Budget Overview

The main tax policy decisions in the first Budget for over 16 months follow on from the turbulent political and economic changes during that time. The main aim of the Spring Budget 2023 was to retain the financial markets’ confidence whilst meeting the Prime Minister’s own priorities for the economy – halving inflation, growing the economy and reducing government debt. The last priority limits the ability to increase spending and provide tax reliefs in the long term.

The largest tax measure for companies was to introduce 100 percent expensing for expenditure on new and unused plant and machinery (excluding cars and assets used for leasing except where it is under an excluded lease of background plant or machinery for a building) for three years from 1 April 2023. There will be 50 percent expensing (historically known as a first year allowance) for assets qualifying for the special rate. Taxable profits will arise if the assets are subsequently sold. 

This will be a welcome replacement for the super deduction which ends on 31 March 2023, and as a result the UK will have the joint highest net present value for capital allowances in the OECD.

The Government aims to make this measure permanent once the Chancellor is confident it is consistent with keeping debt on a sustainable path with prudent headroom. This is indicative of the relative size of this measure compared with government finances overall.

An additional credit relief for small and medium sized companies (SMEs) undertaking qualifying research and development (R&D) of at least 40 percent of their total expenditure is being introduced. This will enable those eligible loss making companies to claim £27 from HMRC for every £100 of R&D spend, an increase of £8.40. This will benefit SMEs in the pharmaceutical, life sciences and IT sectors. This will support the development of AI, machine learning and other digital based technologies.

This builds on previously announced changes to support modern research methods by expanding the scope of qualifying expenditure for R&D reliefs to include data & cloud computing costs.

The Government is continuing to consider changing the SME R&D scheme to merge with the credit scheme for large companies from 1 April 2024, and consequently the restriction of reliefs for overseas activity is to be delayed by a year until 1 April 2024.

As previously announced, the audio-visual tax reliefs for films, television programmes and video games will change to refundable expenditure credits, similar to the large company R&D scheme. This will apply for accounting periods commencing on or after 1 January 2024. Video games, film and high-end TV will have a rate of 34 percent. Animation and children’s TV will have a rate of 39 percent.

Multinational companies with group revenues of more than €750 million will be subject to the new multinational and domestic top-up taxes ensuring qualifying profits are not taxed at a rate lower than 15 percent. These rules follow on from international decisions in the OECD, with similar legislation being introduced in countries around the world. As this new legislation will involve complex calculations and reporting obligations and will apply for accounting periods beginning on or after 31 December 2023, multinational groups have little time to ensure their systems are fit for purpose.

There are no new changes to the proposed main rate of corporation tax of 25 percent with effect from 1 April 2023 and the small profits rate of 19 percent. Various changes to the corporate interest restriction rules have also been announced.

Another focus for growth was improving the availability of the workforce. This is focused at three different groups. The more experienced employees are to be encouraged back to work by the removal of the lifetime pension allowance charge, the increase in the annual pension savings allowance to £60,000 from 6 April 2023 and the increase in the money purchase annual allowance to £10,000 where an individual has already accessed their pension savings.  

Younger employees will benefit from the introduction of free childcare from nine months where both parents are employed (and earning less than £100,000 each). This is being introduced in stages from April 2024. Individuals benefiting from Universal Credit childcare will now be paid upfront.

These measures to widen free childcare, with the other measures including more wraparound care for school age children, will facilitate the return of parents, particularly women, back into the workplace.

The third category is the disabled and the long term sick, with various measures to help them return to the workplace, including consultations on how to support increased occupational health coverage through the tax system.

The last focus for growth, albeit the one first mentioned in the Chancellor’s speech, is the proposed introduction of 12 investment zones involving collaboration between local government and research universities specialising in innovation clusters. These are to be established outside the South of England to help the Government’s levelling up agenda and will benefit from a package of time limited tax reliefs including Stamp Duty Land Tax relief, enhanced capital allowances for plant and machinery, enhanced structures and buildings allowances, and secondary Class 1 National Insurance contributions relief.

In short, there were no changes to the overall structure of the personal tax system, with its cliff edge tax rate hikes and inconsistences between the taxation of the employed, workers and the self-employed. Similarly, there was no business road map setting out tax policy for companies and businesses over the medium term.  Instead, the main change to the corporate tax landscape was the effective extension by three years of the super deduction for capital expenditure with an equivalent after tax benefit of 100 percent expensing for plant and machinery. The long term financial state of the economy, and the prime minister’s priorities have inhibited making this change permanent for now.  

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