Chancellor Jeremy Hunt delivered his 2023 Spring Budget on 15 March 2023. The key announcements are detailed below.
Corporation tax rates from 1 April 2024
From 1 April 2023, the rate of corporation tax depends on the level of augmented profits of a company and is based on a comparison of the company’s augmented profits against the corporation tax thresholds of £50,000 (the lower limit) and £250,000 (the upper limit). The rate of corporation tax is 19% if profits do not exceed the lower limit (known as the small profits rate) and 25% where profits are greater than the upper limit. Where a company’s profits fall between the lower and upper limits, it will pay tax at the main rate of 25% but be entitled to marginal relief. The Government has confirmed that the same main rate and same profits rate will apply for the financial year beginning 1 April 2024.
Research and development
The Government had previously published draft legislation providing for a number of changes to the research and development (R&D) tax reliefs which are due to apply to accounting periods beginning on or after 1 April 2023.
The draft legislation included the following major changes:
• relief for subcontracted work and externally provided workers will be limited to focus on UK activity. Expenditure must either be ‘UK expenditure’ on R&D in the UK or ‘qualifying overseas expenditure’ undertaken outside the UK because the necessary conditions are not present in the UK due to geographical, environmental or social factors (for example deep ocean research) or due to legal or regulatory requirements (for example clinical trials).
• all claims to R&D reliefs will have to be made digitally. Claims will have to include certain additional information to be valid, including a breakdown of costs across the qualifying categories and a description of the R&D. A claim will have to be endorsed by a named senior company officer and will have to include details of any agent advising on the claim. Additionally, companies will be required to inform HMRC in advance that they intend to make a claim within six months of the end of the accounting period to which it relates by making an online ‘claim notification’. There will be an exception to the latter requirement for companies which have claimed in any of the three preceding accounting periods. Secondary legislation will detail the information to be included with a claim or a claim notification.
New temporary first-year allowances (FYAs) for companies only will be introduced in the Finance (No 2) Bill 2023. The FYAs will apply to expenditure on new and unused plant and machinery incurred on or after 1 April 2023 and before 1 April 2026.
For main rate expenditure (which would otherwise qualify for a writing-down allowance at the main rate) the FYA will be 100%, so that the expenditure is ‘fully expensed’. For special rate expenditure, the FYA will be 50%. The existing exclusions from FYAs will apply, notably for cars and for plant and machinery for leasing. There will also be an anti-avoidance rule to deal with contrived or abnormal arrangements or those lacking a genuine commercial purpose.
Special rules will apply on disposal of assets which have benefitted from the FYA. An immediate balancing charge will be made, equal to 100% of the disposal value for main rate assets and 50% of the disposal value for special rate assets.
The new FYAs replace the existing super-deduction and special rate allowance which expire on 31 March 2023.
The Government also confirmed two further capital allowances measures to be included in the Finance (No 2) Bill 2023 which had been previously announced, as follows:
• the annual investment allowance limit of £1 million will be made permanent.
• the 100% FYA for expenditure on electric vehicle charging points which was originally intended to end in 2023 will be extended so that the allowance will be available for expenditure by companies before 1 April 2025 and by non-corporate taxpayers before 6 April 2025
The annual allowance will be increased from 6 April 2023 from £40,000 per tax year to £60,000 per tax year. The annual allowance effectively limits the income tax relief on pension contributions made by, or in respect of, an individual in the tax year, and where the pension input amount exceeds the annual allowance an income tax charge applies.
Money purchase annual allowance
Like the annual allowance discussed above, the money purchase annual allowance limits the income tax relief on pension contributions made by, or in respect of, an individual in the tax year by applying an income tax charge to the excess contributions. The money purchase annual allowance applies to individuals who have taken pension benefits from defined contribution or money purchase arrangements and exists to prevent individuals from recycling pension benefits into further tax-relieved pension contributions.
The money purchase annual allowance is increased from £4,000 to £10,000. This takes the money purchase annual allowance back to its pre-6 April 2017 level.
The change will apply from 6 April 2023 onwards.
The lifetime allowance is to be abolished.
Currently, the lifetime allowance limits the total tax-relieved value that can be accumulated into registered pension schemes by levying an income tax charge on pension benefits in excess of the lifetime allowance. The income tax charge is 55% if the excess is taken as a lump sum and 25% if the excess is retained in the pension fund to pay pension benefits.
The lifetime allowance charge will be removed from 6 April 2023 onwards, although the technical amendments to the legislation to abolish the lifetime allowance will be made in a future Finance Bill. This is presumably due to the complexity of the existing legislation.
Pension commencement lump sum
When an individual becomes entitled to pension benefits from their pension scheme up to 25% of the fund can be taken as a pension commencement lump sum. Although this is also referred to as a tax-free lump sum, effectively it is only free of income tax where the amount taken is up to 25% of the lifetime allowance. Where the lifetime allowance is exceeded, any excess taken as a lump sum suffers a 55% income tax charge.
Although the lifetime allowance is to be effectively abolished from 6 April 2023, the Government does not want individuals to be able to take 25% of their entire pension pot tax-free. Therefore, a pension commencement lump sum upper monetary cap of £268,275 (which is 25% of the 2022/23 standard lifetime allowance) will apply to limit the amount that can be taken tax-free. Those with lifetime allowance protections will have a higher upper monetary cap.
These changes will apply from 6 April 2023 onwards.
Qualifying Care Relief increase
Qualifying care relief provides an exemption for income from foster-care and qualifying shared lives care. Relief is given by means of an annual exempt amount per household and weekly amounts for each child or adult cared for. Rates have not been upgraded since introduction and have been eroded by inflation. From 6 April 2023, the annual fixed amount will increase from £10,000 to £18,140, and the weekly amounts from £200 to £375 for children under 11, and from £250 to £450 for children over 11 and adults.
From 2024/25 these amounts will be increased by the Consumer Price Index. These increases in allowances will mean that foster carers and adult placement carers should normally have no tax or national insurance liability on their income from caring.
Starting rate for savings limit
The starting rate for savings limit remains £5,000 for the 2023/24 tax year. The rate of income tax that applies to this income is 0%. The starting rate for savings applies only where taxable non-savings non-dividend income (ie after personal allowances) is less than the starting rate for savings limit.
Individual savings account
The following annual subscription limits remain unchanged for 2023/24:
• individual savings account (ISA) ― £20,000
• junior ISA ― £9,000
• child trust fund ― £9,000
From April 2024, only financial institutions with a UK presence will be able to manage ISA and child trust funds.
Consultation on occupational health tax incentives
The Government announced that it will consult on incentivising employer investment in, and provision of, occupational health services through the tax system. This may include an exemption for tax and NIC for the benefits in kind legislation in relation to occupational health services or a potential super-deduction style relief for businesses who provide services to their employees.
Agent access to payrolling benefits
The Chancellor has indicated that the Government will introduce IT systems to enable tax agents to payroll benefits in kind on behalf of employers. An HMRC payrolling benefits agreement is a process operated in addition to standard PAYE tax deduction rules, which ensures that employees pay their taxes on a real time basis (as opposed to the P11D method which often sees employee taxes settled in arrears). It also removes the employer’s P11D reporting obligation. No timescale was confirmed. However the new systems, when introduced, would see agents, as well as employers, able to file payrolled benefits returns directly.
Other personal tax measures
The following measures were also announced:
• Homes for Ukraine ― the Government confirmed it will legislate in Finance (No 2) Bill 2023 to exempt the Homes for Ukraine Sponsorship Payment (made by local authorities to sponsors under the Homes for Ukraine scheme) from income tax and corporation tax. The measure will have retrospective effect from 14 March 2022 when the sponsorship scheme was launched.
• Capital Gains Tax: transfer of assets between spouses and civil partners in the process of separating ― The changes that extend the period in which no gain/no loss transfers can be made between separating and divorcing couples and allow for principal private resident relief to be claimed by a spouse or partner who has left the family home, will be legislated in Finance (No 2) Bill 2023. They will apply to disposals on or after 6 April 2023.
• Further tax provisions for Income Tax and Inheritance Tax in connection with the Dormant Assets Scheme ― the Government has confirmed it will legislate in Spring Finance Bill 2023 to amend tax legislation to support the expansion of the Dormant Assets Scheme. For income tax purposes, the change will take effect from Royal Assent of Spring Finance Bill 2023. For inheritance tax purposes the change will take effect from 6 June 2022 to align with the commencement date of the Dormant Assets Act 2022.
Homes for Ukraine: Property Tax exemptions and reliefs
Temporary relief will be introduced from both ATED and the 15% rate of SDLT where a non-natural person makes a dwelling available for occupation by refugees under the Homes for Ukraine sponsorship scheme. These will apply from 1 April 2022 and 31 March 2022 respectively.
In addition, amendments will be made to FA 2003 to ensure that registered providers of social housing acquiring property to accommodate those fleeing conflict with the assistance of specific local government funding qualify for the registered social landlord exemption and therefore do not suffer SDLT. This aspect is not limited to Ukranian refugees and will apply from 15 March 2023.
Inheritance tax, trusts and estates
Simplification for trusts and estates
HMRC consulted on formalising an existing interim concession that removes trustees and personal representatives from income tax where the only source of income is savings interest and the tax liability is less than £100. It was announced at Spring Budget 2023 that from 2024/25 trusts and estates with income up to £500 will not pay tax on that income as it arises. If income exceeds £500, income tax will be due on the full amount of income. The legislation will be introduced in Finance (No 2) Bill 2023.
Where a settlor has a number of trusts, the £500 limit will be proportionately reduced for accumulation and discretionary trusts by the total number of the current trusts to a minimum of £100. Interest in possession trusts, settlor-interested trusts, vulnerable beneficiary trusts and heritage maintenance trusts will not be taken into account.
The measure also:
• removes the default basic rate and dividend ordinary rate of tax that applies to the first £1,000 slice of discretionary trust income
• provides that beneficiaries of UK estates do not pay tax on income distributed to them that was within the £500 limit for the personal representatives
• makes technical amendments to ensure beneficiaries of estates that their tax credits and savings allowance continue to operate correctly.
VAT ― digitisation and reform of DIY housebuilders’ scheme
It was announced that the Government intends to ‘digitise’ the DIY housebuilders’ scheme. The scheme ― which is currently predominantly paper-based ― entitles certain individuals or charities to claim refunds of VAT incurred in relation to some of the goods and services they use for specified construction and conversion works.
In addition to digitisation of the scheme, the narrow three-month post-completion window for making claims, which has caused significant practical difficulties for potential claimants, will be extended to six months.
VAT ― further changes to late payment penalties and interest
The Government plans to make what are described as ‘minor, technical changes’ to the new harmonised interest and late penalty rules for VAT which came into force from 1 January 2023. The changes are as follows:
• where HMRC makes an assessment because it has made a payment or repayment to a tax-payer which is too high, late payment interest will be charged from the date HMRC made the payment (as opposed to 30 days after the date of the assessment)
• late payment penalties and interest will not be charged on annual accounting scheme instalments that are paid late but will still apply to balancing payments.
• an obsolete uncommenced repayment interest provision will be removed.
VAT ― deposit return scheme
Legislation in Finance (No 2) Bill 2023 will aim to simplify the VAT treatment of deposits charged under a deposit return scheme for drinks containers.
Where a deposit is charged on a drink that is within the scope of a deposit return scheme and the container is returned for recycling, VAT will not be applied to the deposit amount. Where the container is not returned for recycling, HMRC will collect the VAT on the unredeemed deposit. The deposit return scheme is set to be introduced in 2025.
A tax information and impact note was published alongside the Budget announcement.
Customs ― proposed package of simplification measures
As part of its Budget activities the Government announced a package of measures apparently aimed at simplifying customs import and export procedures. The package included:
• a review into simplifying customs declaration requirements
• introducing voluntary standards for customs intermediaries
• transit policy simplifications
• modernising authorisations (trusted trader schemes)
• changes to customs guarantees for special procedures, temporary storage and duty deferment
Each element of this package will require stakeholder engagement and this is scheduled to take place throughout the course of 2023.
A policy paper entitled Spring Budget 2023 customs package was published on Budget Day with some further explanation of each area and the plans for stakeholder engagement. This did not feature in the Overview of tax legislation and rates (March 2023).
Other indirect tax measures
• Review of VAT treatment of financial services ― the Government will continue to work with industry stakeholders to consider possible reforms to simplify the VAT treatment of financial services
• Alcohol duty structure reform ― changes to the duty structure for alcohol will be legislated for in Finance (No 2) Bill 2023 which will be effective from 1 August 2023.
• Alcohol duty rates ― alcohol duty rates will increase under the revised duty structure in line with RPI but Draught Relief will also increase from 1 August 2023.
• Tobacco duty rates ― the duty rate on all tobacco products will be increased by 2% above RPI and the duty rate for hand-rolling tobacco will rise by an additional 4%.
• Air passenger duty band reform ― air passenger duty bands will be reformed from 1 April 2023 introducing new domestic and ultra-long-haul bands.
• Vehicle excise duty rates ― the Government will legislate in Finance (No 2) Bill 2023 to increase VED rates for cars, vans and motorcycles in line with RPI from 1 April 2023. To support the haulage sector, VED for HGVs will remain frozen for 2023-24.
• New HGV levy ― a new reformed HGV levy will be introduced from August 2023.
• Aggregates levy exemption ― changes to aggregates levy will be introduced from 1 October 2023 bringing previously untaxed aggregate extracted for use on construction sites within the scope of the tax
• Fuel duty rates ― the Government will legislate by Statutory Instrument to extend the cut in the rates of Fuel Duty introduced at Spring Statement in March 2022 for a further 12 months. This will maintain the cut in the rates for heavy oil (diesel and kerosene), unleaded petrol, and light oil by 5 pence per litre (ppl), and the proportionate percentage cut (equivalent to 5ppl from the main Fuel Duty rate of 57.95 ppl) in other lower rates and the rates for rebated fuels, where practical. The changes will take effect from 23 March 2023.
• Insurance Premium Tax (IPT): power to make regulations by references to notices ― the Government will legislate in the Finance (No 2) Bill 2023 to broaden existing powers to allow HMRC to move IPT forms from secondary legislation and into a public notice by way of a Statutory Instrument. This will make it easier to make administrative updates to the forms without the need for legislation, and also provides a necessary step for any future legislation allowing HMRC to further digitise the IPT forms.
Criminal sentences for tax fraud
As part of the Government’s ongoing efforts to combat tax evasion, the maximum sentence for the most egregious forms of tax fraud will double from seven to 14 years.
HMRC and financial sanctions
Legislation will be included in the Finance (No 2) Bill 2023 to clarify HMRC’s functions in relation to individuals and organisations subject to financial sanctions under the Sanctions and Anti-Money Laundering Act 2018 and entities owned or controlled by them. The intention is that HMRC will be able to withhold payments and repayments to such individuals, organisations and entities despite any statutory payment obligations. The legislation will apply to payment functions which have not been discharged before 15 March 2023.