The Chancellor announced important changes in relation to childcare support and the pensions annual and lifetime allowances, alongside various other measures affecting employees and the workplace.
Rates and thresholds
As was previously announced, from 6 April 2023 the additional rate income tax threshold will reduce to £125,140 and the standard personal allowance and other income tax thresholds will remain frozen. Tax rates remain unchanged.
Also as previously announced, from 6 April 2023 the NIC thresholds will remain frozen, rates of NIC for directors who are subject to an annual earnings period will revert to being the same as for other employed earners, and rates of Class 1A NIC on benefits-in-kind and Class 1B NIC payable on PAYE Settlement Agreements will revert to 13.8 percent.
Getting people back to work
Parents should benefit from the introduction of free childcare from nine months where both are employed, and each earns less than £100,000. This will be introduced in stages from April 2024.
Further measures, including more wraparound care for school age children, will also facilitate the return of parents to the workplace.
Getting people to stay in work
Perhaps the Spring Budget’s 2023 most eye-catching announcements, previously trailed as part of the Chancellor’s drive to encourage over 50s back into the workforce, were the increase to the pension savings annual allowance and the removal of the lifetime allowance charge.
From 6 April 2023, the annual limit on UK tax relieved pension savings, known as the annual allowance, will increase from £40,000 to £60,000. However, tapering down will still affect higher earners with ‘adjusted income’ over £260,000 (increased from £240,000), though the maximum taper will result in a £10,000 annual allowance, relative to £4,000 as at present.
In addition, rather than increase the overall lifetime limit on pension savings, in a surprise move the Chancellor announced that the lifetime allowance charge will be removed from 6 April 2023, and the lifetime allowance itself will be abolished in a future Finance Bill.
The maximum amount that can be drawn down as a tax-free lump sum by those without relevant protections, which is capped at 25 percent of the lifetime allowance, will be retained at £268,275 and frozen.
Increasing employee engagement
Previously announced enhancements to tax-advantaged Company Share Option Plans (CSOPs), which will double the initial market value of shares that can be subject to unexercised CSOP options to £60,000 and increase the number of companies that can implement a CSOP, were confirmed.
Welcome easements were announced for tax-advantaged Enterprise Management Incentive employee share options. In addition, a call for evidence will follow on ‘all employee’ tax-advantaged Share Incentive Plans and Save As You Earn (SAYE or sharesave) employee share plans to identify opportunities for simplification and improvement.
In summer 2023, the Government will also consult on informal and ad hoc flexible working arrangements between employees and employers to better understand how these operate. This follows the Office of Tax Simplification’s report on cross-border and UK domestic hybrid and remote working. In our view, the rules around benefits-in-kind and reimbursed expenses for employee homeworking and associated costs do need to be reviewed to accommodate modern working patterns.
Additionally, the Government will consult on how the tax system might incentivise increased employer provision of occupational health support. This might potentially include expanding benefit-in-kind exemptions for employees and an enhanced deduction for the associated costs.
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