Spring Budget - ILFM Snapshot

Chancellor Jeremy Hunt delivered a ‘Budget for Growth’ after the Office for Budget Responsibility forecast a stronger than expected performance from the UK economy this year with inflation continuing to fall.

Let’s look into the different segments for this Spring Budget, including:

1. Business
2. Employment
3. Personal Taxes
4. Capital Taxed
5. Rates
6. Other
7. Opinions

Business

Whether these changes impact on your law firm or your clients’ businesses, these are the announcements.

Corporation tax rates

The expected increase in the rate of corporation tax for many companies from April 2023 to 25% will go ahead. This means that, from April 2023, the rate will increase to 25% for companies with profits over £250,000.

The 19% rate will become a small profits rate payable by companies with profits of £50,000 or less.

Companies with profits between £50,001 and £250,000 will pay tax at the main rate reduced by a marginal relief, providing a gradual increase in the effective corporation tax rate.

Also, the budget confirmed that:

• Bank corporation tax surcharge changes will proceed, meaning that from April 2023 banks will be charged an additional 3% rate on their profits above £100 million, and
• The rate of diverted profits tax will increase from 25% to 31% from April 2023.

Capital allowances

Capital allowances are a type of tax relief for businesses, which lets a business remove some or all of the cost of an item from its profits before paying tax.

Whether this impacts your firm or your clients’, the super-deduction regime, which gives a 130% enhanced first year allowance (FYA) to companies on the purchase of qualifying plant and machinery, comes to an end on 31 March 2023.

To read further into the capital allowance changes and updates please READ HERE. This government link includes announcements on FULL EXPENSING (a 100% first year allowance), and Annual Investment Allowance (AIA) availability which gives a 100% write-off on certain types of plant and machinery up to certain financial limits per 12-month period.

There have been rumbles about changes to levels, but the government has announced that the temporary £1 million level of the AIA will now become permanent.

Electric Vehicle Charge Points

The government will also extend the 100% FYA for electric vehicle charge points to 31 March 2025 for corporation tax purposes and 5 April 2025 for income tax purposes.

Making Tax Digital (MTD) for income tax

This has been a headache that has felt never-ending to many!

Of course the idea behind “making tax digital” was to simplify accounting records for businesses, whereby they can easily keep their finance records in a digital format and submit extracts from those records regularly to HMRC. The latest news however is that the government has announced a further delay in MTD for income tax self-assessment (ITSA). At present, it looks like this will be coming in April 2026.

Income over £50,000 (for businesses, self-employed and landlords) will have to join first.

Income over 30,000 will be required from April 2027.

The HMRC said earlier that MTD for corporation tax won’t be mandated before 2026, but this now looks even further away.

Accounting periods that are not aligned to tax years

As part of the MTD project, changes have been made to the rules under which trading profits made by self-employed individuals and partnerships are allocated to tax years.

The changes mainly affect unincorporated businesses that do not draw up annual accounts to 31 March or 5 April. The transition to the new rules will take place in the 2023/24 tax year and the new rules will come into force from 6 April 2024.

On a positive note, the government is introducing some helpful measures for small businesses by reducing admin stresses with the aim of encouraging growth. Have a read HERE to find out more about the government’s aim to simplify systems for SMEs.

Employment

National Insurance Contributions (NICs)

From July 2022 the NICs Primary Threshold (PT) and Lower Profits Limit (LPL) were increased to align with the personal allowance at £12,570 and will be maintained at this level from April 2023 until April 2028.

The Class 2 Lower Profits Threshold (LPT) will also be fixed from April 2023 until April 2028 to align with the LPL. The NICs Upper Earnings Limit (UEL) will remain at £50,270.

The government has also previously announced that it will fix the level at which employers start to pay Class 1 Secondary NICs for their employees at £9,100 from April 2023 until April 2028.

However, the government will uprate the Class 2 and Class 3 NICs rates for 2023/24 to £3.45 per week and £17.45 respectively.

National Living Wage (NLW) and National Minimum Wage (NMW)

From 1 April 2023, the government will increase the hourly NLW and NMW as follows:

£10.42 for those 23 years old and over

£10.18 for 21-22 year olds

£7.49 for 18-20 year olds

£5.28 for 16-17 year olds

£5.28 apprentice rate for apprentices under 19, and those 19 and over in their first year of apprenticeship.

Company Cars

Taxable benefits for company cars for 2023/24

The rates of tax for company cars remain frozen until 2024/25.

Future car benefit rates have been announced for 2025/26 to 2027/28 as follows:

Cars with emissions UNDER 75gm/km rates:

2025/26 increase by 1%.

2026/27 increase by a further 1%.

2027/28 increase by a further 1%.

Electric cars, the rate will increase from 2% to 5% over that period.

Cars with emissions OVER 75gm/km rates:

2025/26 rise by 1% in this period only (subject to a maximum of 37%)

Capital gains tax (CGT) rates

There were no changes to the current rates of CGT, which means that the rate remains at 10% and 20% thereafter.

Higher rates of 18% and 28% apply for gains such as residential properties.

When it comes to Business Asset Disposal Relief (BADR), which is aimed at directors and employees who own at least 5% of the ordinary share capital in the company, there is potential to qualify for a 10% rate, regardless of any available income tax basic rate band, up to a lifetime limit for each individual. This sounds great for those law firm models that are employee owned!

CGT exemptions

The government has announced that the capital gains tax annual exempt amount will be reduced from £12,300 to £6,000 from 6 April 2023 (and thereafter to £3,000 from 6 April 2024).

Inheritance tax (IHT) nil rate bands

Since 2009, the nil rate of IHT has been £235,000 and this will continue now until 5 April 2028. Private client law firms will be assisting their clients on Residential Nil Rate (frozen too).

Family law and chargeable gains: separated spouses and civil partnerships

Always a sensitive subject, but one that needs to be addressed sadly, especially when it refers(?) to money and transfer of assets.

Why having a good lawyer to hold your hand through this complicated CGT process is desirable.

A number of changes are proposed to the rules that apply to transfers of assets between spouses and civil partners who are in the process of separating and no longer living together. These include the following:

• 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 apply 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 an option to claim Private Residence Relief 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 sold will be able to apply the same tax treatment to those proceeds when received that applied when they transferred their original interest in the home to their ex-spouse or civil partner.

Personal Taxes

Other: including Working and Childcare

There are many members within the Institute of Legal Finance & Management who require child care.

It was clear from the Budget that the government are hoping to get more people into work, and if already in work, increasing their working hours. The proposals that were included are that working parents in England will be able to access 30 hours of free childcare per week, for 38 weeks of the year, from when their child is nine-months old to when they start school.

The stages are:

From April 2024, all working parents of two-year-olds can access 15 hours per week.

From September 2024, all working parents of children aged nine months up to three-years-old can access 15 hours per week.

From September 2025, all working parents of children aged nine months up to three-years-old can access 30 hours free childcare per week.

Where childcare is required for more than 38 weeks a year, parents are able to spread their free entitlement over a higher number of weeks.

What does this mean for our childminders?

Registered Ofsted childminders will receive a start-up grant of £600, whereas those who register with a childminder agency will receive £1,200.

Universal Credit

Parents on Universal Credit childcare support will now receive payment upfront (rather than the current arrears), when they move into work or increase their working hours.

Also, the Universal Credit childcare cap will increase:

One child = £951 (up from £646)

Two children = £1,630 (up from £1,108)

Summary from ILFM on Spring Budget

Overall the Spring Budget seems “tame”.

The Law Society did say, however, that the government missed a chance to jump on helping those desperately in need for justice by not investing into the justice system as a whole.

Law Society President Lubna Shuja said, 

When it comes to general costs in our lives (both at work and home) and the stresses we are all feeling because of this, Jeremy Hunt’s Spring Budget has lifted the mood for many. The government is supporting areas within our economy that will help bring down inflation. This can only be a positive effect on reducing interest rates and the cost-of-living for many.

When it comes to conveyancing and inflation reducing, the market should see some stabilisation. Come what may, conveyancing is still a high-risk area of law and in a Landmark Residential Conveyancing Survey for 2022, the concern for AML, fraud and cyber security was relatively high in their concerns (44% of firms said these challenges concerned them). As technology rapidly evolves so therefore do the challenges for conveyancing firms to stay alert and adhere to their regulators.

Mark Adderley, ILFM Council Member and Manager & Auditor at Crowe said,

To read Crowe’s take on the Spring Budget, please read HERE

I asked Ian Johnson, ILFM Council Member and Associate Partner & Reporting Accountant at Hazlewoods for his comments on the Budget. Ian kindly wrote this piece to add to the ILFM’s Spring Budget article: 

Spring Budget 2023: Chancellor Hunts for workforce; we Hunt for tax policies!

For a speech that lasted 60 minutes, you would expect there to be a large number of announcements and tax changes, but even when looking at the detail, this will surely be considered one of the lightest tax policy Budgets in living memory.

From a general economic perspective, there was some positive news that the Office for Budget Responsibility (OBR) now believes we will not enter a technical recession in 2023, but will see growth of between 1.8% and 2.5% over the next four years. Public sector debt is also predicted to fall over the same period. Further positive news was that inflation is believed to have peaked and is anticipated to fall from 10.7% at the end of 2022 to 2.9% by the end of 2023.

The Chancellor focussed on what he feels is required for sustainable economic growth, with his four pillars of

• Enterprise
• Employment
• Education
• Everywhere

His everywhere was focussed on levelling up and he was keen to point out that 70% of growth is attributable to areas outside of London. He intends to continue that trend with the announcement of 12 investment zones that will enjoy certain tax benefits.

Enterprise was focussed on business taxes and, whilst he commented that a Conservative staple was low taxes, the previously announced increase in corporation tax to 25%, from 1 April 2023, still remains. Instead, the Chancellor sought to encourage investment so is introducing full expensing of qualifying plant and machinery for three years, with the intention of making it permanent. For most companies, this effectively scraps the £1 million limit for annual investment allowance. Given that 99% of businesses fall within this limit already, it is odd that Mr Hunt believes this policy is going to cost £9 billion per year, on average.

His employment pillar aims at bringing people into the workforce, with assistance for the disabled, apprenticeships for the over 50s, dubbed ‘returnerships’ and a more stringent application of rules to reduce benefits where individuals are not meeting their work search requirements.

Education was a reform of the childcare system, with the intention of, ultimately, allowing all parents with children over nine months, to have access to 30 hours of free childcare each week. This will be phased in with two-year olds having access to 15 hours, initially from April 2024, for those nine months and older, 15 hours from September 2024 and then the full 30 hours being available from September 2025. Note that parents must be working for a minimum of 16 hours a week, and the free childcare doesn’t apply to those with adjusted net income of over £100,000.

Tax policies were scarce, with a freeze in fuel duty for another year, a draught duty reduction to 11p less than supermarkets, to help pubs and the freezing of ISA allowances again.

The only sizeable announcement was the removal of the lifetime pensions allowance and an increase in the annual allowance from £40,000 to £60,000, tapered once income is over £260,000 down to a new minimum figure of £10,000 (previously £4,000). Given the limits in pension contributions and the taper effect, the removal of the pensions lifetime allowance would appear to be of little impact to people, as they would have been unlikely to breach it anyway. Limiting the ability to contribute continues to be an odd decision when the drive is to get people to save for their own retirement.

And that, really, was that. Whilst nobody was expecting a bumper giveaway, we would have expected more than was actually announced. Given the economy is still in a relatively precarious position, it may well be that the view was that it’s too risky to make any significant changes; hopefully it proves to be the right decision.