As the financial and tax year kicks off from April 2023, we thought it would be a good time to remind everyone of the changes announced by Chancellor Jeremy Hunt in his Spring Budget which take effect from this month ranging from reforms to pensions and the replacement of super-deduction with “full expensing” to a more generous approach for childcare costs.

Pension Annual Allowance

Let’s kick off with pensions, which are likely to be of interest to most individuals. Uplifting the annual pension allowance by 50% from £40k to £60k, the Chancellor has enabled individuals to invest £20k more each year in their pension pots. This should be tax-beneficial given the ability to reduce one’s net adjusted income by the value of their gross pension contributions. This should be particularly attractive to individuals hovering around the £100k income mark given the tapering of their £12,570 personal allowance by £1 for every £2 of adjusted net income above £100k. Additionally, one can also claim tax relief on the amount of their pension contributions each year regardless of whether their pension scheme is operated as Net Pay Arrangement or Relief at Source (RAS).

Pension Lifetime Allowance

Additionally, the Chancellor also announced the abolition of the lifetime allowance which stood at £1,073,100. Prior to 6th April 2023, individuals who accessed their pension savings which were worth more than the lifetime allowance incurred a tax charge on the excess. The rate of tax payable was dependent on how they accessed their pension savings with a rate of 55% levied if the amount was received as a lump sum and 25% if received via other means such as an annuity or cash withdrawals.

Full Expensing and the end of Super-deduction

Switching over to companies, the end of the super-deduction scheme on 31st March 2023 raised questions by many over how the UK intended to maintain the attractiveness of investment in the country. The Chancellor responded with a scheme not nearly as generous but still retaining some elements of it. Whilst the limit of the Annual Investment Allowance (AIA) was retained at £1 million indefinitely rather than bringing it back to £200k, this cap still presents a problem to larger enterprises. Hence, full expensing was introduced till 31 March 2026 whereby companies can invest in new and unused qualifying main rate plant & machinery and write off the entirety of investment as a tax-deductible cost with no upper limit overcoming the £1 million limit on the AIA. The 50% First Year Allowance on qualifying new and unused special rate plant and machinery investments will also be retained till 31 March 2026. For businesses facing Total Taxable Profits above £250k and therefore facing the 25% Corporation Tax rate from 1st Apr 2023, full expending provides the same outcome as the super-deduction given the ability to reduce their Corporation Tax liability by 25p for every £1 invested.

Childcare

In an effort to resolve the widespread labour shortages across the economy, the Chancellor announced plans to introduce up to 30 hours of free childcare for children above the age of 9 months old by September 2025. A phased approach will be followed whereby April 2024 will represent the opportunity for parents of children aged 2 years old will be able to avail 15 hours of free childcare with 15 hours of free childcare for working parents of 9 months to 3 years old coming into effect September 2024. The government is also keen to get facilitate parents on Universal Credit or moving back into work with the childcare costs of such couples being paid upfront instead of in arrears. The upper limit claimable has also been bolstered to £951 for the first child and £1,630 for 2 children which represents an increase of nearly 50%.

Contact Cheylesmore Accountants today to enable us to provide you with an end-to-end service including advice on how make your business or financial affairs as tax-efficient as possible.