Spring Budget 2023 | What tax measures can the UK expect?
Published on 9th Mar 2023
A prudent budget with no new tax cuts is expected on 15 March 2023
The chancellor, Jeremy Hunt, will deliver his spring Budget on 15 March accompanied by growth and borrowing forecasts from the Office of Budget Responsibility.
Despite a backdrop of better-than-expected public finances, with the UK expecting a shorter economic downturn and borrowing expected to be less than forecast, we still expect the chancellor to be cautious. He has repeatedly advocated for steady, long-term policies and he outlined in his speech at Bloomberg, on 27 January, his four pillars of economic growth – enterprise, education, employment and everywhere – as a framework against which policies will be assessed and taken forward.
We look at what tax measures the chancellor may have in store in the spring Budget through this lens.
Seed Enterprise Investment Scheme (SEIS)
Former chancellor, Kwasi Kwarteng, announced in his ill-fated mini-budget in September 2022 that the government would increase the SEIS benefits available from April 2023 – with companies being able to raise up to £250,000 of SEIS investment (a two-third increase) and the gross asset limit increasing to £350,000 and the age limit from two to three years. The annual investor limit would also be doubled to £200,000.
This was one of the few tax measures that was not reversed by Jeremy Hunt when he became chancellor (for further detail, see our Insight) and we expect these measures to be confirmed and included in the Finance Bill when it is published on 23 March.
Company Share Option Plan (CSOP)
Another measure from Kwarteng's mini-budget which was not reversed are the improvements to the tax-advantaged CSOP.
The CSOP individual limit is to be increased, meaning that from 6 April 2023 qualifying companies will be able to grant CSOP options over shares with a market value of up to £60,000 (double the current £30,000 limit). In addition, from 6 April 2023, the shares under a CSOP option (for companies with more than one share class) will no longer need to be of a class that give employees control of the company or are majority owned by investors.
This will widen access to CSOP for many companies (in particular some private equity-backed companies) – see our recent Insight.
The government confirmed in last year's spring statement that, ahead of April 2023, it would consider reforms to support future business investment.
The chancellor has since confirmed that the Annual Investment Limit, which was due to reduce to £200,000 from April 2023, will remain at a permanent level of £1 million.
Business will no doubt hope for improvements to the tax relief available for expenditure on general plant and machinery and/or other capital allowances such as the Structures and Buildings Allowance. This is especially the case given the increase in the rate of corporation tax to 25% from 1 April 2023 alongside the end of the extension of the super deduction on capital expenditure (the temporary enhanced first year capital allowances).
Capital Gains Tax and carried interest
The rates of capital gains tax rates (CGT) have remained the same since 6 April 2017, although it has already been announced that the CGT annual exemption will reduce from £12,300 to £6,000 from April 2023, and then to £3,000 the following year.
The 2019 Conservative party election manifesto had also promised to "review and reform" Entrepreneurs' Relief (now renamed Business Asset Disposal Relief). The continuing availability of CGT treatment of carried interest for fund managers (rather than automatic income tax treatment in all cases) has also been the subject of debate for some time.
However, with an election in the government's sights in 2024 and its aim to further encourage the funds landscape in the UK, the chancellor may not view this as the right time to change elements of the CGT and carried interest regime.
Clamp down on misuse of umbrella companies
We are still awaiting the response to the government's call for evidence on the umbrella company market (see our previous Insight). Kevin Hollinrake MP, parliamentary under secretary of state at the Department for Business and Trade, indicated last month that an announcement was imminent and so there may be further detail at or around the time of the spring Budget. For further detail on what this could be, see our Insight.
Income tax and national insurance contributions (NICs)
Given the raft of announcements and U-turns that were made on income tax and NICs last year, we are hoping for a quieter budget on this side. Indeed, Jeremy Hunt indicated in his statement on 17 October 2022 that the current basic rate will remain at 20% "until economic conditions allow for it to be cut".
NICs rates had already been reduced with effect from 6 November 2022 (and will remain at those levels from 6 April 2023 – broadly, 12% or 2% above the upper earnings limit for employees and 13.8% for employers).
The concept of "investment zones", first introduced by then-prime minister, Liz Truss, last year, was taken off the table in its previous form, to be refocused on a limited number of the "highest potential knowledge-intensive growth clusters".
It is not clear what tax incentives and grants will be available in these investment zones but the chancellor has indicated that they would have "advantageous fiscal treatment to attract new investment". The spring Budget would provide an ideal opportunity for the chancellor to set out more details on these zones.
Improvements to Real Estate Investment Trusts (REITs)
The chancellor has already confirmed that, with effect from April 2023, new rules will remove the requirement for a REIT to own at least three properties, provided it holds a single commercial property worth at least £20 million, and to amend the rule that applies to properties disposed of within three years of significant development activity.
The chancellor is expected to confirm this measure (the legislation for which we expect to be included in the spring Finance Bill 2023) but he may also bring forward other proposals to improve the funds landscape as part of the government's wider funds review.
Osborne Clarke comment
The better-than-expected public finances may give the chancellor more scope to make changes to the tax system, however he will be acutely aware of disturbing the relative calm that has slowly returned to the markets following the economic turmoil of last year.
The chancellor will need to proceed with caution and restraint, balancing the competing priorities of bringing down inflation while also encouraging growth and prosperity.