Is the Big Freeze finally defrosting?

 

What is the Spring Budget?

On March 15th 2023, the Chancellor – Jeremy Hunt – laid out his Spring Budget for 2023, his second statement since taking the role following the appointment of Rishi Sunak as Prime Minister. His so-called “back-to-work” Spring Budget, gave an update on the UK economy and had measures to encourage and incentivise people to return to work.

Unclear on what the Spring Budget means for you? We’re here to help! First we’ll remind you about what changes are coming on 1st April, before deciphering the key points from the Spring Statement, including changes to the Tax-Free Lifetime Allowance for pensions, business tax, fuel duty, and childcare. Read on to find out more.

Changes from 1st April 2023

• In November’s Autumn Statement, Mr Hunt announced a raft of measures regarding tax, some of which commence in April. These include:
• Tax-free allowance for dividends to reduce from £2,000 to £1,000. A further cut down to £500 is planned for April 2024.
• Threshold for additional rate of income tax at 45% to be lowered from £150,000 to £125,140.
• Tax-free allowance for Capital Gains Tax to reduce from £12,300 to £6,000. A further cut to £3,000 is planned for April 2024.
• State pension payouts will increase by 10.1%
• Corporation tax to increase from 19% to 25% for businesses making profits over £250,000

You can read our full decoding of the November Autumn Statement 2022, here.

Spring Budget breakdown

We’ve cut through the jargon to bring you the details you need to know about how the Spring Budget will impact you.

Pension Lifetime allowance

The tax-free lifetime allowance for your pension is the total amount you can have in your pension pot before taxes will apply. Similarly, there is an annual tax free allowance. Prior to the Spring Budget, the annual allowance was set at £40,000 and the lifetime allowance was set at £1,073,000 (frozen at this rate until 2026).

In his Statement, the Chancellor announced that the annual allowance will increase by 50% up to £60,000. Rather than increasing the lifetime allowance, the Chancellor has taken the step to completely abolish the Lifetime Allowance from April 2024. The intention with this measure is to encourage those who retired early back into work, enabling them to continue saving into a workplace pension without the risk of maxing out their tax-free lifetime allowance. Similarly, the Chancellor hopes this move will dissuade those still in work but with a pension pot approaching the tax-free lifetime allowance not to retire early.

Could you have missing pension funds?

If you’ve worked for more than one business since 2012, have moved house or changed your name, and haven’t updated your details with your pension provider, your funds may not be waiting for you when you choose to draw from them!

Don’t worry though – use our FREE and simple service – Find My Pension – to locate your pension pots, and you can then choose to consolidate the pots into one place. With the tax-free Lifetime Allowance being abolished, it’s even more beneficial to know what extra money is available in pensions with your name on. When the Lifetime Allowance is abolished, there will be no tax to pay on your funds over the existing limit of £1.073.

Find out more about Find My Pension, here.

Business Tax

There has been a lot of pressure on Jeremy Hunt and the Prime Minister over the past month or so, to reverse the decision in the November statement to increase corporation tax to 25%. However they did not bow to this pressure, stating that only 10% of businesses will pay this higher amount – this is those with profits greater than £250,000 per year.

It was anticipated, though, that there would be a move to help offset the rise, following a speech in January where the Chancellor said the UK’s “ambition should be to have nothing less than the most competitive tax regime of any major country”.

The Chancellor sought to placate and calm the fears of businesses concerned about their competitiveness in a global market. He therefore announced “full expensing” for businesses for the next 3 years (with the intention to make this a permanent fixture). This means that for every £1 a business invests in equipment, plant, and machinery, it can be deducted, in full, from taxable profits.

Small and medium businesses with more than 40% of their expenditure going to Research and Development will also be able to claim £27 in every £100 spent on R&D. These savings on tax are planned to soften the blow of the corporation tax hike.

Fuel Duty

Last March, Mr Sunak – who at the time was Chancellor – cut fuel duty by 5p per litre, in order to bring the price on fuel at the pumps down. This levy freeze was due to thaw at the end of March, with a knock-on effect of a potential 11p per litre increase at the pumps. However in the Spring Budget, the Chancellor has extended the fuel duty levy for a further year, until March 2024.

Childcare

Much has been reported recently about the exceptionally high childcare costs that are prohibiting parents from re-entering the workplace following a period of parental leave. In fact, Pregnant Then Screwed – a campaign group – recently surveyed 24,000 parents and found that 76% of mothers who pay for childcare feel it is not financially viable for them to work.

The Chancellor states that he has understood the challenges faced by parents around the country. He has announced a package of help for those on Universal Credit, allowing them to receive the cost of childcare upfront rather than having to claim it back after the event. The amount that can be claimed by those on Universal Credit for childcare has also increased – parents on Universal Credit will now receive up to £951 for one child and £1630 for two children per month.

In households where both parents are working, the 30 hours free weekly childcare will be extended. Currently children over 3 years of age may be eligible for this scheme, but the Chancellor has announced that it will now cover children from the age of nine months, for 38 weeks of the year (school term-time only). This will take place in two stages, with 15 hours being available from April 2024 and a further 15 hours (totalling 30) from September 2024.