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After all the budget drama of 2022, it was quite nice to have a budget without too many big reveals or surprises. The Spring Budget 2023 was all about encouraging economic growth. In amongst the announcements about investment and employment, there were a few tax related updates which were mostly positive in nature.
There was no reversal of the planned increase in the corporation tax rate from 1 April 23 from 19% to 25% for limited companies with profits over £250,000. This will also affect limited companies with profits over £50,000 and under £250,000 who will pay corporation tax at a marginal rate between 19% and 25%.
Super-deduction capital allowances are coming to an end on 31 March 23. These have been in place for the past 2 years, since 1 April 21. They were designed to encourage investment in equipment post-Covid. The rules allowed limited companies to claim 130% in capital allowances on qualifying main pool plant and machinery.
With the theme of growth, encouraging continued investment in assets and equipment remains important. The super-deductions are being replaced by full expensing for qualifying plant and machinery for the next three years.
This allows the full value of qualifying main pool plant and machinery to be claimed in the year that it’s purchased. It applies to expenditure from 1 April 23 to 31 March 26.
This will primarily benefit companies who want to make significant investment in plant and machinery that would exceed the current £1 million annual investment allowance and doesn’t qualify for first year allowances.
As with the super-deductions, it only applies to capital allowances from limited companies, not to sole traders.
As already announced in 2022, from 1 April 23 the rates of R&D relief that are available for SMEs (Small or Medium Enterprises) will be significantly reduced. The 130% rate will reduce to 86% and the credit for loss making SME’s will reduce from 14.5% to 10%.
The Spring Budget 23 gave a partial reversal for R&D intensive loss-making SMEs. R&D intensive means SME’s where the R&D expenditure is more than 40% of the total expenditure in the period. They will still be able to use the 14.5% rate for their payable credit, rather than the reduced 10%.
However this credit will be based on a calculation which uses the new reduced rate for calculating the enhanced expenditure (so 186% rather than the previous 230%).
The VAT threshold is frozen at the current level of £85,000 to 2026. It will have remained the same for 9 years since 2017. With recent inflation, more businesses are likely to exceed the threshold.
After 9 years without a rise, the pension contributions annual allowance will increase from £40,000 to £60,000 from 2023-24. This means more can be invested annually without incurring addition tax.
The pension lifetime allowance has been abolished. This capped the total value of the pension pot and was set at £1,073,100. From 2023-24 there will be no limit on how large the total pension savings can be.
There were no significant changes to other personal tax rates and allowances . They will mainly remain largely the same in 2023-24 as they were in 2022-23.
The main areas of change are the previously announced decrease in the dividends allowance, decrease in the capital gains annual exempt amount and decrease in the additional rate tax threshold.
Some other key areas that don’t directly affect personal or business tax include:
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