Chancellor Jeremy Hunt delivered a ‘Budget for Growth’ after the Office for Budget Responsibility forecast a stronger than expected performance from the UK economy this year with inflation continuing to fall.
The Chancellor announced a £27 billion transformation of capital allowances from April this year, which will include the Full Expensing of investment in qualifying plant and machinery. Unfortunately this is not plant as we know it.
As high energy costs continue, the Chancellor extended the Energy Support Guarantee at £2,500 for another three months while fuel duty was frozen once more. No changes were announced to the Energy Bills Discount Scheme for businesses, which will run from 1 April 2023 to 31 March 2024.
National Insurance Contributions (NICs)
A similar principle to that outlined above for income tax thresholds will be followed in respect of many of the NICs thresholds, namely that they are frozen at the limits for the preceding year and will remain at those levels until 2028. However, the government will uprate the Class 2 and Class 3 NICs rates for 2023/24 to £3.45 per week and £17.45 respectively.
The government will increase the hourly NLW and NMW from 1 April 2023 as follows:
- £10.42 for those 23 years old and over
- £10.18 for 21-22 year olds
- £7.49 for 18-20 year olds
- £5.28 for 16-17 year olds
- £5.28 apprentice rate for apprentices under 19, and those 19 and over in their first year of apprenticeship.
Skills boot camps and apprenticeships targeted at over 50s to encourage people to return to the workplace.
Making Tax Digital (MTD) for income tax
The MTD regime is based on businesses being required to maintain their accounting records in a specified digital format and submit extracts from those records regularly to HMRC. In what appears to be a never-ending story, the government has announced a further delay in MTD for income tax self assessment (ITSA).
The mandation of MTD for ITSA will now be introduced from April 2026, with businesses, self-employed individuals and landlords with income over £50,000 mandated to join first, a change from the original £10,000 limit. Those with income over £30,000 will be mandated from April 2027.
The government will also review the needs of smaller businesses and look in detail at whether the MTD for ITSA service can be shaped to meet the needs of smaller businesses. HMRC has previously announced that MTD for corporation tax will not be mandated before 2026. This now looks even further away.
Strengthening employment rights
The government is supporting Private Members Bills that provide a day one right to request flexible working and grant specific groups protections or leave entitlements, including enhanced redundancy protection for pregnancy, family leave, carer’s leave, and neonatal care leave. In addition, the government is supporting bills to ensure that all tips go to staff and providing workers with the right to request a contract with more predictable hours. Call for Evidence on informal Flexible working – The government will bring forward a call for evidence to launch in Summer 2023 on informal and ad hoc flexible working to better understand informal agreements on flexible working between employees and employers.
Corporation tax rates
The expected increase in the rate of corporation tax for many companies from April 2023 to 25% will go ahead. This means that, from April 2023, the rate will increase to 25% for companies with profits over £250,000. The 19% rate will become a small profits rate payable by companies with profits of £50,000 or less. Companies with profits between £50,001 and £250,000 will pay tax at the main rate reduced by a marginal relief, providing a gradual increase in the effective corporation tax rate.
The income tax personal allowance was already fixed at the current level until April 2026 and will now be maintained for an additional two years until April 2028 at £12,570.
The marriage allowance permits certain couples, where neither party pays tax in the tax year at a rate other than the basic rate (or intermediate rate in Scotland), to transfer £1,260 of their personal allowance to their spouse or civil partner. The marriage allowance reduces the recipient’s tax bill by up to approximately £250 a year. To gain from the marriage allowance one spouse or civil partner must normally have no income or income below the personal allowance for the year. Since the marriage allowance was first introduced there are couples who are entitled to claim but have not yet done so. It is still possible to claim for all those years back to 2018/19 as long as the entitlement conditions are met. The total tax saving for all years up until 2022/23 could be over £1,000. A claim for 2018/19 will need to be made by 5 April 2023.
Tax rates and bands
The basic rate of tax is 20%. In 2023/24 the band of income taxable at this rate is £37,700 so that the threshold at which the 40% band applies is £50,270 for those who are entitled to the full personal allowance.
Once again, the basic rate band is frozen at £37,700 up until April 2028. The National Insurance contributions upper earnings limit and upper profits limit will remain aligned to the higher rate threshold at £50,270 for these years. From 6 April 2023, the point at which individuals pay the additional rate will be lowered from £150,000 to £125,140. The additional rate for non-savings and non-dividend income will apply to taxpayers in England, Wales, and Northern Ireland. The additional rate for savings and dividend income will apply to the whole of the UK.
The tax on income (other than savings and dividend income) is different for taxpayers who are resident in Scotland from that paid by taxpayers resident elsewhere in the UK. The Scottish income tax rates and bands apply to income such as employment income, self-employed trade profits and property income.
In 2023/24 there are five income tax rates which range between 19% and 47%. Scottish taxpayers are entitled to the same personal allowance as individuals in the rest of the UK. The two higher rates are 42% and 47% rather than the 40% and 45% rates that apply to such income for other UK residents. For 2023/24, the 42% band applies to income over £43,662 for those who are entitled to the full personal allowance. The 47% rate applies to income over £125,140.
Since April 2019, the Welsh Government has had the right to vary the rates of income tax payable by Welsh taxpayers (other than tax on savings and dividend income). The UK government has reduced each of the three rates of income tax paid by Welsh taxpayers by 10 pence. For 2023/24 the Welsh Government has set the Welsh rate of income tax at 10 pence which has been added to the reduced rates. This means the tax payable by Welsh taxpayers is the same as that payable by English and Northern Irish taxpayers.
Pension tax limits
This measure supports the government’s efforts to encourage inactive individuals to return to work, in particular those aged 50 and above, and it removes incentives to reduce hours or leave the labour market due to pension tax limits. Legislation will be introduced in Spring Finance Bill 2023 and will have effect from 6 April 2023. This will:
- Increase the Annual Allowance from £40,000 to £60,000.
- Increase the Money Purchase Annual Allowance from £4,000 to £10,000.
- Increase the income level for the tapered Annual Allowance from £240,000 to £260,000.
- Ensure that nobody will face a Lifetime Allowance charge.
- Limit the maximum an individual can claim as a Pension Commencement Lump Sum to 25% of the current Lifetime Allowance (£268,275), except where previous protections apply.
- Change the taxation of the Lifetime Allowance excess lump sum, serious ill-health lump sum, defined benefits lump sum death benefit and uncrystallised funds lump sum death benefit, where they are currently subject to a 55% tax charge above the Lifetime Allowance, to taxation at an individual’s marginal rate.
Evidence from the government, suggests recent increases in inactivity have been driven primarily by those aged 50-64, and self-reported retirement has been the main driver for these individuals to leave. This measure supports an individual to build up retirement savings and so improves the financial incentive of work whilst continuing to balance the cost of pensions tax relief.