Spring 2023 Budget Review

Jeremy’s big pitch yesterday was that this Budget was all about getting people back to work. To this end a range of schemes were rolled out to lure the “economically inactive”, back into the workplace. These schemes seem to be mainly targeted at the over-50’s, so “economically inactive “, in this context appears to mostly mean “people who have retired early “. There is even going to be a new apprenticeship scheme for over 50’s called the “returnership “. I can’t see that one being turned into a popular reality TV show featuring Sir Alan Sugar.

There was some good news for new parents with the extension of free childcare to children for 1- and 2-year-olds, though not until September 2025. However, there was no backing down on the huge corporation tax rate hike from 19 to 25% that Jeremy flagged in the Autumn statement. With all the main personal tax thresholds and allowances frozen for yet another year, there is no getting away from the fact that we are now living through a period of exceptionally high taxation. The last time the overall tax burden as a percentage of GDP was this high was during WW2, which is remarkable given we have had a Conservative government for the last 13 years.

Let’s have a look at a couple of the main headline grabbing measures announced yesterday by Jeremy, and their impact on small businesses:

  • Raising the annual cap on pension contributions from £40K to £60K and removing the lifetime allowance entirely. The later decision is primarily aimed at stopping senior NHS consultants from retiring early due to tax charges for contributions exceeding the lifetime allowance of £1,073,00. It’s understandable to want to encourage senior doctors to remain in the NHS but these kinds of numbers are, I suspect, only going to be relevant to a very small number of people
  •   Full expensing for business investments in plant, machinery and IT equipment. This replaces the super deduction scheme that has been in place for the last 2 years and was a bit more generous. What this means in practice is that if your business buys an expensive bit of equipment for £10,000, all the costs can be deducted from your profit in the year that you buy it. That’s nice, but that has always been the case for most expenditure for small businesses under the annual investment allowance so no real gain there. 

In practice for most small business owners the main impact of this Budget will be a significant increase in tax bills, both individual and corporate. The freezing or in some cases reduction in the various tax allowances and rate bands is likely to add around £1,000 annually to the tax bill of someone currently earning £40,000, assuming their income increases in line with inflation.  

Similarly for small companies making profits over £50,000 the effective tax rate between £50,000 and £250,0000 is now 26.5%, resulting in the following additional tax –

Profit               22/23          23/24     Increase
£60,000          11,400         12,150     750
£75,000          14,250         16,125     1875
£100,000        19,000         22,750     3750

Main tax rates Summary   

Personal rates
                                    23/24                             22/23
Personal allowance    £12,570                        unchanged
Basic rate   20%         £12,571-50,270            unchanged
High rate    40%         £50,271-125,140          £50,271-150,000
Additional rate 45%    over £125,140             over £150,000

Dividend rates

Dividend allowance £1,000                          £2,000
Basic rate               8.75%                            unchanged
Higher rate             33.75%                          unchanged
Additional rate        39.35%                          unchanged

Corporation tax rates

Main rate               25%                              19%
Small profits rate   19%                                –
Marginal relief lower limit £50,000
Marginal relief upper limit £250,000

If you have any questions please feel free to email as individual circumstances vary,

best wishes