CHRIS CAMPBELL says the Budget tax changes make a start on tackling some long-standing obstacles
As Budgets go, the contents of Jeremy Hunt’s first full Budget were in many ways difficult to predict. His Autumn Statement in November announced the freezing of various tax thresholds, including the income tax personal allowance and inheritance tax nil rate band until April 2028, and the VAT registration threshold until April 2026.
The Autumn Statement also announced the reduction of the top rate UK income tax threshold, as well as reducing the capital gains tax annual exempt cmount from £12,300 to £3,000 by 6 April 2024. It was therefore unclear as to what was left for the Chancellor to announce.
In his Spring statement, Mr Hunt put a strong emphasis on economic growth and removing barriers to the workplace, whether by improving access to childcare, simplifying the pension rules acting as a disincentive for the over 50s to work, or incentivising universal claimants to accept a position or work longer hours.
His announcements on expanding free childcare in England will be welcomed by working families, who will eventually receive 30 hours per week free childcare for 39 weeks per year from when their child is nine months old up until the child starts school. The key challenge is ensuring the free childcare provision is fully resourced, so it is no surprise that the measures are being phased in.
Childcare costs in the UK are among the highest in the world (sometimes above £10,000 per year). It’s no wonder that the rising cost of childcare is such a deterrent for parents to return to work. Making it easier for parents to get back to work, or increase their hours, can only increase the availability of the workforce and help businesses to expand as part of a growing economy. The measures announced in the Budget apply to England only, so we look forward to seeing how the devolved nations react.
The increase in the pension annual allowance from £40,000 to £60,000 from April 2023 and the ultimate abolition of the pension lifetime allowance is also welcome news. The Chancellor referred to doctors in the NHS being able to work more hours, but this move will also benefit workers across the economy who can pay more in their pensions to provide for their retirement.
The way the corporation tax increase to 25% is now being applied is interesting, as it’s updated structure means that those companies who can afford to invest millions in new plant and equipment will get full tax relief in year one under the full expensing scheme.
Before today’s announcements, they would have only got £1 million annual investment allowance, but this new First Year Allowance pretty much does away with that for larger companies who will get relief if they invest. They also have the confidence that full expensing will be part of the tax system for at least the next three years, although the Chancellor would like this to be permanent.
Annual investment allowance is still there for unincorporated businesses (covering 99% of eligible expenditure), but as an effective corporation tax cut of £9 billion per year, full expensing is likely to have a significant impact on the tax relief available to larger companies who invest in their business.
Under both schemes, it is important to remember there is clawback when assets are sold and this could increase the tax payable in future if assets used in the business are sold but not replaced.
Whilst it is a Budget full of incentives, it is somewhat disappointing that the Chancellor did not do more to promote the move to net zero. This is very much a missed opportunity to encourage businesses to make more environmentally friendly decisions.
Chris Campbell is head of tax (tax practice and owner managed business taxes) at ICAS