Regulatory Updates

UK Budget (Spring Statement) 2023 – Highlights

The Chancellor of the Exchequer Mr. Jeremy Hunt presented the United Kingdom (UK) Budget (Spring Statement) 2023 before the Parliament on March 15, 2023. As per the Spring Statement, Inflation rate is expected to fall to 2.9% (from 10.1% in January 2023) by the end of 2023. While the economy will remain stagnant in 2023 with the GDP expected to be falling by 0.2% in 2023, it is forecasted to grow by 1.8%, 2.5% and 2.1% in 2024, 2025 and 2026 respectively. The Government has proposed certain measures to provide support to households and businesses in view of the rising cost of living.

The following are the key proposals:

For Individuals and employers:

  • Personal income tax (PIT) and National Insurance Contribution (NIC) rates – There are no further changes proposed in PIT and NIC rates and thresholds in addition to announcements made earlier.
  • Pension tax relief – From April 2023, it is proposed to increase the Annual Allowance for individuals making pension contribution, from GBP 40,000 to GBP 60,000. Annual allowance is the maximum amount an individual can save via pension contributions without incurring a tax charge. Further, the Government plans to abolish life-time allowance (currently at GBP 1,073,100) in future budgets. The minimum Tapered Annual Allowance (TAA) and Money Purchase Annual Allowance (MPAA) will rise from GBP 4,000 to GBP 10,000. Moreover, the adjusted income threshold for the TAA will rise from GBP 240,000 to GBP 260,000. TAA represents reduced annual allowance for individuals having income above certain limit while MPAA is reduced annual allowance applicable to individuals who flexibly access their pension.
  • Company Share Option Plan (CSOP) – As announced earlier, the Spring Finance Bill will legislate changes to CSOPs which is a tax advantaged employee share scheme applicable to all UK companies and their employees. Thus, effective from April 6, 2023, CSOP limit will be doubled to GBP 60,000 from the current limit of GBP 30,000.
  • Energy price support measures – The Government has decided to continue with the Energy Price Guarantee (EPG) scheme at its current level up to June 2023 whereby household energy bill will not exceed GBP 2,500 per year. The planned increase to GBP 3,000 per annum would take place from July 1, 2023.

For Companies:

  • Corporate Income Tax (CIT) rates – As announced earlier, the main corporate tax rate will increase to 25% from 19% with small profit tax rate remaining at 19% effective from April 1, 2023.
  • Capital allowance – The Super Deduction plan will be discontinued as of March 31, 2023. It is proposed to introduce a new ‘full expensing’ policy for a period from April 1, 2023, to March 31, 2026. This would enable businesses to claim the First Year Allowance (FYA) at 100% of their capital expenditures made on qualified plants and machinery. Also, a temporary FYA of 50% will be available on the expenditure made towards special rate plant and machinery including long-life assets. This benefit will apply only to the businesses subject to corporate tax.
  • Annual investment allowance – As announced in autumn budget, annual Investment Allowance (AIA) will be allowable up to GBP 1 million on permanent basis from April 1, 2023. This will allow businesses to claim allowance in respect of the cost of qualifying plant and machinery acquired during the year up to GBP 1 million.
  • Research and Development (R&D) expenditure by SMEs – The Government has announced that the loss-making SMEs will be eligible to claim the credit of 27% (27p for every GBP 1) on their R&D expenditure provided that 40% of their total business expenses are towards R&D. Thus, eligible SMEs would receive GBP 27 from HMRC for every GBP 100 spent on R&D. The Government will also consider response to public consultation on merging R&D expenditure credit and SME schemes and take decision on the same in future. Draft legislation on the merged scheme will be published during summer for consultation.
  • Investment zones – The Government has decided to set up 12 investment zones including four across Scotland, Wales, and Northern Ireland, for fast and better economic growth with the investment package of GBP 80 million over 5 years. The businesses from such investment zones will get a single 5-year tax offer involving several benefits such as tax cuts, increased capital allowances, relief from stamp duty land tax, business rate relief, employer NIC relief, etc.
  • Transfer Pricing documentation – As announced in July 2022, the Government will introduce legislation in the Spring Finance Bill to mandate transfer pricing documentation in accordance with OECD Guidelines. Thus, effective from April 2023, large multinational groups (with turnover above EUR 750 million) need to maintain the transfer pricing documentation in the form of Master and Local File as per OECD guidelines.
  • Multinational top-up tax and domestic top-up tax – As announced in the Autumn Statement 2022, the Government will legislate proposals based on OECD BEPS Pillar 2 framework in Spring Finance Bill, 2023 which will become effective for the accounting period beginning on or after December 31, 2023. Large UK headquartered MNE groups (with consolidated revenue more than EUR 750 million) will have to pay a top-up tax if their foreign operations have an effective tax rate below 15%. Further there would be a supplementary Domestic Top-up Tax on large groups including those having operations exclusively in the UK and they will be required to pay a top-up tax if their UK operations have an effective tax rate of below 15%.

Indirect taxes:

  • Fuel duty – The fuel duty on Petrol and Diesel will be maintained at 5p per liter for the additional period of 12 months and the scheduled increase stands cancelled considering inflation for 2023–2024.

©Shan & Co. 2023