Tax headlines

RRL tax partner, Steve Maggs, takes a closer look at some of the detail behind the Spring Budget.

Clearly some of these changes (and other non-tax announcements) may be taken as being short term given both the relative proximity to the next general election (expected to be January 2025) and the current polling performance of the Conservative party, however, given the poor state of the public finances and poor state of the public services, it is difficult to see how any new government could significantly change path from the high tax environment we are all experiencing.

A broad overview of the headline announcements are as follows:

• Corporation tax rise will go ahead – the planned increase has now taken place from 1 April 2023. However, this was tempered by the capital allowances changes (see below) – which was one of the significant announcements Jeremy Hunt made.

The increased corporation tax rate to 25% (from the current 19%) applies from 1 April 2023 for companies with taxable profits over £250k. The 19% rate will become a small profits rate payable by companies with profits of £50k or less (these limits shared between so-called ‘associated companies’ – broadly companies with common control). Companies with profits between £50,001 and £250k will pay tax at the main rate reduced by a marginal relief, providing a gradual increase in the effective corporation tax rate.

• Capital allowances changes – the introduction of “full expensing” for limited companies (note only limited companies) for the three-year period 1 April 2023 – 31 March 2026 was announced, being an uncapped 100% deduction for qualifying investment on plant and machinery in the year that it is incurred, and an uncapped 50% deduction for investment in qualifying ‘long life’ assets in the year the investment is incurred.

This was a headline announcement in the Budget, but ultimately it will not provide a benefit to the vast majority of companies in Cornwall given the £1 million Annual Investment Allowance (AIA) that already provides 100% relief on the first £1 million of qualifying expenditure – only those spending more than £1m on qualifying capital expenditure will benfit.

The 130% “super deduction” that was in place until 31 March 2023 has now finished.

• Income tax – the previously announced freezes to income tax bands and allowances until 6 April 2028 will still take place, resulting in a significant real term increase in tax for all income taxpayers.

The impact of this (called “fiscal drag”) will be felt by all income tax payers.

Shareholders should take note of the previously announced reduction to the dividend allowance (reducing from £2k to £1k).

• Inheritance tax (IHT) – as for the income tax allowances and thresholds, the inheritance tax nil-rate bands have been frozen until 6 April 2028.

High inflation, generally high property inflation (particularly the high levels experienced in Cornwall in recent years), and the lack of awareness of the tax and specialists to advise on mitigation planning, is resulting in more and more estates becoming chargeable to inheritance tax.

We are expecting wide reform of the tax post the next general election, which would likely further widen the scope of chargeability.

The tax is one of the easiest to plan for, and all should be regularly reviewing their IHT positions.

• Pension lifetime allowance charge abolishment – the abolishment of the lifetime allowance charge from April 2023 – will be welcome for the wealthy minority. There has been a lot of scepticism over the stated rationale that this was to retain, or invite back, more doctors to the NHS.

An overall concern is that the lifetime allowance (and charge) keeps regularly changing when it is one fundamental area where consistency is required.

Pension contribution and withdrawal planning strategies should now be carefully (given that this would surely be reversed in the event of a new Labour government following the next general election) revisited, and coinciding with estate planning strategies being revisited where pension funds are being used as part of an inheritance tax mitigation planning tool.

• Pensions annual allowances increases – the pensions annual allowance is increasing from the current £40k to £60k from 6 April 2023. Individuals will continue to be able to carry forward unused Annual Allowances from the 3 previous tax years. Other allowances are also increasing. Any increases to pension contribution limits are obviously always welcome.

Again, pension contribution planning strategies should be urgently revisited, as should cash extraction strategies from companies (in relation to employer pension contributions – that are the most tax efficient form of cash extraction for director shareholders).

• National Minimum Wage (NMW) and National Living Wage (NLW) increases – both the NMW and NLW rates increased from 1 April 2023. All employers should undertake a review prior to 1 April 2023 to ensure compliance with these rates.

Truro 01872 276116

Penzance 01736 339322 post@rrlcornwall.co.uk www.rrlcornwall.co.uk