Spring Budget 2023

15 March 2023 / Insight posted in Budget 2023

Jeremy Hunt became only the second of the five most recent Chancellors of the Exchequer to deliver a full Budget. While he asserted the need to remain vigilant in the face of the threat of inflation and the burden of national debt, the Chancellor was confident that, having taken the decisions he took in the autumn, the UK economy is on the right track. In this context, much of the Chancellor’s speech was about creating the conditions for long-term sustainable growth.

The Chancellor tackled the topic of growth under four E’s: enterprise, employment, education (actually childcare, which was the subject of the most significant non-tax related announcement), and everywhere (formerly “levelling up”). Tax measures were peppered throughout various parts of the speech and included a few surprises that will be welcome for those able to benefit.

For companies, while there was no reversal of the increase in the corporation tax rate from April 2023, there is to be a full corporation tax deduction for investment on plant and machinery. For individuals, the pension annual allowance will increase and the lifetime allowance will be abolished entirely. Behind the headlines there was a raft of more detailed measures, which we have analysed in this update.

The next Budget is likely to be the last one before the next general election, and if over the coming year the economy performs as the Chancellor hopes, he may well have scope for a few more eye-catching give-aways.

Back to top

Corporate and business tax

The two most significant announcements affecting businesses were those relating to the full expensing of qualifying capital expenditure (which will benefit larger companies), and further changes to the R&D scheme (which will benefit smaller companies that are heavily focused on R&D). Many were hoping that the headline rate of corporation tax would not increase, as planned, to 25% from 1 April 2023 but the Chancellor stuck to his guns in this respect. In addition to the two key announcements, there was a vast range of other more technical changes that will need to be reviewed and considered by the various businesses they will affect.

Corporation tax rates

As expected, the Chancellor confirmed that the main rate of corporation tax will increase to 25% from 1 April 2023. He announced that the government will legislate for this rate to be in place through to 31 March 2025. The 25% rate will apply to companies whose taxable profits exceed £250,000 (although this limit will be reduced in certain circumstances).  This increase in the main rate takes place alongside the re-introduction of a small profits rate, which will be 19% and will apply to taxable profits below £50,000 (again, subject to reductions in some circumstances).  Companies making taxable profits between £50,000 and £250,000 will pay a blended rate of tax between 19% and 25% depending on the level of profits.

Moore Kingston Smith comment

It was no surprise that the 25% tax rate was not reversed. However, the £50,000 threshold is set at a level that is far too low; the Chancellor has missed an opportunity to increase this and to alleviate some of the pressure on SMEs of the increased corporation tax rate. The last time the UK had a small profits rate, the threshold was £300,000 so to have a threshold that is a fraction of this amount is a regressive step.

Capital allowances

As previously announced, the temporary super-deduction for capital expenditure comes to an end on 31 March 2023.  This provided 130% immediate relief to companies for expenditure on new and unused plant and machinery. From 1 April 2023, there will be two main changes to the capital allowances regime:

1.     The Annual Investment Allowance (AIA) will be set at a permanently level of £1 million per year (the amount it has been on a temporary basis since 2019). The AIA allows businesses to claim full tax relief for qualifying expenditure of up to £1 million per year.  This is expected to allow immediate tax relief for all qualifying expenditure of 99% of UK businesses.

2.     There will be full uncapped tax relief (“full expensing”) for qualifying expenditure incurred by companies between 1 April 2023 to 31 March 2026. The intention is that this will be extended if the circumstances allow. Expenditure on the Special Rate Pool assets (such as integral features in a building) will also benefit from a 50% first year allowance.

Moore Kingston Smith comment

Full expensing is, on the face of it, not as generous as the 130% super-deduction regime. However, as this will apply when the main rate of corporation tax is 25% rather than 19%, the overall economic effect for companies paying tax at this rate will be broadly the same. This measure will only apply to companies, so sole traders and individual members of partnerships will not benefit (although they will still of course benefit from the £1 million AIA).

Additional tax relief for R&D-intensive SMEs

R&D-intensive companies that surrender losses under the SME R&D scheme will benefit from an enhanced credit of 14.5% instead of the credit of 10% that will apply to other companies from 1 April 2023. R&D-intensive companies are those for which qualifying expenditure constitutes at least 40% of their total expenditure. The overall effect of this measure will be that those companies will gain a 26.97p credit for every £1 they spend on qualifying R&D expenditure.

Moore Kingston Smith comment

This measure amounts to a partial reversal of the reduction in the generosity of the SME scheme that was announced by the Chancellor in autumn 2022. While we welcome any increase in the generosity of the scheme for innovative businesses, we would note that it could be perceived as unfair towards genuine and important innovators who do not meet the high 40% level of expenditure.

Ongoing R&D tax relief review

The government has recently closed a consultation on the future of the R&D tax relief schemes, which focussed in particular on the possibility of merging the SME and RDEC schemes. No final decision has yet been made on how the government will proceed but it is intending to publish draft legislation for technical consultation in the summer.

Moore Kingston Smith comment

The RDEC scheme has a number of benefits over the SME scheme, including a more visible EBITDA-enhancing (“above the line”) credit and greater certainty as to the amount of tax benefit a company will receive. While we would support a merged scheme that operates along these lines, we would hope the government will be careful to ensure that SMEs that currently claim for subcontracted expenditure do not lose out. We eagerly await the draft legislation and will make our views known on its content once we have scrutinised it.

Delay to restrictions on relief for overseas R&D expenditure

The previously announced restriction on the ability for certain overseas expenditure to qualify for R&D tax relief will now come into effect for accounting periods beginning on or after 1 April 2024, a year later than planned.

Moore Kingston Smith comment

This restriction is likely to have a significant effect on the R&D claims of many innovative SMEs, particularly those in fintech and AI who heavily utilise overseas software engineers. The delay will provide those companies affected with some breathing space and the opportunity to restructure their affairs where this is possible.

Reforms to audio-visual tax reliefs

Following a public consultation, the film, TV and video games tax reliefs will be reformed, providing above-the-line expenditure credits, rather than additional tax deductions, from 1 April 2024. A new single Audio-Visual Expenditure Credit will replace the current film, high-end TV, animation and children’s TV tax reliefs. Film and high-end TV will be eligible for an expenditure credit of 34% of qualifying expenditure, and animation and children’s TV will be eligible for a credit at a rate of 39%. A new Video Games Expenditure Credit will have a credit rate of 34%, and under this regime qualifying expenditure will relate to goods and services that are used or consumed only in the UK (and not in the EEA as is currently the case).

Moore Kingston Smith comment

Much has changed since the introduction of the original film tax relief in 2007, and our clients within the creative sector are rapidly evolving, utilising new technology and meeting higher public demands. In general the changes to the tax reliefs in these areas make sense, although some will lose out as a result of the restriction on expenditure under the Video Games regime to that incurred in the UK.

Theatre tax relief (TTR), orchestra tax relief (OTR) and museums and galleries exhibitions tax relief (MGETR)

The temporary higher headline rates of relief for TTR, OTR and MGETR will be extended. From 1 April 2023, the headline rates of relief for the TTR and the MGETR will remain at 45% (for non-touring productions) and 50% (for touring productions). OTR rates will remain at 50%. From 1 April 2025, the rates will be 30% and 35%, and on 1 April 2026 the headline rates of relief for TTR and MGETR will return to 20% and 25%. The headline rates of relief for OTR will return to 25%.

MGETR had been due to end on 31 March 2024 but has now been extended to 31 March 2026.

Qualifying expenditure for theatre, orchestra, and museums and galleries exhibition tax reliefs will be changed to ‘expenditure on goods and services that are used or consumed in the UK’, aligning with the audio-visual tax reliefs. Productions that have not concluded by 1 April 2024 may continue to claim EEA expenditure until 31 March 2025.

Moore Kingston Smith comment

We welcome the news that the higher headline rates – and the museums and galleries relief – have been extended, although some will clearly lose out as a result of the restriction to qualifying expenditure.

Cash basis

The government will consult on expanding the cash basis, which is a simplified way for sole traders to calculate and pay their income tax. The government is interested in ways to increase the number of eligible businesses and how to increase the use of the cash basis within the eligible population, to ensure as many businesses as possible are benefitting from this simplification.

Moore Kingston Smith comment

Any measure that allows sole traders to concentrate on their business by simplifying their ongoing tax reporting is welcomed, especially with the increased reporting requirements of Making Tax Digital on the horizon.

Changes relating to investment structures

A number of changes were announced that will affect investment structures in the UK:

Amendment to the rules for Real Estate Investment Trusts (REIT)

The government is implementing amendments to the REIT regime, aimed at improving competitiveness and accessibility. Key changes include simplifying entry requirements, broadening investment opportunities, reducing administrative burdens for certain partnerships, streamlining tax rules and enhancing corporate governance. These changes are expected to take effect from 1 April 2023 and upon Royal Assent of the Spring Finance Bill 2023.

Amendments to the Qualifying Asset Holding Companies (QAHC) rules

The Qualifying Asset Holding Companies (QAHC) regime will undergo amendments to better align with its intended scope. The changes will affect companies using the QAHC regime, certain investment vehicles and entities investing in these structures. Key revisions include clarification on securitisation companies, extension of the anti-fragmentation rule, adjustments to determining relevant interests, inclusion of specific entities as collective investment schemes, treatment of listed securities as unlisted, chargeable gains exemption for QAHC investments in derivative contracts, and treatment of qualifying alternative finance arrangements. Most changes will be effective on and after the Royal Assent of the Spring Finance Bill 2023.

Amendments to the Genuine Diversity of Ownership (GDO) Rules

The measure amends the genuine diversity of ownership (GDO) condition in the Qualifying Asset Holding Companies (QAHC), Real Estate Investment Trust (REIT), and Non-Resident Capital Gains (NRCG) rules. It allows individual investment entities that are part of a wider fund arrangement to satisfy the GDO condition by reference to the entire arrangement, even if the individual entity would not satisfy the GDO condition when considered in isolation.

Introducing an elective accruals basis for the carried interest rules

The government is proposing a new elective basis of taxation for carried interest, which will tax carried interest at an earlier time than under the current rules. The objective of this measure is to make the tax system fairer and simpler by allowing individuals to better align the time a tax liability arises in the UK for carried interest with that of other jurisdictions. This measure will affect individuals who provide investment management services to investment funds and receive sums of carried interest subject to tax in more than one jurisdiction. The proposed revisions will be introduced in the Spring Finance Bill 2023 and will have effect from 2022/23.

Moore Kingston Smith comment

It is intended that these changes will enhance the UK’s attractiveness as a location for establishing asset holding companies, encourage investment in the real estate sector and align UK tax rules with those of other countries where this would give rise to a fairer outcome. As the administrative burdens for REITs can be significant, it is particularly positive that the government is taking steps to reduce these.

Charity taxes

New measures will seek to restrict various charitable tax reliefs, previously enjoyed by UK, EU and EEA charities and Community Amateur Sports Clubs (CASCs), so that they are now solely enjoyed by UK charities and CASCs. The measures effectively amend the tax definition of charities and CASCs and will take effect from 15 March 2023. Non-UK charities and CASCs that had asserted charitable tax status before 15 March 2023 will continue to benefit until April 2024.

Moore Kingston Smith comment

The measure follows a recent trend by the government to look to concentrate resources and favourable tax treatment on entities with a substantive UK presence. We expect, however, that the overall impact will be very limited, as there do not appear to be a significant number of EU and EEA charities that have asserted their status for charitable tax relief with HMRC.

Social Investment Tax Relief (SITR) to expire

It was announced that SITR will be allowed to expire in April 2023. Investments in social enterprises made on or after 6 April 2023 will no longer qualify for the income and capital gains tax reliefs that are currently afforded by this scheme.

Moore Kingston Smith comment

SITR was introduced in 2014, and gives individuals 30% income tax relief on qualifying investments of up to £1 million in qualifying charities, community interest companies and community benefit societies.

The relief was originally due to expire in 2021, but the government announced a surprise two-year extension. It is understood that the relief was not well used, partly due to significant restrictions in the definition of qualifying investments. Nevertheless, the loss of SITR will be felt by some social enterprises, who may already feel squeezed.

Payrolling of benefits in kind

The government has announced that it will develop IT systems that will enable tax agents to payroll benefits in kind on behalf of employers.

Employers that provide their employees with taxable benefits and expenses must by default report these items annually on Forms P11D, paying the associated national insurance contributions as part of this annual process. Employers do have the option of putting certain benefits and expenses through the payroll scheme, removing the need to prepare and submit Forms P11D after the tax year end. To be able to do this, however, the employer must register with HMRC using their online services account.

Moore Kingston Smith comment

The ability for accountants and tax agents to register to payroll benefits on behalf of employers will be a sensible step towards reducing unnecessary administration burdens and simplifying the benefits system as a whole. The government has not yet said when this change will take effect, so if any employers want to start payrolling benefits for the first time in the 2023/24 tax year, they will need to register themselves before 5 April 2023.

Private client

Changes to the pension regime were widely expected in advance of the budget, but the extent of these were greater than many had expected. A number of other announcements were made, and while these will need to be reviewed and considered, they are unlikely to have significant implications for many private clients.

Reforming pension tax thresholds

The pension annual allowance will be increased from £40,000 to £60,000 from 6 April 2023, and the income level at which this annual allowance begins to be ‘tapered’ will also be increased from 6 April 2023 from £240,000 to £260,000. The minimum tapered pension annual allowance will be increased from £4,000 to £10,000.

In a surprise move, the Chancellor announced that the pension lifetime allowance charge will be removed from 6 April 2023, with the pension lifetime allowance being abolished entirely from 6 April 2024. For most people, there will then be a limit of £268,275 on the 25% tax-free lump sum that can be drawn on commencement of a pension, with amounts taken as a lump sum in excess of this being taxed at marginal income tax of up to 45% (rather then 55% as is currently the case).

Moore Kingston Smith comment

There has been much debate and lobbying on how to solve the problem of pension fund tax charges that discourage many senior workers, particularly doctors and other clinicians, from remaining in work or from returning to work after retirement.

The increase to the pension annual allowance and the surprise abolition of the pension lifetime allowance are intended to encourage these people to continue to work. While there may be mixed feelings about these changes, particularly from those who have suffered pension tax charges in the past, this will be welcomed by many senior workers both in business and in the NHS.

Income tax and savings tax reliefs

As announced in the autumn statement 2022, the income tax personal allowance of £12,570 and higher rate income tax threshold of £50,270 will be frozen until April 2028. The threshold at which individuals start to pay the highest ‘additional’ rate in England, Wales and Northern Ireland will however be reduced from £150,000 to £125,140 from 6 April 2023.

No changes will be made to the income tax rates for the 2023/24 tax year, so the following rates continue to apply:



The 0% starting rate for savings income will be frozen at its current value of £5,000. The annual subscription limits for Individual Savings Accounts (ISAs) will also remain at the current limits – £20,000 for adult ISAs and £9,000 for Junior ISAs and Child Trust Fund accounts.

One change announced in the Budget 2023 is that the amount that can be received by foster carers and shared lives carers tax free (qualifying care relief) is being increased from £10,000 to £18,140 per year plus £375-£450 per person looked after, depending on their age.

Moore Kingston Smith comment

The lack of any further changes to income tax thresholds and rates should provide some certainty for individuals looking to plan ahead, and the increase in qualifying care relief is to be welcomed. For those individuals that will be brought into paying the additional rate of income tax from 6 April 2023, there is still a window of opportunity to plan – either by accelerating income or delaying relievable expenditure to ensure that more income is taxed at 40% in the current tax year, rather than 45% in the next tax year.

Simplifications for Trusts and Estates

From 6 April 2024, Trusts and Estates with income of £500 or less will not have to pay tax, and beneficiaries of estates will not have to pay tax on the income paid out to them if it was within the £500 limit. Discretionary trusts will no longer have a £1,000 band of income that is taxed at the basic rate, with all income (except where the new £500 limit applies).

Moore Kingston Smith comment

These measures will provide small but welcome simplifications to what can be a very complicated area of the tax code.

Tax exemptions for Group Litigation Order scheme payments related to the Post Office Horizon scandal

The government has announced that the sub-postmasters who received compensation following their group legal action against the Post Office will be exempt from any income tax, capital gains tax or national insurance contributions on the compensation received.

Moore Kingston Smith comment

No details have been provided beyond the headline announcement but this proposal is to be welcomed if it properly ensures the injustice suffered by the affected individuals is not compounded. The initial Group Litigation Order concerned over 700 sub-postmasters who were wrongly convicted and criminally sanctioned after the Horizon software used by the Post Office incorrectly showed that funds had gone missing from various post office branches. We understand there may be others affected who may not – on the face of it – be covered by these new exemptions, and we hope that the details deal with this point.

Investing in HMRC’s debt management resource

The government announced that a further £47 million will be invested in HMRC to improve the collection of tax debts. The purpose of the additional investment is to recover tax debts from people who can afford to pay but have not been given sufficient encouragement to do so.

Moore Kingston Smith comment

The government’s stated aim of distinguishing between people that can pay but choose not to, and people that need time to pay, is to be welcomed. HMRC considers that its new online ‘Time to Pay’ service has been a great success and we hope that its plans to expand and enhance this digital offering continue to make things easier for those that need it.

Tackling promoters of tax avoidance

A consultation will be launched to seek views on a new criminal offence for promoters of tax avoidance schemes who continue to market schemes even though they have received a notice to stop.  The consultation will also look at how to expedite the disqualification of directors of companies involved in promoting tax schemes.

Moore Kingston Smith comment

HMRC has had a great deal of success in clamping down on aggressive tax schemes but they continue to face criticism for failing to sanction effectively the promoters that achieve the largest financial gains from the implementation and operation of the schemes.  It will be hoped by those in the tax profession and beyond that any new sanctions are effective in deterring promoters that bring the profession into disrepute and encourage in particular moderate earners to enter into arrangements that simply do not work.

Webinar recording: what you need to know

Tax Partners Nick Blundell, Claire Roberts and Tim Stovold hosted a webinar for clients, providing a summary of the announcements in the Spring Budget and a clear explanation of what these mean for clients, their families, and businesses.

Get in touch

How did you hear about us?