Dan Martin breaks down the Spring Budget 2023 and how it may affect your business. The Spring 2023 Budget was focussed
on stimulating the economy, driving people back into the workforce, and bringing down inflation. There are a number of announcements from the budget which may impact your rural business.
The 130% super-deduction which companies have benefitted from since April 2021 ended on 31 March 2023 as expected.
From 1 April 2023 to 31 March 2026, the Spring Budget introduced ‘full expensing’, whereby companies who incur expenditure on new and unused qualifying plant and machinery will receive a 100% First Year Allowance. A temporary 50% First Year Allowance will also be available on new and unused special rate plant and machinery.
These new expensing rules apply to companies, and therefore will not apply to most farming businesses which are structured as partnerships.
Partnerships continue to benefit from the Annual Investment Allowance (AIA). The AIA has been permanently increased from £200,000 to £ 1 million, meaning businesses can claim 100% tax relief on qualifying expenditure.
The permanent increase to the AIA is welcomed, as investment in machinery and vehicles are key to farming businesses.
Research and Development (R&D)
The agricultural sector has an abundance of activity around innovation, new technology, and efficiency. Agricultural companies which are investing in new technology may be able to claim an extra deduction against their profits for qualifying expenditure.
The budget introduced reforms to the regime, whereby from 1 April 2023 the Government will introduce an increased rate of relief for loss-making R&D intensive SMEs. Eligible loss-making companies will be able to claim £27 from HMRC for every £100 of qualifying expenditure.
Agricultural Property Relief (APR)
The government has issued a consultation to determine whether 100% APR from Inheritance Tax (IHT) should apply when farmers make long-term changes from agricultural to environmental land use.
Questions over access to APR for land in some aspects of Environmental Land Management schemes continues to hold up many decisions about entering into these long-term commitments. This is therefore a welcome consultation, which will seek to give some certainty for future decision-making.
The government will restrict APR and woodlands relief for IHT purposes to assets situated in the UK.
Making Tax Digital – Basis Period Reform
As part of the government’s Making Tax Digital (MTD) project, changes have been made to alter the rules under which trading profits made by self-employed individuals and partnerships are allocated to tax years.
From 6 April 2024, individuals and partnerships will be taxed on the profit arising in the tax year, rather than their chosen accounting date. This will potentially accelerate when business profits are taxed.
Most rural businesses act through a sole trade or partnership. This measure will therefore affect those who do not currently prepare accounts to 31 March or 5 April.
The Pension Annual Allowance (AA) will increase from £40,000 to £60,000 per annum from 6 April 2023.
From 6 April 2023, where a taxpayer’s adjusted income exceeds £260,000, the AA is tapered by £1 for every £2 of income in excess of £260,000, down to a minimum of £10,000.
The current pension lifetime allowance (LTA) charge is being abolished from 6 April 2023. The LTA results in tax charges to apply on crystallisation of pension funds if the LTA (currently £1,073,100) is exceeded.
Individuals may be able to receive 25% of their pension savings as a tax-free lump sum when they become entitled to their pension benefits. This is currently capped at 25% of the LTA and going forwards, for most individuals, will remain capped at £268,275.
There are various changes which may result in higher tax bills if your income exceeds certain thresholds.
• Additional rate tax threshold to reduce from £150,000 to £125,140
• Dividend tax-free allowance to reduce from £2,000 to £1,000 for 2023/24 and £500 for 2024/25.
• CGT annual exemption to be cut from £12,300 to £6,000 for 2023/24 and to £3,000 for 2024/25
If you have a query please contact your usual contact at Ellacotts.
Information for readers: This material is published for the information of clients. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by the authors or the firm.