The Spring Budget 2023 – What does it mean for you?

The Chancellor has announced his March budget.

Similar to the budgets, autumn statements and ‘non-budget’ statements of the last few years we knew most of the details in advance. What we did find out yesterday is that the UK is in a better position than feared. It is believed that inflation will fall to 2.9% by the end of 2023. 

However, finding staff is a problem faced by most small businesses. This budget was the Chancellor’s way of helping alleviate this shortage. He has done this by:

  • Providing more funded childcare. 30 hours a week of free childcare is being extended to working parents of 1 and 2-year-olds
  • Completely removing the pensions lifetime allowance, currently £1.07m
  • Increasing the amount people can pay into a pension tax free, i.e. from £40k per year to £60k per year
  • The tapering threshold has been increased from £240,000 to £260,000 and the allowable pension deduction for high earners has increased from £4,000 to £10,000
  • Providing more money to schools to help with wrap-around care

Whilst these will help, the question is whether these measures are going to provide the much-needed increase in people going back to work? 

It was hoped that the chancellor was going to stop the planned corporation tax rise from 19% to 25% for businesses earning between £50k and £250k in profits. However, this tax rise will still take effect. This will have a big impact if you run multiple businesses. 

What was announced to help business?

  • The 5p reduction in fuel duty is being extended for another year
  • The energy price cap freeze at £2500 for consumers will be extended for another 3 months. i.e. until the end of June 2023
  • The Energy Bills Discount Scheme is being maintained until 31st March 2024 for all eligible businesses
  • The 130% super deduction tax for investments in plant and machinery which stopped at the end of March is being retained but at the 100% level with ‘full expensing’
  • 12 investment zones which will attract tax reliefs and grant funding
  • Small companies who spend over 40% of their costs on R&D will receive £27 from HMRC for every £100 of R&D investment
What is ‘full expensing’?

In 2021, the government introduced the super-deduction to go further to encourage companies to invest. This is due to end on 31st March 2023. The government is now introducing ‘full expensing’, a 100% First Year Allowance, from 1st April 2023 until 31st March 2026. 

For investments in qualifying plant and machinery such as IT equipment the full cost can be deducted against profits in the year it was incurred.

Change in the capital gains tax rules on divorce

Previously, separating spouses only had the tax year of separation in which to transfer marital assets at no gain/no loss. This was too short of a period and unfairly penalised those separating later in the tax year. Under new rules there is now a three-year period from the date of separation where such transfers can be made with no CGT impact.

What do you need to do now?

Given the extra costs such as rising energy bills, the minimum wage increases and the 10% inflation rate across 2023, businesses should address the following:

1. If you haven’t already put together your business plan for 2023 and modelled the impact of rising costs, consider if you need to:

a) Increase your prices

b) Reduce your overheads

c) Increase your wages

2. Carefully look at your personal and business tax situation. For example:

a) Would you be personally better off if you paid yourself more via PAYE or made more pension contributions? (particularly now you can add £60k into your pension pot each year tax free)

b) You may wish to reassess which business structure is best suited to you – sole trader or limited company

3. Who in your staff needs a pay rise to avoid falling foul of the rise in the National Minimum Wage?

For more information read our LKA Spring Budget Overview. If you need help with any of these next steps please call us on 020 3915 8585 or email us.