Jeremy Hunt’s first budget as Chancellor: what you need to know15/03/2023
When Mr Hunt was appointed Chancellor of the Exchequer last October, he had to hit the ground running. His first move was to contain and reverse the fallout caused by previous Chancellor Kwasi Kwarteng’s mini-budget. Understandably, this move was reactive – his (and Prime Minister Rishi Sunak’s) immediate priority was to return calm to markets, and the British economy. Now, some six months later, Mr Hunt is finally able to be proactive, revealing his first budget as Chancellor and offering us fresh insight on what we can expect to see going forward.
Mr Hunt told listeners that the UK would avoid recession this year; that inflation would return to more normal levels by the end of the year (2.9% as opposed to a current reading of more-than 10%); and that debt would come in lower than forecast in five years. He pledged to crack down harder on tax avoidance, hopes to reclassify nuclear as a sustainable energy, and increase the defence budget by £11 billion over the next five years.
He also made several other important announcements that are likely to be more immediately relevant to our clients. Here is a run-down of what you need to know:
Billions spent on capital allowances to offset corporation tax increase
A multibillion-pound system of capital allowances to help offset the significant rise in corporate tax beginning in April. Mr Hunt stated that the OBR believes the change, which would cost £9 billion per year for three years, will raise company investment by 3% annually.
In April, the company tax flat rate of 19% is increased to 25% for companies with profits exceeding £250,000 (profits below £50,000 will be tax at 19% and companies with profits between £50,000 and £250,000 will be taxed at 25% less marginal relief) . At the same time the two-year “super-deduction” provision providing 130% tax relief on corporations’ equipment acquisitions expires. The Chancellor plans to replace the super-deduction with “full expensing” capital allowances. which permits 100% of eligible capital expenditures to be deducted against taxable profits in the year they are incurred.
Annual pension allowance for higher earners increased
To discourage early retirement, the Chancellor has increased the annual amount you can invest in your pension without incurring a tax charge from £40,000 to £60,0000. He has also abolished the pensions lifetime allowance that previously meant any pension savings exceeding just over £1 million would be liable to a tax charge.
The changes are intended to address concerns that the system has persuaded individuals to retire in their 50s in order to avoid paying taxes.
New R&D tax breaks announced for innovative and creative companies
The Chancellor has provided further incentives to firms engaging in research and development to compensate for his decision to reduce tax credits for the industry last year.
The chancellor is planning to reinstate tax credit for businesses that can demonstrate they are investing heavily in research in fields like fintech and artificial intelligence. This increased tax benefit will allow qualifying enterprises to claim back £27 for every £100 spent on research and development.
In addition, tax assistance will be increased for the film, television, and video gaming sectors, bolstering the UK’s creative industry.
New free childcare for working parents
One of the most generous measures in the Chancellor’s Budget is undoubtedly the offer of 30 hours of free childcare each week for working parents of one-and-two-year-old children.
For a family with a two-year-old child, the plan would provide savings of £6,500 annually, the chancellor said, cutting expenditures by over 60%. Nevertheless, this will be implemented gradually leading up to September 2025. At the moment, parents of three and four-year-olds can apply for 15 or 30 hours of free childcare each week throughout the school year, but younger children are not always eligible for the benefit.
Hunt stated that the maximum amount for childcare under universal credit will increase by nearly 50% to £951 for one child and £1,630 for two children, with payments made upfront rather than in arrears.
New funding for quantum computing reiterates importance of technology
To keep the United Kingdom competitive in the fast-moving technological arena, the government will invest £2.5 billion on quantum computing. The Chancellor stated that the Plan for Quantum will quadruple the funds available to researchers in business and universities through the National Quantum Technologies Programme, which is already in place.
Hunt announced a £1 million yearly award for the individual or team conducting the most innovative artificial intelligence research in the UK over the next decade. Additionally, the chancellor said he was embracing all nine suggestions in Sir Patrick Vallance’s examination of Britain’s cutting-edge manufacturing sectors.
The Energy Price Cap is being extended
The Treasury said on Wednesday that the Energy Price Guarantee, which has limited normal annual energy costs at £2,500 this winter, will be extended from April to June, saving a typical home £160 over the three months.
The EPG was expected to rise to £3,000 on April 1 in order to keep the scheme’s cost to the government as low as possible, but wholesale costs have declined this year.
Additionally, the government will bring the costs on energy prepayment metres for 4 million families in line with other consumers. According to the Chancellor, the drop will assist 4 million homes that use prepayment metres, which have typically paid somewhat higher unit prices for petrol and electricity than those who make regular monthly payments.
Fuel tax increase scrapped
Proposals to hike the rate of fuel tax on gasoline and diesel have been abandoned, saving motorists money but costing the Government £5.7 billion.
After Russia’s full-scale invasion of Ukraine, the government implemented a 5p per litre reduction last year. The reduction was supposed to last 12 months, but chancellor Jeremy Hunt said on Wednesday that it will be extended for another year.
Brexit Pub Guarantee slashes tax on draught beer
Mr Hunt announced a “new Brexit pub guarantee” that would begin implementing tax reduction on draught beer this summer. The new approach will reduce the charge on draught beer in pubs by up to 11p compared to the duty in supermarkets.
Jeremy Hunt told the House of Commons on Wednesday that the reforms will take effect on 1 August and will apply to every bar in the UK, including Northern Ireland. He added: “I will do something that was not possible when we were in the EU and significantly increase the generosity of Draught Relief. British ale is warm but the duty on the pint is frozen.”
Hunt confirms new, low-tax, zones
The Chancellor confirmed plans to invest nearly £1 billion in 12 new low-tax zones to spur economic development and alleviate regional inequities. Each zone will get £80 million in government funding over a five-year period, for a total of £960 million. These funds could be utilised for tax breaks, such as reduced stamp duty or company rates, or for local infrastructure.
Scotland, Wales, and Northern Ireland will each have four zones. The remaining eight will be located in the East Midlands, Greater Manchester, the Liverpool City Area, the North East, South Yorkshire, Tees Valley, the West Midlands, and West Yorkshire.
£761 million pledged for local regeneration projects
Mr Hunt has announced £200 million in investments for regeneration schemes across the UK which will provide “more control” to local communities. He also announced an additional £161 million for regeneration projects in Mayoral Combined Authorities and the Greater London Authority, and “over £400 million for new Levelling Up Partnerships in areas that include Redcar and Cleveland, Blackburn, Oldham, Rochdale, Mansfield, South Tyneside, and Bassetlaw.”
Turning specifically to mass transit and sustainable transport, he said: “Having listened to the case for better local transport infrastructure from many members, I can announce a second round of the City Region Sustainable Transport Settlements, allocating £8.8bn over the next five-year funding period.”
If you have any questions about the latest government budget, or want to understand how a government policy directly affects you or your business, call JW Hinks on 0121 456 0190. Our friendly and professional team of experts can help you ensure you are meeting all your obligations without paying more tax than you need to.