The Budget presented by Chancellor Jeremy Hunt on 15th March 2023 followed two Government financial statements that to a large extent contradicted each other in the autumn of last year. The first of these was delivered by Kwasi Kwarteng, the then chancellor, on 23rd September 2022. This involved large unfunded tax cuts, which resulted in a massive adverse market reaction, including steep increases in borrowing costs and the near collapse of UK pension funds.
The second statement was delivered by the current chancellor, Jeremy Hunt, on 17th November 2022 and had the main objective of restoring market confidence in the UK Economy. To achieve this objective, it was deemed necessary to reverse nearly all taxes reduced in the previous statement. The measures announced included confirmation of an increase in the rate of Corporation Tax on 1st April 2023 from 19% to 25% on profits above £250,000¹.
There was also an announcement of a reduction in some business-related tax allowances, including those applying to capital gains tax. One of the very few measures announced last autumn that provided some positives for businesses was that the Annual Investment Allowance, for the purchase of capital equipment, was to be maintained at £1,000,000 on a permanent basis.
The Budget on 15th March 2023 was delivered in less frenetic circumstances, than that applied in November 2022, and indeed the Office for Budget Responsibility is now forecasting that the UK will avoid recession in 2023 and grow by 1.8% and 2.5% in the next two years².
This budget therefore offered an opportunity to introduce some business-friendly tax measures. Data supplied by the Office For National Statistics (ONS), at their Economic Forum a few days before the budget, and confirmed by the Office for Budget Responsibility, in the chancellor’s statement, indicated that things did not appear to be as bad as forecasted in the bleak days of autumn 2022. The chancellor identified the following as being a summary of key factors, currently applying to the UK economy:-
· Public sector borrowing is now lower than expected this financial year, giving the chancellor some headroom for limited higher public spending or tax cuts.
· The UK economy has seen no growth over the last 3 months or year, but it appears to have avoided the recession that was forecast in the last six months of 2022.
· Business challenges have eased somewhat over the last six months with corporate profits largely holding steady.
· Global food and energy price pressures have eased in 2023, but cost of living pressures remain elevated.
· UK investment remains low by both historical and international standards.
The planned removal of the highly attractive Super-Deduction capital allowance on 1st April 2023 has obviously not been helpful in addressing the low level of business investment, identified by the ONS and others. In response to the challenges faced the Chancellor announced the following measures in a “budget for growth”: –
1. A ‘full expensing’ policy introduced from 1 April 2023 until 31 March 2026 and an extension to the 50% first-year allowance in the same period – a transformation in capital allowances worth £27 billion to businesses over three years.³
2. The formation of 12 investment zones within the UK that would attract £80m of government support.³
3. Several regeneration schemes to help support the ‘levelling up’ agenda.³
4. A large fund for transportation infrastructure improvement schemes.³
5. Tax incentives to encourage investment in life sciences and creative industries.³
6. Tax ‘breaks’ for research and development. ³
A second brake on economic growth was identified as labour shortages and measures were announced to encourage parents to return to work through enhanced child-care schemes as well as early retirees through significant increases in the tax free amounts that can be paid into pension funds.
Budget statements have a habit of only being fully understood in the days that follow the headline announcements and this one will be no exception, particularly when it comes to tax allowances relating to business investment.
Disclaimer
BNP Paribas Leasing Solutions is not authorised to provide tax advice. You should consult an accountant in order to understand the tax consequences of any investment decision.
¹ Main rate of corporation tax, paid by businesses on taxable profits over £250,000, confirmed to increase from 19% to 25% https://www.bbc.com/news/business-64789405
² Quoted by the BBC as ‘growth of 1.8% for 2024 and 2.5% in 2025 https://www.bbc.com/news/business-64789405
³ https://www.gov.uk/government/news/chancellor-unveils-a-budget-for-growth
Andy Milsom, Head of Partner Training & Development at BNP Paribas Leasing Solutions
Andy is an experienced sales and finance professional with over 25 years’ experience in sales aid leasing. Andy is widely recognised as an expert in business finance and has in recent years focused his attention on developing partner sales teams develop an understanding of how businesses secure project financing. His training programme – Finance Unlocked – is a highly rated customisable course and is offered at no cost to partners.
If you’re interested in helping your sales team overcome finance-related hurdles during the selling cycle, please get in touch with Andy on 07966 114 243 or email here.
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