The Chancellor of the Exchequer, Jeremy Hunt, delivered his Spring Budget. With the UK now projected to avoid a recession, the Chancellor focused on delivering the Government’s growth plans. As expected, there were no changes to headline tax rates or allowances but there were targeted measures on childcare and pensions to attract people back to work.
PERSONAL TAXES AND BENEFITS
ADDITIONAL RATE OF TAX
As previously announced, the income threshold above which individuals will begin paying tax at the additional rate (45%) will be reduced from £150,000 currently to £125,140 with effect from 6 April 2023.
The tax-free dividend allowance will reduce from £2,000 to £1,000 with effect from 6 April 2023 and to £500 from 6 April 2024.
PENSION LIFETIME ALLOWANCE
The Government has announced that it will work to abolish the tax-free limit for pension savings during a lifetime in future budgets. From April 2023 there will be no lifetime allowance charges in respect of pension funds, which means that there is effectively no upper cap on the value of a pension fund. However, the 25% tax free lump sum will be capped at 25% of the Lifetime Allowance for 2022-23.
Currently the lifetime allowance is £1,073,100.
PENSION ANNUAL ALLOWANCE
The annual allowance will remain in place, but will increase from £40,000 to £60,000 with effect from 6 April 2023.
The minimum tapered annual allowance will increase from £4,000 to £10,000 with effect from 6 April 2023.
As it stands, an individual will have a tapered annual allowance if both their ‘threshold income’ is over £200,000 and their ‘adjusted income’ is over £240,000. From 6 April 2023, the ‘adjusted income’ level will increase to £260,000. The ‘threshold income’ level will remain the same at £200,000.
For those who are already drawing a pension, the total amount they can save tax free under the Money Purchased Annual Allowance is to be increased from £4,000 to £10,000 from 6 April 2023.
A significant extension to free childcare was announced to encourage people back to work. By September 2025, 30 hours of free childcare will be available for every child over the age of 9 months with working parents. Eligibility will match the existing 30 hour offer for 3-4 year olds.
Income and gains from crypto assets will need to be reported separately on self-assessment tax returns, specifically forms SA108 (Capital gains summary page) and SA905 (Trust and estate capital gains page). The changes will be introduced for the 2024/25 self-assessment tax return.
EXPANSION OF THE SEED ENTERPRISE INVESTMENT SCHEME
The Government will broaden the scheme and the amount of investment that companies will be able to raise. The annual investor limit will be doubled from £100,000 to £200,000. The changes will take effect from 6 April 2023.
REFORM OF COMPANY SHARE OPTION PLAN (CSOP)
As previously announced, the Government will make changes to the CSOP rules. From 6 April 2023, qualifying companies will be able to issue up to £60,000 of CSOP options to employees, double the current £30,000 limit.
The adult ISA annual subscription limit for 2023/24 will be frozen at £20,000.
The annual subscription limit for Child Trust Funds and Junior ISAs for 2023/24 will each remain frozen at £9,000.
SIMPLIFICATIONS FOR TRUSTS AND ESTATES
The Government announced that it will legislate to simplify how income tax applies to trusts, estates and their beneficiaries. The simplifications include;
- that trusts and estates with income up to £500 do not pay tax on that income as it arises
- removing the default basic rate and dividend ordinary rate of tax that applies to the first £1,000 slice of discretionary trust income
- that beneficiaries of UK estates do not pay tax on income distributed to them that is within the £500 limit for the personal representatives.
These changes will take effect from 6 April 2024.
Some technical clarifications relating to estate beneficiaries will be made for the tax year 2023/24 onwards.
Also, HMRC intend to make changes to inheritance tax regulations during 2023/24 to remove some non-taxpaying trusts from reporting requirements.
PROMOTERS OF TAX AVOIDANCE SCHEMES
The Government have announced that they will consult shortly on the introduction of a new criminal offence for promoters of tax avoidance who fail to comply with a legal notice from HMRC to stop promoting a tax avoidance scheme. The consultation will also look at expediting the disqualification of directors of companies involved in promoting tax avoidance.
ELECTIVE ACCRUALS BASIS FOR CARRIED INTEREST RULES
In the UK, carried interest is charged to capital gains tax at the time a “sum arises” to an individual. In some cases, UK resident individuals who pay tax on carried interest are unable to claim double taxation relief for tax paid in other countries because carried interest is recognised and charged to tax at a different time in the two jurisdictions.
With effect for the tax year 2022/23, UK resident investment managers will be able to make an election to accelerate their tax liabilities in order to align their timing with the position in other jurisdictions, where they may obtain double taxation relief.
CAPITAL GAINS TAX ANNUAL EXEMPTION AMOUNT
The capital gains tax-free annual exempt amount will reduce from £12,300 to £6,000 with effect from 6 April 2023. Also, it is expected that this will reduce further to £3,000 from 6 April 2024.
CAPITAL GAINS TAX: SEPARATION AND DIVORCE
As announced in July 2022, the Government will make changes to the rules that apply to transfers of assets between spouses and civil partners who are in the process of separating. Separating spouses or civil partners will be given up to 3 years, after the year they cease to live together, to make no gain or no loss transfers of assets and unlimited time when the assets are subject of a formal divorce agreement.
Currently, when spouses or civil partners separate, no gain/no loss treatment is only available in relation to any disposals in the remainder of the tax year in which the separation happens. After that, transfers are treated as normal disposals for capital gains tax purposes.
The changes will take effect for disposals made on or after 6 April 2023.
EXPANDING THE CASH BASIS
The Government announced that it would consult on expanding the cash basis.
Currently, eligible businesses can elect to use the cash basis if total receipts are not above £150,000. The cash basis is also the default method of reporting property rental income.
The consultation will close in June 2023 and will focus on the four following policy proposals.
- Increasing the turnover thresholds for businesses to use the cash basis
- Setting the cash basis as the default, with an opt-out for the accruals basis
- Increasing the £500 limit on interest deductions in the cash basis
- Relaxing restrictions on using relief for losses made in the cash basis
OTHER TAX AND NIC THRESHOLDS
All other income tax, inheritance tax and NIC thresholds and allowances will be fixed at their current rates until at least 6 April 2028.
CORPORATION TAX RATE
The decision to proceed with the Corporation Tax rate increase to 25% from April 2023 will remain in place. We have published a separate technical update on the upcoming changes to Corporation Tax and the Associated Companies rules.
REFORM OF EXISTING R&D TAX RELIEFS
The government is extending the scope of qualifying expenditure to include the costs of datasets and cloud computing.
All claims to R&D reliefs, either for a deduction or a tax credit, will need to be made digitally and will need to be accompanied by a compulsory additional information form. The additional form will be required for all claims made on or after 1 August 2023 and will require the following extra information:
• The form will have to break the qualifying costs down across qualifying categories and provide a description of the R&D.
• Each claim will need to be endorsed by a named senior officer of the company.
• Details of any agent who has advised the company on the claim will need to be provided.
Companies will need to inform HMRC in advance, that they plan to make a claim. They will need to do this within 6 months of the end of the period of account to which the claim relates. Claim notification will only be required where a company has not made an R&D claim during the previous three years.
The previously announced measure which removed overseas subcontracting and non-UK payroll Externally Provided Workers as qualifying expenditure for R&D tax relief has be delayed from April 2023 to April 2024.
ADDITIONAL TAX RELIEF FOR R&D INTENSIVE SMEs
From 1 April 2023, the government will introduce an increased rate of relief for loss-making R&d intensive Small & Medium size enterprises. Eligible companies will receive £27 from HMRC for every £100 of R&D investment. A company is eligible where 40% of total expenditure is R&D investment.
AMENDMENTS TO CORPORATE INTEREST RESTRICTION
A number of revisions have been made to the corporate interest restriction rules and to the calculation to ensure the rules work as intended. The changes will generally have effect for periods from 1 April 2023, but there are some exceptions which apply to earlier periods. More detail of the precise rule changes can be found within the Government policy paper “Revisions to the worldwide debt cap administration rules.”
TRANSFER PRICING DOCUMENTATION
There are new requirements for large multinational enterprise groups (with global revenues of over €750m) in respect of transfer pricing records. They are now required to maintain a master file containing standardised and local file, and complete a summary audit trail, which is a short questionnaire detailing the main actions undertaken in preparing the local file. The changes will have effect for accounting periods on or after 1 April 2023 for corporation tax purposes, and for income tax purposes will apply to the 24/25 tax year onwards.
MULTINATIONAL AND DOMESTIC TOP-UP TAX
A new multinational top-up tax will be raised where a UK parent member has an interest in entities located in a non-UK jurisdiction, and the group’s profits arising in that jurisdiction are taxed at below the minimum rate of 15%. The charge is a top-up tax to bring the amount into charge that is required to achieve a 15% minimum rate. A domestic top-up tax will introduce a new tax on UK members within a domestic or multinational enterprise group and will ensure that any top-up tax due on UK profits is collected in the UK.
This will apply to groups with annual global revenues exceeding €750m, and is to try and tackle profit shifting and aggressive tax planning by multinationals.
ELECTRICITY GENERATOR LEVY
More details have been provided on the previously announced Electricity Generator Levy (EGL) following the Autumn Statement and a technical note was published in December 2022. Some key details clarified or changes made since the Autumn Statement include:
• The EGL will be in effect from 1 January 2023 to 31 March 2028.
• The EGL will be administered in the same way as Corporation Tax and will need to be paid in line with the responsible company’s normal payment dates for Corporation Tax.
• The EGL will not be deductible from profits subject to Corporation Tax.
• There will be some limited costs which can be deducted, but these need to be extraordinary themselves, (i.e. be costs that have risen to a similar extent to the electricity prices and for reasons that are connected with the energy crisis. Limited to the acquisition of generation fuel and feedstock, which can be set against exceptional receipts.
• The benchmark price of £75MWH will be adjusted each year from April 2024 in line with the Consumer Price Index.
• It was previously announced that the levy would only apply to those with a generation output exceeding 100GWh, this has been reduced those generating 50GWh per annum of electricity.
• The EGL will apply to electricity generated in the UK both sold in the UK and exported. Generated in the UK will be defined as generation in the UK, in its territorial sea and in Renewable Energy Zones.
• The EGL will not apply to electricity generated under a Contract for Difference with the Low Carbon Contracts Company Ltd, or to electricity which has been generated outside of the UK and imported.
ENTERPRISE MANAGEMENT INCENTIVES - PROCESS CHANGES
From 6 April 2023, two administrative requirements have been removed. The requirement for the company to set out within the option agreement the details of any restrictions on the shares being acquired has been removed. The company no longer has to declare that an employee has signed the working time declaration when they are issued an EMI option. The working time requirement itself has not been removed.
From 6 April 2024, the deadline for notifying an EMI option will be extended from 92 days following grant to the 6 July following the end of the tax year in which the options were granted.
CHANGES TO CAPITAL ALLOWANCES
INTRODUCTION OF “FULL EXPENSING”
Full expensing for companies investing in plant and machinery is to be introduced for expenditure incurred in the period from 1 April 2023 to 31 March 2026. This relief comprises a 100% first-year allowance for main rate expenditure, which will be known as ‘full expensing’ and a 50% first-year allowance for special rate expenditure. The definition of main and special rate expenditure is unchanged. The general exclusions for cars, leased P&M still apply, and the plant and machinery must be new to qualify.
The amount of expenditure that can qualify for this measure is uncapped.
ANNUAL INVESTMENT ALLOWANCE (AIA)
The government have confirmed that they have set the AIA permanently at £1 million per annum, and it will not revert to its previous permanent level of £200,000, which was due to take place on 1 April 2023.
FIRST YEAR ALLOWANCE FOR ELECTRIC VEHICLE CHARGE-POINT
The availability of the 100% first-year allowance for qualifying expenditure on electric vehicle charge-point equipment until 31 March 2025 for corporation tax purposes, and 5 April 2025 for income tax purposes. This was due to expire on 1 April 2023 and 5 April 2023 respectively.
HOMES FOR UKRAINE
INCOME TAX AND CORPORATION TAX EXEMPTIONS
The ‘Thank You’ payments made by Local Authorities to sponsors under the Homes for Ukraine scheme will be exempt from Income and Corporation Tax.
SDLT AND ATED EXEMPTIONS
There will be a relief from ATED and the 15% rate of SDLT for any dwelling made available to Ukrainian refugees under the Homes for Ukraine Sponsorship Scheme, from 1 April 2022.
INTRODUCTION OF CUSTOMS ADVANCE VALUATION RULINGS
New legislation will be introduced to enable HMRC to grant Advance Valuation Rulings to customers importing goods into the UK. Rulings are written decisions made by customs authorities at the request of a trader and are legally binding on both parties. They will provide certainty and clarity to customers on how to arrive at the customs value for their goods, and ultimately how much duty may be due. Once provided, the ruling decision will be legally binding for a period of three years.
These have historically not been provided by the UK, but offered by customs authorities worldwide.
MINOR CHANGES TO PAYMENT AND INTEREST RULES FOR VAT
When HMRC makes an assessment to recover money, because HMRC has made a payment or repayment to a taxpayer which is too high, late payment interest will be charged from the date HMRC made the original payment. Currently, the interest is charged 30 days after the date of the assessment.
Those using the VAT Annual Accounting Scheme, late payment interest and late payment penalties will not be charged on instalments that are paid late. Late payment interest and late payment penalties will still apply to any balancing payment that is not paid on time.