Phil Stevens, Head of Tax at Burgis & Bullock, provides his immediate reaction to the Spring Budget which was delivered by Jeremy Hunt today (15/3/23).
Burgis & Bullock will be publishing a full analysis of the Budget in the coming days.
The big surprise of this Budget announcement that will send shockwaves through the tax planning and pensions industry is the abolition of the pensions lifetime allowance.
The limit was previously set at £1 million, having been reduced down since 2012 from £1.8m. Hunt also announced that the pension contributions annual tax-free allowance will increase from £40,000 to £60,000.
As always when it comes to the Budget, the devil will be in the detail, but to see the lifetime allowance limit abolished came as a real shock and it will be interesting to see if there are any measures or conditions attached to this.
It also throws up some very interesting opportunities for tax planners. Very often when planning for clients, it was often questioned whether using a scheme was really worth it given their complexities and a limit of £1 million.
The change provides more flexibility for people to pay into a pension and we will be exploring how this is set to impact clients when we have analysed the new policy.
It was also revealed that a new R&D scheme, coined the ‘Enhanced’ credit, will be available to more than 20,000 SMEs across the UK from April.
The scheme is set to be aimed at loss-making R&D intensive SMEs and companies will qualify for the scheme if R&D expenditure is worth 40 per cent or more of its total expenditure.
Those companies will be able to claim a credit worth £27 for every £100 spent. This is targeted support and will specifically look at manufacturing, life sciences, pharmaceutical and digital industries.
This has huge potential as a tax credit if you are a business in one of those qualifying sectors and hopefully will help to encourage more investment and innovation in those areas.
Interestingly, there was an emphasis in the Budget to simplify the tax system for small businesses, and that can only be a positive!
Hunt also confirmed additional measures to follow on from the cessation of the capital allowances super deduction that is coming to a close at the end of this month.
The Government is introducing full expensing of capital items, meaning that companies will get full capital relief for expenditure on certain IT equipment, plant and machinery, and is uncapped. This is initially set for a 3-year period to March 2026 although the Chancellor did state his hope is that this can be a permanent measure after this time.
All businesses will still also be able to benefit from the Annual Investment Allowance providing 100% tax relief on up to £1m of expenditure
This is great news for all businesses although realistically I don’t think this will have a huge impact on most SMEs. There aren’t many businesses regularly spending £1 million or more on capital expenditure and we already have the Annual Investment Allowance covering expenditure under this amount.
Unfortunately, despite widespread calls for it not to go ahead, the move to increase corporation tax from 19 per cent to 25 per cent will go ahead.
Hunt did say that only 10 per cent of companies will pay at the top rate of 25 per cent rate, (on the basis this requires a company to have sole or associated profits of £250,000 or more). However, at the same time a lot of businesses will still be paying more tax as they will fall between the 19 and 25 per cent, thereby suffering additional tax exposure. . This was a clever piece of wording from the Chancellor.
It was an interesting Budget and other than the announcement for pensions, I don’t think there were any major surprises or omissions.