Spring budget detailed analysis

Badged as the ‘Budget for Growth’, the chancellor’s Spring Budget 2023 on 15 March promised measures to fuel long-term sustainable growth throughout the UK 

Many of the measures had been announced in advance through the media, but there is still plenty to digest and evaluate as the detail of his proposed changes is published.  

Below we share our detailed analysis of the chancellor’s Spring Budget announcements.

Discover our detailed analysis on:

Business taxes

As anticipated, Mr Hunt did not announce a reversal of the increase to the main rate of corporation tax to 25% from 1 April 2023, despite reported pressure from fellow Conservative MPs. The key tax announcements in relation to the ‘enterprise’ pillar of his four-pillar industrial strategy, were in relation to capital allowances, research and development (R&D) tax reliefs and creative industry tax reliefs. Only time will tell if these measures will enable the chancellor’s strategy to deliver long-term sustainable growth.

Investment zones

Following the perceived success of freeports, the government is launching a programme to catalyse new innovation clusters in designated investment zones. The 12 new investment zones will be spread across the UK and are targeted at driving growth in one of the UK’s ‘key future sectors’ – green industries, digital technologies, life sciences, creative industries and advanced manufacturing.

Over five years, businesses located within investment zones will have access to tax benefits, including enhanced rates of plant and machinery capital allowances and structures and buildings allowances, coupled with relief from stamp duty land tax (SDLT), business rates and employers' National Insurance contributions.

Tonnage tax

An election window will be opened, allowing shipping companies that previously left the tonnage tax regime to return to the UK. This regime is an alternative method of calculating corporation tax profits by reference to the net tonnage of the ship operated. Companies that operate qualifying ships that are ‘strategically and commercially managed in the UK’ and are within the UK corporation tax regime can take advantage of the regime. However, it is important to note that all qualifying members of a group must enter into the regime together.

The new election window will open for 18 months from 1 June 2023, enabling shipping companies to make use of earlier reforms to the regime announced last year. Third party ship management companies will also be able to take advantage of the regime, and the limit on capital allowances for lessors of ships within the regime will be raised to £200m.

Corporate interest restriction (CIR)

UK companies and groups that incur more than £2m of net interest expense and other financing costs per annum may be denied deductions for such expenses under the CIR rules. Technical changes to this regime will be introduced to avoid unfair outcomes and ensure the rules are operating as intended.

The revisions will mostly take effect for accounting periods commencing on or after 1 April 2023, and will include (amongst others) amendments to:

  • ensure that groups can carry forward interest allowance where a new holding company is inserted in the group part way through a period of account;
  • remove an anomaly that can arise in relation to income or expenses deriving from a money debt that is not a loan relationship;
  • extend the time limit for HMRC to appoint a reporting company by 12 months; and
  • require groups to submit a revised interest restriction return where the underlying figures have changed, and give HMRC the power to issue penalties if such a return is not submitted.

With high inflation in the economy and the cost of debt rising, many more UK companies and groups will be pulled into the CIR regime and, consequently, potentially affected by the changes announced in Mr Hunt’s Budget statement.

Limitations on the access to double tax relief

In July 2022, the government announced that legislation would be introduced to restrict certain claims for double tax relief. The Spring Budget confirms the introduction of rules to prevent certain claims that could otherwise arise in relation to overseas dividends received by UK companies in periods prior to 2009.

These rules are only intended to target new claims for long-settled periods where no actual additional tax has been paid. They will not prevent claims in relation to open periods or periods that remain subject to ongoing litigation. They are likely be relevant only to a very small number of companies.   

Transfer pricing documentation

As previously announced, for accounting periods beginning on or after 1 April 2023, businesses operating in the UK that are part of a large multinational enterprise (those with global revenues of €750 million or more), will be required to prepare transfer pricing documentation in the form of a master file and a local file, in accordance with the Organisation for Economic Cooperation and Development (OECD) transfer pricing guidelines.

HMRC will also continue to consult on the introduction of a requirement to prepare and maintain a summary audit trail detailing the steps undertaken by UK businesses in preparing their transfer pricing documentation. Affected companies should consider their current transfer pricing documentation and take appropriate action, if they have not already done so.

Multinational top-up tax and domestic top-up tax

As previously announced, the government will legislate to implement the globally agreed multinational top-up tax (under ‘Pillar Two’ of the G20-OECD international tax reforms to address the globalisation and digitalisation of the economy) in the UK for accounting periods beginning on or after 31 December 2023. This will require large UK headquartered multinational groups to pay a top-up tax where their operations in another tax jurisdiction have an effective tax rate of less than 15%. A supplementary domestic top-up tax will also be introduced, applying where the UK operations of a company or group have an effective tax rate of less than 15%. Both of these measures will apply to enterprises with global revenues of €750 million or more.

Expanding the cash basis for the self employed

The government has opened a consultation, requesting ideas on ways to expand the cash basis regime for the self-employed. The cash basis is intended to simplify the way in which sole-traders calculate their taxable profits for income tax purposes, and the government wants to ensure that as many small businesses as possible can benefit from this simplified system. The consultation focuses on:

  • increasing the turnover thresholds for businesses to use the cash basis regime;
  • setting the cash basis as the default, with an opt-out election for those who would like to use the accruals system;
  • increasing the £500 limit on interest deductions for those businesses using the cash basis; and
  • relaxing restrictions on loss relief for those using the cash basis.

Given the announcement in Kwasi Kwarteng’s ‘mini-Budget’ in September 2022 that the Office of Tax Simplification would be closed – a decision that Mr Hunt has not reversed – it is interesting that the government is now considering expanding a regime which aims to simplify the tax affairs of a significant proportion of taxpayers.

Innovation incentives

It is rare that a Budget is delivered without the chancellor of the day seeking to fine-tune the UK’s innovation and creative sector reliefs to increase productivity, growth or value for money. For those of us who work in this area of tax, Budget day is therefore normally a busy one. However, even in this context, the 2023 Spring Budget contained a bumper crop of changes affecting innovative and creative businesses, which we outline below.

Research and development tax reliefs

Before going into detail on the research and development (R&D) tax relief changes announced, it is helpful to recap the background. There are currently two schemes of relief, one designed for small and medium-sized enterprises (SMEs) and consisting of an additional tax deduction combined with a payable credit for loss-makers, and one designed for larger companies and consisting of an R&D expenditure credit (RDEC) recognised for accounting purposes as an item of profit before tax. Whilst the government has always been committed to retaining a tax relief for companies carrying out R&D activities, it has recently been looking at ways to modernise the reliefs and protect against abuse, which is thought to be particularly prevalent in relation to the SME scheme. Certain technical changes that will affect both regimes have been in the process of being adopted for several years, before the chancellor announced in the Autumn Statement that the rates of relief under the SME scheme would be slashed, and the government would consult on merging the two existing schemes into one RDEC-like relief.

The SME scheme - Following the 2022 Autumn Statement, legislation has been enacted to ensure that, from 1 April 2023, the enhanced tax deduction available to SMEs in respect of qualifying R&D expenditure will decrease from 130% to 86%, and the payable credit for loss-making SMEs generally will be cut from 14.5% to 10%. As a consequence, once the increase in the main rate of corporation tax to 25% from 1 April 2023 is taken into account, the SME R&D tax relief will be worth 21.5p for every £1 of qualifying expenditure to profitable companies, down from 24.7p currently, whilst the cash benefit falls from 33.35p to 18.6p per £1 for loss-making businesses.

Understandably, many small businesses that carry out substantial R&D activities have expressed concern at the scale of this cut in support, and the chancellor has responded with a measure intended to help ensure that appropriate incentives for innovation remain available to SMEs. The Budget confirms that, from 1 April 2023, a higher rate of payable credit will be available for loss-making SMEs that are ‘R&D intensive’. Consequently, SME companies with qualifying R&D expenditure constituting at least 40% of their total expenditure will be able to obtain a payable credit of 14.5% of the losses surrendered, rather than the normal rate of 10%. Therefore, the net benefit they obtain will be 26.97p per £1 of qualifying expenditure – still less than it was prior to 1 April 2023, but not as dramatically so.

The consultation on a single scheme - In November 2022, the government announced that it will consult more widely to ensure that the R&D tax reliefs remain effective and competitive, and in January 2023 it launched a consultation on merging the two existing schemes. The consultation closed earlier this week (13 March) – the government is currently considering the responses and no decision has been made. It intends to keep open the option of implementing a merged scheme from 1 April 2024 and, if it decides to proceed, will publish draft legislation for technical consultation in the summer.

Technical changes - As previously announced, the R&D tax reliefs will be reformed for accounting periods beginning on or after 1 April 2023 by expanding the scope of qualifying expenditure to include data and cloud computing costs and implementing measures to target abuse and improve compliance. However, the intended restriction on most expenditure on sub-contractors or externally provided workers located outside the UK will now come into effect a year later, for accounting periods beginning on or after 1 April 2024. This will allow the government to consider the interaction between this restriction and the design of a potential merger of the two R&D regimes.

To tackle the widespread abuse of R&D tax reliefs, the government has brought forward a requirement for an additional information return, a new digital submission (via a web-based form) which must be provided in support of all claims made on or after 1 August 2023. This form represents a significant new administrative burden for claimants, requiring them to provide specific information about the company’s R&D activities, the costs incurred, the identity of any agent that has advised on the claim, and the employee or officer of the company that is responsible for it.

Creative sector tax reliefs

The chancellor’s Budget statement acknowledged the important role that the creative sectors play in the UK economy. For the audio-visual reliefs (comprising reliefs for the development of video games, films, high-end TV programmes, children’s TV programmes and animations), we welcome the move to an expenditure credit regime, which will encourage investment and address concerns surrounding the forthcoming global minimum tax rules. For video games tax relief specifically, the removal of the subcontracting limit of £1m per game is a welcome change, and whilst it was widely expected the relief would be reformed to ensure that only UK expenditure qualifies (as is the case for the other audio-visual reliefs) the ability to continue to claim in respect of European Economic Area expenditure up until 31 March 2027 should give claimants time to consider restructuring their operations, where it is appropriate to do so. For all the audio-visual reliefs, the overall cash benefit per £1 of qualifying expenditure will remain similar at broadly 20p, although for animations and children’s TV the benefit will now increase to just over 23p. We look forward to reviewing draft legislation to implement these changes when it is published in the summer of 2023.

As regards the other creative sector reliefs targeting the cultural and charitable sectors (theatres, orchestras, museums, and galleries), the current generous rates of relief were due to reduce from 1 April 2023. However, the government has now confirmed that the headline rates will remain at 45% for non-touring, and 50% for touring, theatrical productions, and exhibitions until 1 April 2025. For orchestras, the rate will remain at 50% until 1 April 2025. In addition, museums and galleries exhibitions tax relief has been extended until 31 March 2026. These changes will be very welcome as many organisations in these sectors are still struggling to return to pre-pandemic revenues.

Patent box

The patent box regime provides for an effective corporation tax rate of 10% on profits attributable to qualifying intellectual property rights, typically patents. Whilst there were no major changes to this regime announced in the Budget, the introduction of a small profits rate of corporation tax from 1 April 2023 necessitates an amendment to link the patent box deduction to the applicable rate of corporate tax, thus ensuring that all companies still receive the effective 10% corporation tax rate on patent box profits, regardless of their overall profitability.

Capital allowances

The announcement of full expensing for qualifying general pool plant and machinery and an extension of the 50% allowance for special rate assets in the chancellor’s Spring Budget statement is a big boost to UK companies facing the end of the super-deduction scheme on 31 March 2023 and the corporation tax rate rise from 19% to 25% from 1 April 2023.

The full expensing regime will commence for expenditure incurred by companies from 1 April 2023 and will apply for three years, at an estimated maximum annual cost of £11bn. The government hopes this announcement will encourage capital investment in the UK, which it acknowledges is currently at a level below that observed in comparable countries.

The new full expensing regime will see UK companies receive 25p of tax relief for every £1 of qualifying capital expenditure on new and unused plan and machinery, and importantly the relief is uncapped. This will ensure that the tax relief available from 1 April 2023 is at a similar level to the current super-deduction regime.

We welcome the chancellor’s intention to make these incentives permanent ‘as soon as it is sustainable to do so’; however, we note that the next general election is due to take place before the expiry of this incentive, meaning businesses continue to face a degree of uncertainty about the future tax landscape for investment in the UK.

Whilst it is good that the relief is proposed to remain in place for longer than the two-year super-deduction scheme, three years is still a narrow window for businesses to complete any new investment plans, given well publicised challenges with global supply chains.

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Employment taxes

Reform of company share option plan rules

The Spring Finance Bill 2023 will include changes to company share option plan (CSOP) rules, previously announced in September 2022. Qualifying companies will be able to issue up to £60,000 of CSOP options to employees, double the current £30,000 limit, from 6 April 2023.

Enterprise management incentives: changes to the process of granting options

From 6 April 2023, the requirement for a company to set out details of share restrictions within the enterprise management incentive option agreement and to declare an employee has signed a working time declaration will be removed. The same will apply for options granted before 6 April 2023 that have not yet been exercised.

In addition, from April 2024, the deadline for notifying EMI options will change from 92 days after grant, to the 6 July following the end of the tax year.

Delivering agent access to payrolling benefits in kind

Payrolling of benefits in kind was introduced in April 2016 as a simplification measure for employers and employees. Payrolling allows employers, once registered with HMRC (which they must do before the tax year starts), to report employee benefits and account for income tax through the payroll.

The government has announced that it will look to deliver IT systems that enable tax agents to register payrolling of benefits on behalf of employers. This change removes a barrier for employers on the registration process, opening the way for more businesses to use payrolling of benefits to meet their compliance obligations. Should HMRC find a way for the IT systems to deal with beneficial loans and accommodation benefits being payrolled as well, we could see the mandatory implementation of payrolling of benefits and the abolition of P11Ds altogether. It doesn’t appear HMRC is fully there yet, but surely it is not too far away.

Tax administration framework review: modernising income tax services

With the Office of Tax Simplification now disbanded, the government has published a discussion document for feedback by 7 June 2023, exploring how HMRC can simplify and modernise HMRC’s income tax services as part of its tax administration framework review. This sets out HMRC’s intention to move to a ‘digital by default’ approach for some of its outputs. The review seeks feedback on improving pay as you earn (PAYE) processes, highlighting notices of coding and changes of circumstances as items that could be considered.

Consultation on occupational health tax incentives

The government will consult on options to increase investment in occupational health services by employers through use of the tax system, and through regulations requiring employers to provide such services. The chancellor’s ideas include an expansion of the existing benefits in kind exemptions for occupational health services or a potential super-deduction style relief for businesses that provide occupational health services for their employees.

Non-discretionary tax advantaged share schemes: call for evidence

The Budget documents confirm that a call for evidence on the share incentive plan (SIP) and save as you earn (SAYE) employee share schemes will take place. HMRC will use the call for evidence to consider opportunities to improve and simplify the schemes.

Tackling promoters of tax avoidance

The government intends to consult on the introduction of a new criminal offence for promoters of tax avoidance schemes that fail to comply with a legal notice from HMRC to stop promoting such schemes. It will also consult on disqualifying directors of companies involved in promoting tax avoidance, including those who exercise control or influence over a company and will double the maximum sentences for the most egregious forms of tax fraud from seven to 14 years.

Getting people into, and keeping them in, work

The chancellor announced investment in childcare provisions and early years support, changes to pension allowances and new initiatives for upskilling and retraining workers of all ages. This includes ‘returnerships’, a new offer targeted at the over 50s, which bring together the government’s existing skills programmes such as sector-based work academy programme placements and skills bootcamps. In addition, a new programme, WorkWell, will be piloted to better integrate employment and health support for those with health conditions, supporting individuals into employment and to remain in work. Up to 10,000 individuals who arrived in the UK under the Ukraine visa schemes will benefit from intensive English language courses and support to help overcome barriers to employment.

The government believes working flexibly can help employees balance work commitments and personal circumstances.  Therefore, a reform of the statutory framework for flexible working will be undertaken to provide employees with a right to request their job be done flexibly from the first day of employment. The government will launch a call for evidence in summer 2023 to facilitate a better understanding of how less-formalised types of flexible working operate in practice. Alongside investments to support getting people into work, the government will ensure that the UK labour market has access to skills and talent from abroad where needed, to help businesses tackle immediate labour shortages and ease business visits to the UK. 


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VAT and indirect taxes


Relief for energy saving materials - The government has published a call for evidence on options to reform VAT relief for the installation of energy saving materials. The call for evidence will consider making additional technologies eligible for relief, and providing relief for energy saving materials installed in buildings used solely for a relevant charitable purpose.

Drink container deposit return schemes - The VAT treatment of deposits charged under a deposit return scheme for drink containers will be simplified from 1 August 2023. Where a deposit is charged on a drink that is within the scope of a deposit return scheme, and the container is returned for recycling, VAT will not be applied to the deposit amount. Where the container is not returned for recycling, HMRC will collect the VAT on the unredeemed deposit.

DIY housebuilders’ scheme updates: digitisation project and increased time limits - The government has confirmed that it will legislate to digitise the DIY housebuilders’ scheme and extend the time limit for making claims from three to six months. This should improve the position for claimants and be beneficial for the HMRC team that administers the claims.

Fund management and financial services reform - The government is considering the responses to a recent consultation on proposed reforms to the VAT treatment of fund management and is continuing to discuss the proposals with interested stakeholders. It will publish its response to the consultation in the coming months. The government will also continue consider reforms to simplify the VAT treatment of financial services, to reduce inconsistencies and provide businesses with further clarity and certainty.

Services supervised by pharmacists and patient group directions - The VAT exemption on healthcare will be extended to include, from 1 May 2023, medical services carried out by staff who are directly supervised by registered pharmacists, and the zero rate of VAT on prescriptions to medicines supplied through patient group directions will also be extended. These changes are intended to ensure the tax system keeps pace with changes to healthcare delivery, and ease pressure on GP services.

Other indirect taxes

Plastic packaging tax - The plastic packaging tax rate will be increased in line with the consumer price index, from 1 April 2023.

Landfill tax - It was announced in the Autumn Budget 2021 that landfill tax rates in England and Northern Ireland would be uprated from 1 April 2023. The government has now confirmed that they will be further uprated from 1 April 2024. It has also published a response to the call for evidence on aspects of landfill tax which closed in February 2022, confirming that there will be further engagement with stakeholders before changes are announced. Scotland and Wales have their own independent landfill tax regimes.

Aggregates levy - The government will freeze the aggregates levy rate for 2023/24, but will return to index-linking the aggregates levy rate, so that it increases in line with the retail price index from 1 April 2024.

Air passenger duty - Air passenger duty (APD) rates will increase in line with the retail price index for 2024/25, meaning that short haul international rates remain frozen. Following a 50% cut in APD for domestic flights in 2023/24, the rate for domestic flights will increase by 50p to £7. The long haul and ultra-long haul economy rates will increase by £1.

Climate change agreement scheme - The government will extend the climate change agreement scheme, under which participants that meet agreed energy efficiency targets are entitled to reduced rates of climate change levy, by two years, to 2026/27. The extension will be open to new participants in currently eligible sectors. The Department for Energy Security and Net Zero will consult on the details of the extension and proposals for any potential future climate change agreement scheme.

Carbon capture, usage and storage - The government will provide up to £20bn funding for early deployment of carbon capture, usage and storage (CCUS), to help meet its climate commitments. A shortlist of projects for the first phase of CCUS deployment will be announced later this month. Further carbon capture projects will be able to enter a selection process for an expansion of this ‘track one’ cluster, to be launched this year, and two additional clusters of projects will be selected through a subsequent ‘track two’ process, with details announced shortly.

Vehicle excise duty uprating and heavy goods vehicles duty freeze - Vehicle excise duty (VED) rates for cars, vans and motorcycles will be increased in line with the retail price index from 1 April 2023. VED for heavy goods vehicles will remain frozen for 2023/24.

Reform of heavy goods vehicle levy - Following consultation in 2022, a new reformed heavy goods vehicle (HGV) levy will be introduced from August 2023, following the planned end of the current levy suspension period. The reforms are intended to ensure that the rate of HGV levy a vehicle attracts reflects its environmental performance.

Gaming duties - The gross gaming yield bandings for gaming duty will be frozen from 1 April 2023.

Customs & Excise

Alcohol duties and the draught relief - Duty rates on alcoholic products will increase in line with RPI, but the existing draught relief, which imposes lower excise rates on draught alcohol products, is to be increased from 1 August 2023, to further differentiate the duty costs of product sold in public houses against those sold via other outlets, such as supermarkets. The relief on draught beer and cider products will increase from 5% to 9.2%, and for wines, spirits based and fermented draught products from 20% to 23%. Furthermore, the government has reconfirmed its intention to fundamentally reform the structure of alcohol duty to establish standard rates based on alcohol by volume, rather than a disparate rate structure specifically based on product type. These changes are due to take effect from 1 August 2023.

Temporary approvals for certain excise regimes - Current excise duty legislation is quite draconian when it comes to the removal of licences and authorisations to store goods under duty suspension. Technical amendments to the temporary approvals regime will be made to enable HMRC to better use its discretion to allow business to avoid a duty liability and/or penalty where authorisations are withdrawn.

Changes to customs guarantees for special procedures, temporary storage, duty deferment - Until the European Union's (EU) Union Customs Code, which withdrew a specific derogation, the UK did not require guarantees to be provided for customs regimes except for duty deferment accounts. Since the UK’s withdrawal from the EU, HMRCs approach to this area has been somewhat inconsistent. The government will engage with stakeholders on potential changes that will allow more traders to use special procedures, temporary storage and duty deferment without a financial guarantee.

Voluntary standards for customs intermediaries - A long time coming, the government will consult on introducing a voluntary standard for customs intermediaries This measure should improve the consistency and quality of service provided by customs agents acting on behalf of importers and will be seen as a welcome development by most stakeholders in international supply chains.

Simplified customs declaration review - The digitisation of customs declarations has been a stated goal of the UK and many other jurisdictions for many years. The addition of over 250,000 new importers and exporters as a result of the UK’s withdrawal from the European Union has focused minds on the development of systems that allow better access to making customs declarations and greater latitude to making periodic declarations. Such simplification will be seen as a very welcome development.

Transit policy simplifications - Currently transit movements must be covered by a guarantee to secure payment of the duties suspended by the transit system. A waiver of a guarantee can be obtained currently but it is a complex system to navigate. The government intends to consult with the aim of making it easier for transport companies and individual businesses to access transit waivers that will free up cash and banking facilities that a guarantee would eat into. Expanding the ability of businesses to start and end transit movements at their own premises will also make accessing the transit system more efficient and would avoid trucks having to travel to specific locations to complete transit movements.


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Personal taxes

Anyone hoping for sweeping reform, or really anything of substance, is likely to feel somewhat deflated by the announcements made. Indeed, there was little to spark any real excitement. On the other hand, those wanting stability and adherence to the mantra ‘boring is best’ may well have been pleased by the lack of personal tax measures, particularly the silence regarding increases to the capital gains tax rates (which have been speculated about for several years now). 

The key personal tax measures announced were reforms to pension tax reliefs. 

Pension tax reforms

The chancellor put forward measures to increase the amount individuals can save into their pension in the belief that this can in part help to address the UK’s low levels of productivity by keeping individuals in employment for longer and incentivising the ‘economically inactive’ (especially the over 50s) back into work.

Arguably the reforms do little more than tinker around the edges of the existing legislation, rather than fundamentally reform the taxation of pensions. The following measures will be introduced from 6 April 2023.

  • The pension contributions annual income tax allowance is to increase from £40,000 to £60,000. In addition, the annual money purchase allowance for pension contributions by existing pensioners and the minimum tapered annual allowance will increase from £4,000 to £10,000.
  • The lifetime allowance charge will be removed from April 2023, and the pension lifetime allowance abolished (the latter measure will take effect from April 2024).
  • The income level at which the pension contributions annual income tax allowance will be tapered will increase from £240,000 to £260,000 from 6 April 2023.

A more sceptical view may be that the measures have simply been designed to help the struggling NHS system, by preventing NHS doctors from seeking to retire early due to existing tax policies. However, many individuals will benefit from the ability to pay higher pension contributions without incurring unwelcome tax charges. Only time will tell how effective the measures are.

Hidden in the detail following the announcements, the pension commencement lump sum allowance (commonly known as the tax-free lump sum) will remain at 25% of the available pension fund, subject to a maximum of £268,275 (ie 25% of the current lifetime allowance of £1,073,100. As this, in time, may be less than a quarter of the value of a pension, it may be an incentive to keep funds within the pension to pass on as part of a wider inheritance tax planning strategy. Rather than saving pension funds for retirement, those with significant assets outside their pension may rely on spending other capital rather than drawing down income from their retirement pot.

Whilst the reforms may improve productivity – particularly for NHS workers - they are also likely to increase wealth inequality.

Capital gains tax

The measures to be included in the Spring Finance Bill include legislating announcements, to counter tax-avoidance, made in the chancellor’s last Autumn’s Statement, including closing planning previously available whereby non-domiciled taxpayers could restructure their UK investment holdings into non-UK based companies and obtain tax free income and gains from the non-UK company, and a perceived loophole of using unconditional contracts.

As previously announced in July 2022, the government will also introduce legislation with effect from 6 April 2023 that extends the ‘no gain, no loss’ principle for capital gains tax purposes to the transfer of all assets between separating spouses and civil partners for up to three years after the tax year they cease living together, and all transfers of assets undertaken as part of a formal divorce agreement.

Trusts and estates

The tax regime for trusts and estates has become more complicated over the past 20 years, and there is an increasing number of trusts and estates that now have a significant administrative burden, including reporting to HMRC for income tax, capital gains tax and inheritance tax purposes, as well as an annual return or declaration under the trust registration service.

The details set out in the various Spring Budget documents include measures intended to make reporting for smaller trusts simpler, as any trust or estate with income of less than £500 per annum will now no longer need to be reported on a tax return. These measures mean that beneficiaries will also not need to pay tax on income below these levels either.

One complication of the income tax regime for discretionary trusts has been the standard rate band, where income of less than £1,000 was taxed at a lower rate. This rate band is to be abolished in its entirety, which, coupled with the new exemption for income under £500, should go some way to reducing the compliance burden for trustees.

Income tax

The annual subscription limit for individual savings accounts (ISAs) is frozen at £20,000 for the 2023/24 tax year and the limit for Junior ISAs and child trust funds will also remain at £9,000.

The starting rate limit for savings income is kept at £5,000 for the 2023/24 tax year, which is in line with the freeze on rates and allowances previously announced at the 2022 Autumn Statement.

In more positive news, the amount of income tax relief available to foster carers and shared lives carers will increase from 6 April 2023. The threshold above which care income will be taxed is to increase from £10,000 to £18,140 per year, plus £375-£450 (currently £200-£250) per person cared for per week, depending on their age, for the 2023/24 tax year, following which the thresholds will increase in line with the consumer price index.

Elective accruals basis for carried Interest

UK resident private equity managers in receipt of distributions of carried interest are sometimes liable to tax in other jurisdictions. The timing of the recognition and charging of the carried interest to tax may differ between jurisdictions, making it difficult to obtain relief and resulting in double taxation. The government has therefore announced that individuals may elect for the carried interest to be taxed at an earlier time in the UK than under current rules to enable them to secure double tax relief. This change is backdated to 6 April 2022 and affected individuals should review their 2022/23 filing positions accordingly. This issue can be particularly relevant to UK residents who are also US citizens or Green card holders. By allowing UK residents to pay tax earlier on their carry, aligning with the tax point in the other jurisdiction, it is hoped that the claiming of credits will become easier. Further details will be contained in the Finance Bill expected on 23 March.

Other tax announcements

From the 2024/25 tax year, all amounts received in respect of cryptoassets will need to be identified separately on a taxpayer’s self-assessment tax return.

Tax relief for non-UK charities and their donors and suppliers will be withdrawn from 15 March 2023, although qualifying charities in the European Union and European Economic Area will have a transitional period until April 2024.

Non-tax personal measures – reform to the childcare system

The childcare system is to be reformed to provide 30 hours of free childcare a week for 38 weeks a year to all eligible households, for all children over the age of nine months until they start school. The idea behind the measure is that it will help parents who wish to return to work to afford to do so. Eligible households will broadly be those where both parents work at least 16 hours a week. To ensure such childcare is available, this measure will be phased in, with all two-year-olds qualifying for 15 hours of free childcare from April 2024, and those aged over nine months qualifying from September 2025.

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The economist's view

Spring Budget: Sound in theory, but execution may be more difficult

The chancellor's Spring Budget was probably a little more generous than expected, but the Bank of England (BoE) Monetary Policy Committee (MPC) won’t need to worry about tightening policy to offset it given most of the extra spending focused on boosting the medium term supply side of the economy. Indeed, the MPC is probably far more concerned about the short term financial market volatility associated with Credit Suisse than it is about a little bit of extra government spending.

If the supply side reforms to boost labour market participation and business investment are successful (a big if) then it should support economic growth, reduce inflation and lower the need for the BoE to keep interest rates higher for longer.

The risk is that, with a razor thin margin in the chancellor’s headroom, any underperformance against the Office of Budget Responsibility’s (OBR) forecasts means Hunt will have to row back on some of these measures in the next Budget.

Has the UK avoided a recession?

According to the OBR – yes.

The fiscal watchdog now expects growth to flatline in Q2 after falling in Q1, meaning that the UK would avoid a technical recession (two consecutive quarters of falling growth). This means the peak-to-trough fall in GDP is just a quarter of the 2.1% fall assumed in the November forecast. However, output still doesn’t regain its pre-pandemic peak until the middle of 2024.

Admittedly, the economy has been much more resilient than anyone thought it would be and a recession is certainly not guaranteed. But given most estimates suggest less than half of the impact of interest rate rises has been felt so far and the extreme tightening in financial conditions over the last week, a mild and short recession remains our base case.



The OBR expects inflation to fall back more quickly now, mainly as a result of lower energy prices being passed through to consumers. It now expects inflation to fall back to about 3% by the end of the year, in line with our own forecasts.

The most surprising bit of the change in the OBR forecast was probably its expectation that the unemployment rate will only rise to a peak of just 4.4% in 2024. While this is certainly possible given the resilience of the labour market, an unemployment rate this low would probably not be enough to get wage growth down to the 3% the MPC would like, making further interest rates more likely, which would in turn push the unemployment rate up.

Supply side reforms will boost growth, if they work

The theory here is sound, which is more than can be said for all recent Budgets. The improvements in the economic outlook mean that before the new policy measures, the OBR judged that chancellor Hunt would have headroom of £14.5bn against the main fiscal rule of underlying debt as a percent of GDP falling in five years' time (ie 2027/28) compared to the £9.2bn of headroom he had back in November. The chancellor used 55% of that and banked the rest, leaving the final headroom at a slim £6.5bn (0.3% of GDP).

Mr Hunt’s most significant measure was the announcement of full capital expensing for companies for the next three years, which will cost the exchequer £9bn a year and likely boost business investment by about 3%, relative to the counterfactual. This measure alone accounted for nearly half of the £22bn discretionary loosening in 2023/24 that he announced. Given the UK’s dire record on business investment – and that this is one of the key reasons why the UK’s productivity has been poor – any boost to business investment is to be heartily welcomed.

Similarly, efforts to improve childcare and get more people back into work should be applauded given that the UK workforce is still about 1% smaller than before the pandemic – significantly holding back growth.

However, previous efforts to encourage business investment have disappointed lofty OBR forecasts. What’s more, the CBI estimates that it would take funding of almost £9bn a year to properly extend childcare – about three times more than the £3bn the government has budgeted for next year. The risk is that without proper funding any improvement in labour participation is muted.

Policy implications

In theory, the Budget argues for a bit more tightening by the BoE at next week’s MPC meeting. Further support for businesses and households around energy prices, more defence spending and tax breaks for business investment will boost demand this year. However, the MPC is unlikely to be too concerned about the inflationary impact of these commitments. Lower energy bills will help headline inflation fall and extra defence spending is unlikely to boost demand in the broader economy.

By far the biggest issue at next week’s MPC meeting will be inflation verses financial stability. We had already thought the chances of a rate hike next week were probably at 50%, but the flare up of risks around Credit Suisse on Budget day and associated moves in financial markets makes that probability even smaller. It now looks like the MPC will press pause one meeting earlier than we previously expected.

In the medium term, the measures announced should boost the supply side of the economy. Getting more inactive people back into work will be crucial to bringing down wage growth - and by association services inflation - and reduce the need for further rate hikes. Any boost to business investment should improve productivity and reduce inflationary pressures. 

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