Walker Accountancy

The Chancellor, Jeremy Hunt, presented his Budget statement on 15 March 2023.

The main announcements relating to individuals and small businesses were:

• Pensions:
  • The pension contribution annual allowance will increase from £40,000 to £60,000 from 6 April 2023.
  • The Money Purchase Annual Allowance* and Minimum Tapered Annual Allowance** will increase from £40,000 to £10,000 from 6 April 2023.
  • The threshold for the Minimum Tapered Annual Allowance will increase from £240,000 to £260,000 from April 2023.
  • The Lifetime Allowance will be removed from 6 April 2023 and abolished from 6 April 2024 (technical difference), however, the maximum tax free lump sum will be retained at its current level of £268,275 and be frozen thereafter.
  • Top up payments will be made, from 6 April 2025 in respect of the tax year 2024-25, to individuals paying into a pension under a net pay agreement*** where their total income is below the personal allowance.
• Energy:
  • The Energy Price Guarantee for households will remain at £2,500 until the end of June 2023 (previously due to expire at the end of March). The planned increase to £3,000 per year will take place from 1 July 2023.
  • Charges for prepayment meter users will be reduced to bring charges in line with comparable direct debit charges.
• Corporation tax
  • Tax rates will increase from 1 April as previously announced.
  • ‘Full expensing’ for qualifying plant and machinery purchases will be introduced for 3 years from 1 April 2023. This means that companies will be able to write off the full cost of qualifying main rate plant and machinery investment in the year of investment. Those investing in special rate (including long life) assets will benefit from a 50% first-year allowance during this period. (This is unlikely to impact on small businesses since the Annual Investment Allowance remains at £1m and small businesses tend to spend less than £1m!).
• Childcare
  • Children aged 9 months and over, with all adults in their household working at least 16 hours a week, will be entitled to 30 hours of free child care. This will be introduced in stages:
    • From April 2024: 15 hours per week for children aged 2
    • From September 2024: 15 hours per week for children aged 9 months and over
    • From September 2025: 30 hours a week for children aged 9 months and over
  • From September 2023, staffing ratios will be amended from 1 staff member to 4 children to 1:5 for two year olds
  • The Government will also substantially uplift the hourly funding rate paid to providers to deliver the existing free hours offers in England
• Confirmation of the rates and allowances for 2023-24 can be found here: Annex A

* The Money Purchase Annual Allowance comes into effect when an individual has drawn funds from one of their money purchase pensions and limits the amount that can subsequently be paid back in to a pension.

** The pension annual allowance starts to reduce when earnings reach the upper threshold. The minimum that it can be reduced to is the Minimum Tapered Annual Allowance.

*** There are two different ways for employee contributions to receive tax relief:

• Relief at source: Employee contributions are deducted from net pay (ie after deducting tax and national insurance) and paid over to the pension scheme before tax relief. A 20% tax credit is added directly to the scheme by HMRC, irrespective of the tax status of the individual. 40% tax payers then claim additional tax relief from HMRC. Non tax payers benefit from the 20% tax credit even though they don’t pay any tax. Nest and People’s Pension use a relief at source.

• Net pay: Employee contributions are deducted from pay before calculating tax, and therefore the contributions paid over to the scheme include tax relief. This gives easier relief for 40% tax payers since they receive relief through their pay without having to claim extra relief from HMRC, but, currently, it means that non tax payers do not receive any tax benefit, hence giving an inequality between the two types of scheme. Defined benefit employer schemes commonly use the net pay method, as does Smart Pensions.

Previous announcements taking effect/continuing from April 2023:

• Most income tax, national insurance and inheritance thresholds remain frozen until April 2028.
• The 45p ‘additional rate’ tax band threshold will reduce from £150,000 to £125,140 from 6 April 2023.
• The dividend allowance will reduce from £2,000 to £1,000 from April 2023 and then to £500 from April 2024.
• The capital gains tax allowance will reduce from £12,300 to £6,000 from April 2023 and then to £3,000 from April 2024.
• The stamp duty changes implemented as a result of the ‘mini-budget’ will now be temporary and will end in April 2025, at which point they will revert to their old limits.
• The VAT registration threshold will be frozen at £85,000 until March 2026.
• Research and development tax reliefs for small and medium sized enterprises (SME) will be reduced for spend after April 2023, but increased for businesses not qualifying for the SME scheme.
• Benefits, including the state pension, will increase by inflation (10.1%) from April.
• The national living wage will increase from £9.50 to £10.42 from 1 April 2023.
• In the accompanying documentation, company car and van benefit rates to April 2028 were also set.
• Electric cars will start to be subject to vehicle excise duty (road tax) from April 2025.

To expand on some of the previously announced changes in more detail:

Income tax and national insurance

The rates of income tax and national insurance remain unchanged from their current (ie post 5 November) levels, which are the same as they were in 2021-22.

The tax and national insurance thresholds, apart from the 45% tax threshold, will be frozen at current levels until April 2028.

The 45% tax threshold will reduce from £150,000 to £125,140 from 6 April 2023.
There is a reason for the seemingly odd figure of £125,140: for income above £100,000, £1 of personal allowance is lost for every £2 of income, giving an effective tax rate for earned income between £100,000 and £125,140 of 60%, so the 45% threshold has been set at the top of this band.

Dividend tax

The rates of tax for dividends will remain at 8.75%/33.75%/39.35% (basic/higher/additional).

The dividend allowance will reduce from £2,000 to £1,000 from April 2023 and then to £500 from April 2024.

Capital gains tax

Capital gains tax remains at 10% (for gains falling into the basic rate band) and 20% (higher rate) (18%/28% for residential property gains).

The capital gains tax allowance will reduce from £12,300 to £6,000 from April 2023 and then to £3,000 from April 2024.

Research and development tax relief

There will be changes to research and development tax reliefs from April 2023.

For small and medium sized enterprises, the enhanced deduction will be reduced from 130% to 86% and the repayable credit cut from 14.5% to 10%.

For businesses not qualifying for the SME scheme, relief will increase from 13% to 20%.

The government will consult on the design of a single scheme for all businesses.

National Minimum/Living Wage

The new rates will be as follows:

Car and van benefit rates

The government is setting rates for Company Car Tax until April 2028. Rates will continue to incentivise the take up of electric vehicles.

The appropriate percentages for electric and ultra-low emission cars emitting less than 75g of CO2 per kilometre will increase by 1 percentage point in 2025-26; a further 1% in 2026-27 and a further 1% in 2027-28 up to a maximum appropriate percentage of 5% for electric cars and 21% for ultra-low emission cars.

Rates for all other vehicles bands will be increased by 1 percentage point for 2025-26 up to a maximum appropriate percentage of 37% and will then be fixed in 2026-27 and 2027-28.

Car and Van Fuel Benefit Charges and van benefit charge will increase in line with CPI from April 2023.

Vehicle Excise Duty (VED)

From April 2025, electric cars, vans and motorcycles will begin to pay VED in the same way as petrol and diesel vehicles:

• new zero emission cars registered on or after 1 April 2025 will be liable to pay the lowest first year rate of VED (which applies to vehicles with CO2 emissions 1 to 50g/km) currently £10 a year. From the second year of registration onwards, they will move to the standard rate, currently £165 a year
• zero emission cars first registered between 1 April 2017 and 31 March 2025 will also pay the standard rate
• the Expensive Car Supplement exemption for electric vehicles is due to end in 2025. New zero emission cars registered on or after 1 April 2025 will therefore be liable for the expensive car supplement. The Expensive Car Supplement currently applies to cars with a list price exceeding £40,000 for 5 years
• zero and low emission cars first registered between 1 March 2001 and 30 March 2017 currently in Band A will move to the Band B rate, currently £20 a year
• zero emission vans will move to the rate for petrol and diesel light goods vehicles, currently £290 a year for most vans
• zero emission motorcycles and tricycles will move to the rate for the smallest engine size, currently £22 a year
• rates for Alternative Fuel Vehicles and hybrids will also be equalised