16 Mar 2023

'Steady as she goes' – a Spring budget with only a few potholes.

Stephanie Hurst, Tax Director at Monahans, the largest independent firm of chartered accountants and business advisers in the South West, shares her thoughts on the Spring Budget.

The UK economy has managed to narrowly dodge a recession says Chancellor of the Exchequer Jeremy Hunt, but what does this mean for businesses and what were the key takeaways from today’s announcements?

The overall budget included some attention-grabbing headlines geared towards encouraging people back to work, whilst focussing on both stability and reassurance. Although many of our predictions came to fruition, there were some surprises in there too.

Getting people back to work….sort of
The abolition of the Lifetime Allowance (LTA) was a surprise to all, but a positive one for any over 50s looking to return to work. With the LTA previously set at £1m, the changes will impact this age group significantly.

The 50% increase in the Pensions Annual Tax Allowance from £40,000 to £60,000 together with the changes to the tapered annual allowance and increase in income thresholds is set to encourage NHS doctors, consultants and other high earners to remain in the workforce for longer. We also saw a shift in pension contribution thresholds for those who have left the labour market early; restrictions have been relaxed and people can contribute £10,000 a year as opposed to the previous £4,000, which will make a difference to early retirees.

However, lower income workers seem to have fallen through the cracks with the increase in annual allowance doing nothing more than highlighting the unrealistic proposition for those on a low to mid-range salary to be able to contribute anywhere close to £60,000 a year to their pension pots. Families will, however, benefit from an increase in free childcare over the next couple of years which could encourage more parents of young children back into the labour market.

A not so super super-deduction replacement?
It was acknowledged by the Chancellor that raising the rate of corporation tax and ending the super deduction without substitution would have been damaging to business growth.

A newly proposed ‘full-expensing’ relief will run between 1 April 2023 and 31 March 2026 and will allow businesses to write off up to 100% of qualifying plant and machinery investments, potentially cutting taxes by 25p in every £1.

The move has the potential to be extremely beneficial to businesses, helping to reduce corporation tax rates and freeing up more capital to be spent on recruiting staff; thereby, furthering the overall message of encouraging people back to work.

However, things are not entirely as they seem. Whilst there is no doubt that the new relief will be welcomed and beneficial to many business throughout the UK there are pitfalls to be considered such as the immediate clawback of relief if you decide to sell your asset in future and a few key exclusions. The rules for this relief are actually largely in place already and have been for a number of years but they are being extended to increase the range of assets that can qualify for a write off.

Businesses intending to make significant capital investment will certainly benefit from this relief but should ensure they are fully aware of how the rules operate.

Energy support to be extended
Mr Hunt announced an extension of the energy bill relief which will undoubtedly ease the pressure being felt by households across the UK.

Although the support is being extended, noticeably absent was any mention of curbs on energy company profiteering or windfall taxes revealing a renewed unwillingness to dig out the root of the problem and instead making do with a sticking plaster on the wound.

A positive change for our creative and technological industries
A £500 million per year package of support has been allocated to R&D which, given the raft of changes already due to be introduced from 1 April 2023, will be welcomed by many businesses in the science and technology industries.

From 1 April 2023 loss making small and medium sized businesses who spend more than 40% of their total overheads on qualifying R&D activity can claim a cash credit of £27 for every £100 spent on R&D. Although lines are still a little blurred on exactly how the 40% expenditure rule will work, the announcement should still help to encourage home-grown tech development, particularly following the disappointing cuts to headline R&D relief rates made in the autumn statement.

In addition to R&D, Mr Hunt also announced an extension to tax relief for the UK’s leading creative industries through audio-visual tax reliefs. New measures will involve an “expenditure credit” with a rate of 34% for film, high end television and video games. Businesses within the animation and children’s TV industries can obtain a credit of up to39%.

Current relief in place for orchestras, theatres and museums will also be extended for two more years.

There was plenty for business and individuals to think about within this Budget but the overriding message was very much ‘steady as she goes’ with the intention to restore some basic stability to the UK economy.

For now, we can count our wins as we wait to see if these changes really will get the economy moving again.

You can also download and read our Spring Budget 2023: Summary and Key Announcements publication by clicking here.

Monahans is here to help your business navigate the world of taxation and relief. For more information on what the Spring Budget 2023 means for your business, please get in touch.

Stephanie Hurst