Initor Global guide to the Chancellor’s 2023 Spring Budget

The Chancellor of the Exchequer (Jeremy Hunt) delivered his Spring Budget on 15 March 2023. The budget builds on the measures introduced in his Autumn Statement to tackle the cost of living crisis and high inflation in the UK.

The budget contains measures to attract people aged over 50 years back into the workforce, or to remain in the workforce for longer, with the abolition of the pension lifetime allowance and an increase in the annual contribution amount allowed into a personal pension.

While no changes were made to the new corporation tax rates and thresholds being implemented from 1 April 2023, new arrangements were announced to allow businesses to claim full corporation tax relief on plant, machinery and IT equipment investment for the next three years.

This blog highlights some of the key announcements made as they affect businesses and individuals, with a particular focus on information accountants may need in advance of the new tax year on 6 April 2023. It is not a complete guide to the Spring Budget. If you require the full text of the Chancellor’s Statement and supporting documents, please check the GOV.UK website.

Pension Tax relief and thresholds are changing from 6 April 2023 (2023/24 tax year)

The Chancellor confirmed for the 2023/24 tax year the following main pension tax relief limits and thresholds will apply: 

• the annual allowance for a tax free contribution into a personal pension fund is increased from £40,000 to £60,000 (per annum)
• the lifetime pension allowance limit of £1,073,000 is being removed from 6 April 2023 and the limit will be abolished completely going forwards
• individuals currently drawing down a pension can now contribute £10,000 per year back into their pension funds (known as the Money Purchase Annual Allowance, which is increased from the current level of £4,000).

The maximum tax free lump sum amount an individual can take from a pension fund is limited to £268,275 and is frozen thereafter, which is 25% of the outgoing lifetime allowance limit.

Full corporation tax relief for plant, machinery and IT equipment investment from 1 April 2023

The super deduction tax scheme, which allows businesses to claim 130% relief on capital investment ends on 31 March 2023. From 1 April 2023, and for the next three years, businesses will be allowed to claim the full cost of qualifying plant, machinery and IT equipment in the year of investment against profits. This is known as the ‘full expensing’ of capital expenditure. The arrangements will be reviewed after three years when they are expected to be made permanent.

Child care support

The Chancellor announced that from 2025, the amount of free childcare available to working parents in England would be extended to allow 30 hours for children aged 9 months until they start school. Devolved governments in the rest of the UK are responsible for administering similar schemes.

Energy Price Guarantee

The Energy Price Guarantee will remain at £2,500 until 30 June 2023, extending the existing scheme by three months. The planned increase in the energy cap to £3,000 will now be introduced from 1 July 2023.

What does this mean for your clients?

There is little change in the tax efficient advice accountants will be providing to clients for the 2023/24 tax year and beyond. The increase in the amount of tax free contribution into a personal pension means some clients will seek to contribute more to their personal pension schemes. The removal of the lifetime pension allowance cap supports this tax efficiency strategy. Many higher rate taxpayers with pension pots approaching £1 million will want to take specialist advice on retirement planning and future contributions based on their individual circumstances.

Businesses now have more certainty about how their investment expenditure on plant, machinery and IT equipment will be treated for corporation tax purposes over the next three years. They will need advice on the timing of such expenditure based on the amount of profit being forecast and estimated corporation tax to be paid under the new rates and thresholds effective from 1 April 2023.

You can also check our detailed blog on Helping Clients Reduce Their Personal Tax Bill on this link.