How the Spring Budget 2023 might affect you and your money
We have a new Budget and with it comes a roadmap of what you can expect from the government’s fiscal plans for the next few months and beyond. Unveiled by Chancellor Jeremy Hunt, we can overall anticipate a focus on encouraging people to return to work and boosting business investments across various industries. Here are 7 of the main changes that are likely to affect your money, finances and taxes.
Research and Development
Simplified SME Taxes
First up, corporation tax rates are set to increase from 19% to 25%, but only for businesses earning over £250,000 in taxable profits. Smaller businesses won't be affected much.
If your business earns more than a quarter of a million in taxable profits, you can expect to see a 6% increase. Businesses with earnings between £50,000 to £250,000 will pay a rate anywhere between the old 19% rate and the new 25% rate.
On the other hand, a new £27 billion in funding for two capital allowance schemes has been announced for the next 3 years. Businesses can now take advantage of these new capital allowance schemes.
Full Expensing (FE) will let employers deduct 100% of the cost of certain machinery from their profit before tax. This scheme is effective immediately and will last until March 2026, giving you ample time to make use of it. Government estimates show this could result in a 25% saving per £1 invested.
Similarly, the First-Year Allowance (FYA) will let new business owners deduct 50% of machinery classified as special rate assets from their profits during the year it was purchased instead of slowly over its lifetime. This will include “lifelong" assets like solar panels and thermal insulation on buildings. The FYA scheme was originally going to end in March 2023 but has been extended for another 3 years.
Research and Development
There's also good news for R&D-intensive SMEs, with a £500 million per year scheme to support approximately 20,000 qualifying companies, including those in the life science, pharmaceutical, digital, programming, consultancy, and related sectors.
20,000 small and medium-sized enterprises (SMEs) will be targeted in a new R&D scheme worth £500 million per year. This scheme is intended for loss-making SMEs that are R&D-intensive - defined as when R&D expenditure is worth 40% or more of a business’ total expenditure.
Eligible companies will be able to claim 27% of every £100 in R&D investment. This scheme will also support AI, machine learning and digital-based technological developments within the UK and help fund thousands of other qualifying business activities that will help boost investments and innovations in their industries.
Simplified SME Taxes
Additionally, a simplified tax system is on the horizon for small businesses.
The Chancellor announced a simplified tax system for small businesses to comply with tax obligations. This is aimed at reducing a small company’s admin burden. We don’t know exactly what to expect yet so we’ll let you know if any important information comes to light.
Currently, the lifetime savings cap is set to £1.07 million in pension funds and this has been the case for some time. With these new changes, you will no longer pay additional taxes on anything above this. After a 9-year freeze, the yearly tax-free allowance cap will also be raised from £40,000 to £60,000 in pension contributions.
In terms of energy bills, the government is investing £200 million to bring energy charges for prepayment meters in line with direct debit customers.
They will also support low-carbon energy projects with a £20 billion investment over the next 20 years to hopefully provide a longer-term solution to the energy crisis.
Parents will receive more childcare support. Working parents in England will be able to receive this free childcare for children up to 2 years old. This will be rolled out in stages from April 2024.
Families on Universal Credit will receive childcare support upfront instead of in arrears with a new £951 a month per child cap. This will help families with the cost of childcare and enable more parents to return to work more easily.
The government will also provide £63 million in programmes to encourage retired people over 50 to go back into work with apprenticeship-type roles as well as skill boot camps. Immigration rules will be relaxed for 5 specific construction sector roles to ease labour shortages.
Stay in the know
The Spring Budget has introduced several changes that could affect your money, finances, and taxes. These changes include an increase in corporation tax for certain businesses, capital allowances, R&D funding and more.
These are just a few highlights but we’re sure to discover more over time. Make sure to stay informed and check in with Finance Box to see how these changes might impact your business.