The government has published its second Finance Bill of 2023, following the Chancellor’s Budget report on 15 March.
The Bill will now go through its various reading stages in Parliament and, provided it receives Royal Assent, be known as Finance Act (No.2) 2023 when it is enacted.
The first Finance Act of the year was published in January following Jeremy Hunt’s Autumn statement last year (which had swiftly followed Kwasi Kwarteng’s disastrous “mini-budget” in September 2022).
The Bill confirms the following headline changes to the tax rules:
- The increase in the main corporation tax rate from 19% to 25% from 1 April 2023 for companies with profits over £50,000.
- The introduction of two new capital allowances, being “full expensing” and a “50% First Year Allowance,” said to be worth £27 billion over the next three years and packaged as a £9 billion a year corporation tax cut for companies (not self-employed or partnership businesses).
- These have been introduced as a way to encourage capital investment following the scrapping of the super-deduction at 31 March 2023.
- Confirmation that the Annual Investment Allowance will be permanently fixed for companies and businesses at £1m from 1 April 2023.
- For individuals, confirmation of the proposed pensions changes, including the scrapping of the “lifetime allowance charge” from 6 April 2023 and its abolition from 6 April 2024, meaning a tax cut for thousands of pensions savers.
- Confirmation that from 6 April 2023, the individual pension annual allowance will increase from £40,000 to £60,000, an increase of 50%, meaning a greater amount can be paid into pensions savings, tax free, each year.
- In addition, increases have been made to the “money purchase annual allowance” (increasing from £4,000 to £10,000) and the “tapered annual allowance” will now be reduced to a minimum of £10,000 (previously £4,000).
- The pensions changes are being sold by the government as an incentive to get people back into the workplace (and to stop them leaving – particularly those at the higher end of the pay scale in the NHS) and is aimed at those in the over 50 but pre-retirement category.
- Assuming Royal Assent follows, these pension changes are, in effect, a tax cut for the highest earners, who will now be able to save more into their pensions tax free and build their pension pots without suffering the lifetime allowance tax charge.
- There are additional benefits for wealthy taxpayers as pension pots are generally outside the estate for IHT purposes. Quite how long this will be the case for will remains to be seen.
Other tax changes introduced in the Finance Bill include:
- Alterations to the rules around R&D tax credits, including the widening of the scope of the rules to include cloud computing and data costs, and the introduction of more onerous provisions in terms of reporting requirements. The rates of R&D relief are dropping from 1 April 2023 as previously announced.
- A welcome relaxation of the reporting requirements around Enterprise Management Incentive (“EMI”) share schemes.
- An increase to the limits for Company Share Option Plans (“CSOP”), making these more attractive.
- Increases to the amounts that can be invested under the Seed Enterprise Investment Scheme (“SEIS”).
- The introduction of rules to help protect the UK tax base against aggressive tax planning and reinforce the competitiveness of the UK by levelling the playing field for UK firms (OECD Pillar 2 Rules) as part of a global effort to achieve a minimum level of corporation tax of 15%.
We will provide further updates on some of the above changes over the coming weeks, but the Government announcement and the Bill itself, can be found HERE.
For further information or advice on how the changes could impact you, contact Roger Phillips by clicking the button below.