features integral to buildings, solar panels, thermal insulation and long-life assets. The remainder of the cost is taken to the special rate pool to be written down on a reducing balancing basis at 6% each year.

It has also been announced that the 100% first year allowance for qualifying expenditure on plant and machinery for electric vehicle charging points will be extended by a further two years to 31 March 2025 for corporation tax purposes and 5 April 2025 for income tax purposes.

Film, TV, and video games tax reliefs will be reformed from 1 January 2024

Two models will be implemented: one for the film and TV expenditure credits, which will be merged into a single scheme – the audio-visual expenditure credit (AVEC); and one for video game expenditure credits (VGEC).

AVEC will replace the current film, high-end TV, animation and children’s TV tax reliefs. Film and high-end TV production will be eligible for a credit rate of 34% and animation and children’s TV production will be eligible for a rate of 39%. VGEC will have a credit rate of 34%.

A new “enhanced credit” for some R&D-intensive SMEs, was announced, to apply from 1 April 2023

A company is considered R&D intensive where its qualifying R&D expenditure is worth 40% or more of its total expenditure (defined by reference to total expenditure in the company’s accounts, with some adjustments). This initiative will specifically target loss-making R&D-intensive SMEs. Eligible companies will be able to claim a credit rate of 14.5% compared to the 10% rate available to loss-making companies not meeting the R&D intensive criteria.

Fuel duty has been frozen again

The 5p cut to petrol and diesel, due to end in April 2023, will remain in place for another year. 

12 new Investment Zones to be created across the UK

With at least one investment zone each in Scotland, Wales and Northern Ireland. In England, the same tax incentives will be available as for tax zones in freeports. These include enhanced capital allowance rates, structures and buildings allowance, and relief from stamp duty land tax, business rates and employer’s national insurance contributions. 

Changes to Pensions

The pensions annual allowance will rise by 50% from £40,000 to £60,000. Currently individuals gain tax relief on contributions into their pension of £3,600 or 100% of their relevant earnings, whichever is higher, up to a cap of £40,000 per tax year. Unused allowances from the previous three years can be carried forward. Pension contributions above the annual allowance incur a tax charge at the taxpayer’s marginal rate of tax. The annual allowance is tapered down for higher earners. While the taper for higher earners will still apply from 6 April 2023, the minimum annual allowance will increase from £4,000 to £10,000. The taper will apply where adjusted income exceeds £260,000, an increase from the current £240,000 limit.

The pension Lifetime Allowance (LTA) before paying extra tax, currently £1.07m, is being abolished. The LTA is a separate threshold limiting the amount of tax relief that a pension fund can benefit from. The value of the pension is compared to the LTA and any excess is subject to an immediate tax charge of up to 55%. This test is normally applied when an individual first accesses their pension, or reaches the age of 75, whichever is first. The LTA will not apply from 6 April 2023.

While most taxpayers can currently choose to take 25% of their pension as a tax-free lump sum, the tax-free amount will be restricted to £268,275 from 6 April 2023 unless LTA protection applies. Any excess will be subject to income tax at the taxpayer’s marginal rate of tax.  

Income Tax and Capital Gains Tax

As announced in the Autumn Statement, the additional rate threshold for income tax will reduce to £125,140 from 6 April 2023 (currently 45% tax rate on income over £150,000). 

From April 2023, the amount of dividend allowance will reduce from £2,000 to £1,000. From April 2024, the amount of dividend allowance will reduce further to £500.

The Annual Exempt Amount for Capital Gains Tax will reduce from April 2023 from £12,300 to £6,000. 

Tax Collection

The government is investing a further £47.2m to improve HMRC’s capability to collect tax debts. This includes supporting those who are temporarily unable to pay.  

The government is taking steps to introduce a new criminal offence for promoters of tax avoidance who fail to comply with a legal notice from HMRC to stop promoting a tax avoidance scheme. 

Workforce

• Skills boot camps and apprenticeships targeted at over 50s to encourage people to return to the workplace. 
• 30 hours free childcare for working parents in England expanded to cover one and two-year-olds by September 2025. This will be introduced in phases from April 2024, starting at 15 hours. 
• £600 incentive payments for those becoming childminders and relaxed rules in England on how many children childminders can look after.  
• A new voluntary employment scheme, Universal Support, announced for disabled people and those with health conditions in England and Wales. 

Energy

Energy support for households has been extended for three months until the end of June. 

No changes were announced to the Energy Bills Discount Scheme for businesses, which will run from 1 April 2023 to 31 March 2024.

Trade

Commitment to ease customs declarations for small businesses that trade internationally.

Sources:  

• FSB – Spring Budget 2023: Key Takeaways for Small Businesses,
• Budget for Growth: ICAEW’s Tax Faculty assesses key tax measures,
• Gov.uk The Spring Budget in Full