Our Uncommon View on The Spring Budget 2023: Much for the Few, Little for the Many

At The Uncommon Practice we are unashamedly on the side of small businesses and business owners.

So, while this Budget will encourage some people back into work and will encourage investment, when you look beyond the headlines, the truth is that most of the measures announced by the Chancellor will not benefit the majority of SMEs or SME business owners.

Full capital expensing – won’t help many SMEs

For example, in order to try to offset the rise in corporation tax, coinciding with the end of the generous ‘Super Deduction’ scheme, the government introduced a new ‘Full Capital Expensing’ policy, effectively a 100% tax relief or a ‘First Year Allowance’ on capital expenditure.

On paper, and according to the government, this measure will significantly increase business investment in the short term.

This may be true. It is a generous measure and should encourage businesses to invest.

But the reality is that this policy will only really benefit large, profitable companies who are able to invest over £1 million in one year.

For the vast majority of SMEs, this level of investment simply won’t be possible.

Most small businesses will be able to continue to benefit from the £1 million Annual Investment Allowance, but this new measure will offer very little to struggling businesses.

At a time when support is needed to help small businesses overcome some difficult economic headwinds, this policy is unlikely to provide much help.

It’s also true that businesses hoping to take advantage of the full capital expensing policy will need certainty beyond the current three-year timeframe outlined by the government.

There may well be a new government in place in 3 years’ time, so businesses looking to invest can’t be sure if the measure will be continued, although the Chancellor did state that he hopes to make this policy permanent.

Take advantage of the ‘Super Deduction’ while you can

At this point, it’s also worth mentioning that there are still 2 weeks for businesses to take advantage of the ‘Super Deduction’ which ends on the 31^st of March 2023 and gives 130% relief for new qualifying plant and machinery.

If you are planning to buy some new equipment in the next few weeks, it might be beneficial to bring the purchases forward to March, rather than wait until April.

Corporation Tax rise to go ahead

The Chancellor also confirmed that Corporation Tax will increase from 19% to 25% on the 1^st April 2023, for companies whose taxable profit exceeds £250,000. Companies with profit levels between £50,000 and £250,000 will pay tax at 25%, reduced by marginal relief. That is, they will pay a tapered rate between 20% and 24%.

Here is the key, not only will corporation tax increase for many small businesses – which is not great at a time when finances are under strain – but because marginal relief will start at the relatively low limit of £50,000, the associated companies rules could now affect a significant number of small businesses and business owners, who will then have to pay even more tax.

If you’re a business owner with interests in multiple companies, we would urge you to read our recent article on the associated companies rules and to contact us without delay if you think you may be affected.

Support for childcare costs is welcome

On a positive note, the support announced for childcare costs will be very much welcomed by parents struggling with the decision of whether they should return to work or not.

The government has committed to providing 30 hours free childcare for every child over the age of nine months in England from September 2025.

The UK has some of the highest childcare costs in Europe, and we know that these high costs are often a significant barrier to returning to work for many parents.

So, we welcome this announcement for parents. We see it as a positive step to help people return to work and, potentially, to help reduce the gender pay gap.

Once again, however, this measure will only really affect a small percentage of working people.

And parents of 2-year-olds now will be disappointed. Because the changes will not start until April 2024, and won’t be fully adopted until September 2025. In fact, many parents of small children now will not see any additional benefit.

Taxation by Stealth – Boiling a Frog Taxation

As previously announced, the personal allowance and basic rate band threshold of income tax have been frozen until the 5^th April 2028. The employer and employee NIC thresholds are also frozen until 5th April 2028.

As we previously wrote after the recent Autumn Statement, this will mean that more people will pay tax by stealth.

This is commonly referred to as fiscal drag, but we prefer to call it boiling a frog taxation.

Pension Lifetime Allowance – good for high earners

The other big announcement in the Budget was that the current pension lifetime allowance charge is being abolished from the 6^th April 2023.

Up to now the lifetime allowance (LTA) has caused some high earners, in particular GPs, to retire early, as tax charges apply on crystallisation of pension funds if the LTA (currently £1,073,100) is exceeded.

While the logic behind this decision is to encourage people to return to work or to keep working longer, once again, when you look at the reality behind the headline, this change will only benefit a very small proportion of high earners.

The vast majority of workers will not see any benefit from this change.

A Budget for the few, not the many

So, while there were some positive announcements made by the government, in particular, the headline grabbing support for childcare costs and the encouragement for business investment, the measures proposed by the Chancellor will not really benefit small businesses or the majority of the workforce.

There was not enough support offered for smaller businesses and in particular, struggling businesses.

Support for childcare costs is to be welcomed, but will only benefit a relatively small group of workers.

The changes to the Pension Lifetime Allowance will only benefit a very small proportion of high earners. And the freezing of the personal allowance and basic rate income tax bands will mean that more people will pay more tax as their earnings increase. They just might not realise it yet.

Corporation tax is going up, and the ‘Full Capital Expensing’ scheme will only benefit large, profitable businesses planning significant investments.

In short, this appears to be a Budget with much for the few, and little for the many.

Contact The Uncommon Accountants

If you’d like to speak to us about how you can maximise the opportunities the Government have announced that could benefit you and/or your business, or if you’d like to speak about any of the impending changes that take effect in April 2023, then please get in touch with our Uncommon Accountants today.

Important Disclaimer:

This material is published for client information. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. No responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by The Uncommon Practice.