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Published 15 March 2023
From a tax point of view the headline of this budget is that it appears to allow people to make unlimited contributions to their pension. It is not as straightforward as it seems and more detail on this and other key measures are below.
The big tax change for business in this year’s Budget Statement is the ability for full capital expensing. This means for the next three years that a company can spend an unlimited amount of money on capital expenditure and deduct the cost of that expenditure in calculating its profits for corporation tax purposes. It is important to note that this is available to companies only and is only available on expenditure which would have otherwise benefited from capital allowances under the main pool. There is a less beneficial regime for companies which incur capital expenditure on what is called the special pool which applies to solar panels, thermal insulation added to buildings, escalators, external solar shading and the like. For such expenditure there is a year one deduction on half the cost with the remaining 50% spread over subsequent years on a reducing basis (6% per year).
For partnerships and other businesses which are not companies, the above is unavailable and the Annual Investment Allowance provides 100% first-year relief for plant and machinery investments but only up to £1 million. Thereafter the current capital allowance regime on a reducing basis continues to apply. Another advantage of incorporating.
The big tax news for individuals is that the maximum amount a person can save in their pension scheme from next month will effectively be uncapped (currently approximately £1m). In addition, from next month, the annual amount a person can save per year into their pension goes up from £40,000 to £60,000 (assuming they earn enough to do so) and the amount that can be contributed even if someone has already accessed their defined contribution pension is increasing to £10,000 (from £4,000). The tapering of the annual allowance is also being changed to incentivise workers to keep working. The minimum Tapered Annual Allowance is going up to £10,000 (from £4,000) and the adjusted income threshold is being increased from £240,000 to £260,000 from next month. This means that those people earning between £260,000 and £360,000 per year will see this reduce so that anyone earning more than £360,000 per year is restricted to £10,000 of contributions per year.
The share scheme community has been calling for a number of changes to the Enterprise Management Incentive Regime, and three of these suggestions have been listened to. From next month, it will no longer be necessary to set out details of share restrictions in the EMI share option agreement and the company will no longer have to declare that an employee has signed a working time declaration.
If these provisions were omitted because of the employer’s mistake, it has always seemed harsh that it worked against the employee with their tax bill usually going up by a factor of 450%.
Until a few years ago you had to agree the form of the three other tax efficient plan rules with HMRC (SIP, CSOP and SAYE) but the EMI was the exception to the rule. The quid pro quo of this EMI relaxation was that you had to make a notification of the grant of EMI options within 92 days of the date of grant. If you did not the EMI lost its tax efficiency. From next year, this early notification will be abolished; it will follow the annual notification requirement each May / June which applies to the other three plans. This is a welcome change especially because it seems impossible to ever retrieve these 92 day notifications once they have been submitted.
This is a VAT exemption for medical services, such as administering vaccines, where they are administered by doctors which extends to situations where the service is carried out by someone supervised by a doctor. Although a pharmacist could avail themselves of this VAT exemption on medical services it did not extend to situations where a pharmacist supervised another person. This anomaly will change from 1 May 2023.
There are no changes to the highly tax efficient EOT regime which echoes the John Lewis model of selling a controlling interest in a company to a special type of trust. The EOT would hold such shares on trust for the company’s employees. This still remains tax free with tax free bonuses available to staff of up to £3,600 per person per year. Submissions were made by certain industry bodies with a view to restricting the use of EOTs but these proposals have so far been resisted.
This article is created on a general basis for information only and does not constitute legal or other professional advice.
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