It was RSM tax partner Chris Etherington who levelled the “bland ideas” criticism, noting that “flashy tax giveaways for individuals were not on the agenda” from chancellor of the Exchequer Jeremy Hunt. Crowe UK corporate tax partner Simon Crookston said the Spring Budget was also “bland from a business perspective”.
“The UK will not now enter a technical recession this year”, Hunt said in his speech – but, with the Office of Budget Responsibility (OBR) forecasting a contraction of 0.2% in the economy in 2023, and the ongoing cost-of-living crisis, “we remain vigilant”.
Hunt added that the OBR has forecast a fall in inflation from 10.7% to 2.9% by the end of 2023, and a return to growth from 2024 onwards. The big tax giveaways were on pensions, capital allowances and fuel duty.
Corporate taxes
With the corporation tax rate rising to 25% in April, Hunt noted the current 19% rate failed to “incentivise investment as effectively as countries with higher headline rates”. He unveiled a new capital allowance policy over the next three years of full expensing for main rate assets and 50% first year allowance for special rate assets – a corporation tax cut worth an average of £9bn a year.
PwC head of tax policy Jon Richardson said businesses were “relieved the chancellor has acted to soften the blow” from the double hit of rising corporation tax rates and the ending of the super-deduction.
However, Martin McTague, Federation of Small Businesses (FSB) national chair, said small businesses felt “overlooked and undervalued”.
“The Budget spends £27bn extra on big business taxes, arguing small businesses are already catered for – this will leave a feeling of being left behind instead of considered equal partners in economic recovery,” McTague said.
Institute of Directors chief economist Kitty Ussher urged the “very welcome” capital expensing policy to be continued after three years. However, Ussher was “disappointed” the chancellor chose to target R&D tax credits to some parts of the economy, after Hunt announced additional tax relief for R&D-intensive SMEs. From 1 April 2023, SMEs with qualifying R&D expenditure of at least 40% of total expenditure will be able to claim a higher payable credit rate of 14.5%, while restrictions on overseas expenditure in R&D tax reliefs are delayed for a year to 1 April 2024.
The announcement of 12 new investment zones across the UK – “12 potential Canary Wharfs,” Hunt said – was hailed as “a welcome move [which] puts the North of England squarely on the map from an investment perspective,” according to Marc Goldberg, CEO of commercial finance at Together.
Audio-visual tax relief reforms commence from 1 April 2024, with Hunt introducing an expenditure credit at 34% for film, high-end television and video games, and 39% for animation and children’s television. The qualifying threshold for high-end television stays at £1m. Current 45% and 50% reliefs for theatres, orchestras and museums will be extended for another two years.
Personal taxes (including pensions)
Hunt announced the pensions annual tax-free allowance would increase to £60,000 from £40,000 and abolished the lifetime allowance – reforms he said would stop more than 80% of NHS doctors from receiving a tax charge, incentivise experienced/higher-paid NHS workers to stay in work longer, and simplify pensions tax.
“No one should be pushed out of the workforce for tax reasons,” Hunt declared.
Stevie Heafford, HW Fisher tax partner, said they were “long overdue reforms” and called the chancellor’s updating of the taper mechanism for the annual allowance to £10,000 a year from £4,000 “a smart move”.
Etherington added: “With no lifetime limit as to how much can be saved into pension pots, the big winners may be those looking to limit their inheritance tax (IHT) exposure.”
Fuel and alcohol duty
Hunt said the 5p fuel duty cut will be maintained for a further 12 months and fuel duty would remain frozen – costing the Exchequer £4.8bn in 2023/24. McTague said the freeze was from FSB’s campaigning, and would save small businesses money and “provide them some breathing space”.
In a measure to help British pubs, alcohol duty rates would be uprated by the retail price index after 1 August 2023; and draught relief would increase to 9.2% for beer and cider, and 23% for wine, other fermented beverages and spirits.
“From 1 August the duty on draught products in pubs will be up to 11p lower than the duty in supermarkets,” Hunt said, adding that, with the new Windsor Framework, this would also apply to Northern Ireland pubs.
The tax gap
With HMRC seeking to recover some of the £48bn tax that remains unpaid, Dawn Register, BDO head of tax dispute resolution, said it was “pleasing to see more resources earmarked” for HMRC in today’s Budget. “Tax debt is currently running at around twice pre-pandemic levels and HMRC needs to have sufficient resources.”
