With the International Monetary Fund (IMF) predicting that the UK economy will be the worst performing of any G7 nation in 2023, all eyes were on Jeremy Hunt’s first Spring Statement on Wednesday 15th March 2023.
We’ve put together a summary the key announcements from the Budget that affect UK business owners and their employees.
What’s the Spring Statement?
While the Autumn Budget is usually used to announce major policy change and the Spring statement is more of an update for the public, it is often used to provide a preview of any policy changes that may be forthcoming.
In his first statement as Chancellor in November, Jeremy Hunt overturned most of his predecessor Kwasi Kwarteng’s September mini-Budget. It directly addressed the economy with ambitions to halve inflation, boost the economy (by generating better-paid employment), and reduce the UK’s national debt.
Forecast for the UK Economy
The Office for Budget Responsibility forecast that the British economy is set to avoid a technical recession in 2023 but will contract by 0.2% before returning to growth in 2024. Jeremy Hunt’s budget focused on prompting those who have left their jobs to return to the workforce and boosting business investment.
- Growth of 1.8% predicted for next year, with 2.5% in 2025 and 2.1% in 2026.
- The UK’s inflation rate predicted to fall to 2.9% by the end of this year, down from 10.7% in the last three months of 2022.
- Underlying debt is forecast to be 92.4% of GDP this year, rising to 93.7% in 2024.
Corporation Tax Rises From 19% to 25%
The chancellor confirmed that the rate of corporation tax on company profits will rise from 19% to 25% from 1st April 2023. The rise applies for companies with profits in excess of £250,000 in profits. According to Hunt, only 10% of businesses would pay the full rate; companies with profits between £50,000 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.
If you are interested in spreading the cost of your corporation tax bill over time to retain capital and enable you to manage your budget more effectively, a corporation tax loan could be the solution.
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Full Capital Expensing Policy Announced
Companies will be able to deduct investment in new machinery and technology to lower their taxable profits.
This new scheme will allow every pound invested by businesses in IT equipment, plants or machinery to be deducted (in full) from taxable profits, meaning companies will have to pay lower amounts of corporation tax.
Hunt stated that the policy was equivalent to a corporation tax cut worth an average of £9bn a year and would lead to a 3% increase in business investment a year. The policy would be in place for three years initially but might be made permanent in the future.
If you are considering investing in machinery or technology for your business, you may be able to spread the cost over time via an asset finance solution, retaining much-needed cash in your business.
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Taxes and Earnings
- The cap on the amount workers can accumulate in pensions savings over their lifetime before having to pay extra tax (currently set at £1.07m) is to be abolished.
- Tax-free yearly allowance for pension pots – which has been frozen for 9 years – will rise from £40,000 to £60,000.
- The 5p cut to fuel duty on petrol and diesel (which was due to end in April) will remain for another year.
- The Government committed to an investment of £20bn over the next two decades into low-carbon energy projects, with a focus on carbon capture and storage.
- Nuclear energy to be classed as environmentally sustainable for investment purposes, with promise of more public funding.
- £63m will be invested in leisure centres with rising swimming pool heating costs and projects to help them become more energy efficient.
Strengthening the Workforce
- 30 hours of free childcare for working parents in England expanded to cover one and two-year-olds, in a bid to help them work more.
- Families on universal credit to receive childcare support up front instead of in arrears, with the £646-a-month per child cap raised to £951.
- £600 “incentive payments” for those becoming childminders, and relaxed rules in England to let childminders look after more children.
- Funding for up to 50,000 places on new voluntary employment scheme for disabled people, called Universal Support.
- Tougher requirements to look for work and increased job support for lead child carers on universal credit.
- More places on “skills boot camps” to encourage over-50s who have left their jobs to return to the workplace.
- There will be tax breaks and other benefits for 12 new Investment Zones across the UK, funded by £80m each over the next five years.
- Reduced paperwork for international traders, who will also be given longer to submit customs forms under streamlined rules.
- Commitment to raise defence spending by £11bn over the next 5 years.
- Prison sentences for those convicted of marketing tax avoidance schemes.
- An extra £10m over next 2 years for charities helping to prevent suicide.
- Streamlined approvals process for new medical products.
- £900m for new super-computer facility to support the UK’s AI industry.