Following the chancellor’s spring budget on 15 March 2023 we have outlined some of the key announcements that may be of relevance to you and those dearest to you.
Capital Allowances
The super deduction allowance officially ends on 31 March 2023. Where super-deduction expenditure is incurred in a chargeable period ending on or after 1 April 2023, the 130% super-deduction decreases. The 30% uplift is reduced to reflect the number of days in the chargeable period either side of 1 April 2023.
The government have announced that the super-deduction will be replaced with a new temporary first year allowance (FYA) for companies only.
FYAs will apply to qualifying expenditure on new and unused plant and machinery incurred on or after 1 April 2023 and before 1 April 2026 that would have normally qualified for the main rate of 18%.
For main rate expenditure, the FYA is 100% so that the expenditure is ‘fully expensed’ in the year of purchase.
For special rate expenditure the FYA is 50%.
Like the super deduction there is no limit to the amount of qualifying expenditure a company can claim for.
Annual Investment Allowance (AIA)
For items not covered by the above allowances it was also announced that the AIA limit of £1m will be made permanent. Unlike the above, AIA can be claimed by sole traders and partnerships (providing partners are all individuals), as well as companies.
Electric Charging Points
The 100% FYA for expenditure on electric vehicle charging points was due to end in 2023. This has now been extended so that the allowance will be available for expenditure by companies until 31 March 2025 and by sole traders and partnerships until 5 April 2025.
Pensions - Annual Allowance Increases
Where pension contributions for a year exceed the Annual Allowance, the excess is subject to charge at the person’s marginal rate of income tax. The available Annual Allowance is also tapered by £1 for every £2 that adjusted income exceeds a defined limit.
From 6 April 2023, the Annual Allowance will increase from £40,000 to £60,000. The adjusted income limit will increase from £240,000 to £260,000 and, where tapering applies, the minimum tapered Annual Allowance will be £10,000, up from £4,000.
Pensions - Lifetime Allowance changes
On a ‘benefit crystallising event’ (e.g. first accessing a pension or 75th birthday), pension funds are tested and, if their value exceeds the Lifetime Allowance (currently £1.07m), the excess is subject to a tax charge. When the excess is taken from the pension as a lump sum, tax is charged at a rate of 55%. Where the excess remains in the pension fund it will be taxed at 25% (recognising that it will subsequently be subject to tax via PAYE on draw down).
From 6 April 2023 the Lifetime Allowance will be abolished.
The Lifetime Allowance limit will, however, continue to exist for the purpose of capping the 25% tax-free lump sum available when first accessing a pension. This means that, in most circumstances, the maximum tax-free lump sum a taxpayer could accrue will be £268,275. However, where a pension protection is held, the maximum lump sum is 25% of the protected amount.
Capital Gains Tax: Separation and Divorce
Currently, ‘no gain, no loss’ treatment is only applied up to the end of the tax year in which spouses or civil partners separate.
From 6 April 2023 the rules will be as follows:
separating spouses or civil partners will be given up to three years after the year they cease to live together in which to make no gain, no loss transfers.
no gain, no loss treatment will also apply without a time limit to assets that separating spouses or civil partners transfer between themselves as part of a formal divorce agreement.
a spouse or civil partner who retains an interest in the former matrimonial home will be given the option to claim Private Residence Relief (PRR) when it is sold.
individuals who have transferred their interest in the former matrimonial home to their ex-spouse or civil partner (and are entitled to receive a percentage of the proceeds when that home is eventually sold) will be able to apply the same tax treatment to the proceeds ultimately received, that applied when they transferred their original interest in the home to their ex-spouse or civil partner.
Corporation Tax
From 1 April 2023, there is no longer a single corporation tax rate for profits.
A small profits rate of 19% will apply for for companies with profits of £50,000 or less.
Companies with profits exceeding £250,000 will pay the main rate of corporation tax, being 25%.
Companies with profits between £50,000 and £250,000 will pay tax at the main rate of 25%, reduced by a marginal relief deduction. This results in a gradual increase in the effective corporation tax rate from the small profits rate of 19%. The effect of this is that profits between £50,000 and £250,000 will actually be taxed at 26.5%.
The £50,000 and £250,000 limits will be divided by the number of associated companies. For accounting periods shorter than 12 months, these limits are also proportionately reduced. These factors can mean that even if profits in one company are under £50,000, the main rate (25%) or a marginal rate between 19% and 25% might apply, due to the existence of additional associated companies.
Broadly speaking, two companies are associated if one has control over the other, or both are under the control of the same person or persons. There are rules that ensure that such attribution only occurs where there is substantial financial, economic or organisational interdependence between the companies concerned – for example they trade from the same premises or rely on each other financially.
If you believe you will be affected by the above, or think that there may be more than one company under your control or even other companies under the control of your tax associates that we haven’t already discussed recently, please speak with us.
Changes to VAT penalties
A brief summary of the new system is outlined below. New late payment penalty rules and a points-based late submission penalty regime were introduced from 1 January 2023, replacing the VAT default surcharge. These apply to accounting periods for returns and payments due by 7 March 2023.
Late submission penalties - These work on a points-based system. For each VAT return submitted late, businesses will receive a penalty point until they reach the penalty point threshold – at which stage they will receive a £200 penalty. A further £200 penalty will also apply for each subsequent late submission while at the threshold, which varies to take account of monthly, quarterly and annual accounting periods. In a similar way to points on your driving license, late submission points will only be cleared after a period of consecutive compliance.
Late payment penalties - If a VAT payment is more than 15 days overdue, businesses will pay a first late payment penalty at 2%. If the VAT payment is more than 30 days overdue, the first late payment penalty increases by another 2% and a second late payment penalty of an additional 2% will also apply to the amount still outstanding (i.e. 4% at 30 days if nothing has been paid). To help get used to the changes, HMRC have said that they will not charge a first late payment penalty on VAT payments due on or before 31 December 2023, if businesses either pay in full or a time to pay arrangement is agreed within 30 days of the payment due date.
Payment plans - HMRC may support businesses that cannot pay their VAT bill in full. Businesses can request to set up a payment plan with HMRC to pay their tax bills in instalments. After 31 December 2023, if a customer proposes a payment plan within 15 days of payment being due and HMRC agrees it, they would not be charged a late payment penalty, provided that they keep to the conditions of the payment plan. Late payment penalties can apply where proposals are made after the first 15 days, but the agreement of the payment plan can prevent them increasing.
Interest calculations - HMRC has introduced both late payment and repayment interest, which will replace previous VAT interest rules. This brings the new regime in line with other taxes. Overdue taxes will attract interest charges at 2.5% above base rate.
Research and development (R&D) tax relief
Enhanced corporation tax relief may be available if a company carries out certain qualifying R&D activities related to its trade. HMRC’s rules are relatively complex and are evolving but we have expert R&D colleagues who can help ensure that qualifying projects are correctly identified and you obtain the maximum benefit available from this relief wherever possible.
To qualify for the enhanced relief, a company must have incurred research and development costs on projects that involve uncertainty where solutions aren’t already common knowledge, hence aiming to advance science or technology. If you think you may have undertaken any R&D activity during the year, please speak with us.
Support and guidance:
We hope that the above summary provides you with a view of some of the latest developments and key areas from the budget that may affect you and your families now and into the future – as always, it is not intended to be a comprehensive list of all of the changes, or a substitute for comprehensive tailored advice and so if you have any queries or concerns, please call the office to arrange a meeting to discuss your specific circumstances and plans.
Barnett & Turner Accountants Ltd
Chartered Accountants
Cromwell House
68 West Gate
Mansfield
NG18 1RR
Nottinghamshire
Tel: 01623 659659
Fax: 01623 420844