Budget 2023 - Are we just refilling potholes?
There's been a lot said today, but does it amount to refilling what has been there before or something new? Was there anymore in it than for high earning, beer drinking, car driving, parents with potholes outside their home?
The increase from 19% to 26.5%/25% remains with all the cost implications to SMEs.
The pothole being refilled is to then state that a new 'Full Expensing' allowance for companies without limit for the next 3 years will help alleviate this increased tax. This isn't true for most SMEs who already receive 100%, full expensing tax relief for capital investment because they don't use the existing maximum AIA £1m. They are still stuck with a 26.5% marginal tax rate.
It's worth noting that if you do need Full Expensing it doesn't apply to solar panels or thermal insulation which will only benefit from 50% allowances, not fitting in with the zero carbon agenda. Fortunately, SMEs will largely get 100% under the existing AIA 100% £1m allowance.
Happily, companies can save some of their higher 26.5%/25% by investing more into their pension schemes, the annual maximum increasing from £40k to £60k. However, this may not be affordable for many SMEs who therefore don't need this increase, although more profitable SMEs will welcome it.
The lifetime allowance of £1m, frozen alongside income and national insurance thresholds, will now be abolished taking us back to before 2006, but making it 'out of step' with the general devaluing of tax allowances. Presumably this abolition is too late for the retiree who is already taking his/her pension so won't bring back those people to the workplace.
Following flexibly withdrawing your pension the money purchase annual allowance was reduced to £4k and is being restored to a previous £10k, making it another pothole refiller.
Research & Development Tax Relief
For loss making SMEs investing more than 40% of their expenses, the 14.5% credit that was taken away will return, being another pothole refiller. However, the expenditure will still only be extended by 86% instead of 130%. Meaning that the original 33% now becomes 27% but only if you fulfil the 40% rule. You'll probably need ChatGPT to help you understand all those percentages!
The one year delay to excluding overseas costs to 2024 is very welcome and perhaps will change once further analysis is carried out.
Reshaping The Workforce
SMEs should check in with the initiatives that are actually new road surfaces, not refilling something we already had, such as the new investment zones, the over 50s apprenticeships, childcare help for earners under £100k, EMI simplification and encouraging more investment by defined contribution pension schemes.