The much-anticipated Spring Budget was delivered today, and as expected, it was based on economic growth without any major surprises.
However, there was welcome news for taxpayers, businesses and savers, with changes to pension allowances, childcare support and an extension to the Energy Support Scheme, alongside upbeat announcements about the future of the UK economy.
SAS Accounting has summarised the main areas of reform and the most important changes that might affect your plans, tax obligations and business forecasts.
Economic Forecasts and the Likelihood of Recession
A key point for many sectors is that the Chancellor shared new predictions from the Office for Budget Responsibility (OBR) that make it unlikely the UK will enter a ‘technical’ recession, which equates to two quarters where GDP falls.
Jeremy Hunt also stated that inflation is expected to drop by more than half by the end of 2023. GDP forecasts put contraction at 0.2% to the year end, significantly improving earlier predictions of a 1.4% fall.
Further predictions show a forecast increase in GDP of 1.8% in 2024 and every year thereafter until 2027, which is a hopeful indication for businesses and industries that have been struggling with the impacts of trading in an inflationary economy.
The OBR also estimates that unemployment will fall from 10.7% at the end of last year to 2.9% by the end of 2023 – provided the 'back to work' budget is effective.
Changes to Capital Allowance Super Deductions
From 31st March 2023, super deduction capital allowances will end, and be replaced with a new full expensing allowance, which will remain in place until March 2026.
Full expensing means that companies can claim capital allowances of 100% on eligible investments in plant and machinery, effectively writing off the cost of investment in full.
The 100% first-year relief applies to all new qualifying investments made, and is accompanied by a 50% first-year allowance for expenditure on special rate assets, also available until March 2026.
All businesses, including unincorporated businesses, can claim the Annual Investment Allowance, which offers 100% first-year relief for investments in plant and machinery up to the value of £1 million.
The Energy Price Guarantee
While the Energy Price Guarantee applies to residential homes rather than businesses, the subsidy scheme was expected to decline from 1st April, leading to concerns from millions of families that soaring utility bills would become unaffordable.
The Chancellor confirmed the support initiative would be extended for another three months, capping the average household utility cost at roughly £2,500.
Childcare Funding
News that may impact employers and working parents relates to funding for early years childcare, an issue hotly debated in the media in recent weeks. The government has stated that free childcare placements will be available to younger children from the end of parental leave and from nine months to enable parents to return to work sooner.
The current free places apply only to children ages three and four before beginning school, providing up to 30 hours of free childcare a week during school term times. All parents are entitled to 15 hours of free childcare, although the full allowance depends on the family’s circumstances.
In the spring budget, the Chancellor said that all parents working 16 hours or more per week will be eligible for 30 hours of free care, although this will be introduced in a phased rollout beginning in April 2024.
Pension Savings
Changes to pension taxation thresholds will impact all retirement savers, particularly those within ten years of retirement age or who have already begun early retirement.
The Lifetime Allowance (LTA) currently stands at £1.073 million, which means savers with a greater retirement pot are exposed to tax liabilities based on the value of their pension fund.
While an increase in the threshold was expected, the Chancellor has abolished the LTA altogether to avoid encouraging professionals to retire sooner than they wish due to concerns about a large taxation obligation being deducted from high-value savings.
Taxes and Allowances for Businesses
There were several snippets of news for businesses:
The increased corporation tax rate will proceed as planned from April 2023, with the main tax rate climbing from 19% to 25%. However, the tapered system means that the Chancellor believes only 10% of businesses will be liable for the full higher rate.
Planned increases in fuel duty have been postponed, which would have potentially added £0.12 to every litre of fuel. Jeremy Hunt confirmed that a cut would remain in place for one year, a benefit in particular to companies with vehicle fleets and those operating in logistics.
Twelve new 'investment zones' are planned, providing partnerships focused on innovation, involving businesses, local councils and universities. These will be primarily based in the Midlands and north of England.
It is important to reiterate that many of the most significant changes to taxes and employers have already been confirmed and have not been featured again in the spring statement.
Minimum wages will rise from 6th April 2023 onward, along with other obligations for employers – you can review our previous recap on the cost implications in our article about Preparing for the 2023 Financial Year Ahead.
Other adjustments to income tax bands, capital gains and dividend allowances are also included in our earlier post concluding the Tax Changes to Be Aware of From April 2023.
