United Kingdom | Spring Budget 2023

15 March 2023

United Kingdom | Spring Budget 2023

Impact: Medium

Key tax announcements impacting employers and employees

Summary

The Chancellor of the Exchequer delivered the Spring Budget on 15 March 2023, setting out the UK government’s tax and spending plans for the financial year 2023/24. With a backdrop of over a million job vacancies in the UK, the theme of the budget was to encourage more in the UK to return to work with measures focused on parents, older workers, long term sick and disabled and welfare recipients.

The biggest announcements were in respect of pension changes and an expansion of childcare support. However, in the supporting documents, the government also announced its intentions to ensure employers have access to skills and talent from abroad and issued some interesting consultations

Our UK Spring Budget summary for UK employers and employees, including global mobility considerations, is outlined below and includes:

• Key announcements
• Other announcements
• Quick recap: previous announcements relevant for 2023/24
• Consultations and calls for evidence
• What we did not see

Key announcements

Pension changes

A number of announcements were made in relation to pensions, including:

• Adjustment to the Annual and Lifetime Allowances:
  – Lifetime Allowance (LTA): The LTA is the maximum amount of benefits that a member can crystallise at retirement in registered pension schemes without incurring a LTA charge. For the 2022/23 tax year, the standard lifetime allowance is set at £1,073,100 but the Chancellor announced that the LTA charge will be removed from April 2023 with the LTA abolished entirely from April 2024.
  – Annual Allowance (AA): Broadly the AA is an annual limit on the amount of tax-relieved saving an individual can make in registered pension schemes. For the 2022/23 tax year, the AA is £40,000 for most people (tapered down to £4,000 for certain individuals) . The Chancellor announced that the AA will increase to £60,000 from April 2023 (and the tapered AA increased to £10,000). Carry-forward of unused AA from previous tax years will continue to apply.
  -Tapered Annual Allowance: The AA is tapered or reduced by £1 for every £2 of income for individuals with high incomes. For the current tax year 2022/23 this taper starts at “Adjusted Income” of £240,000 and reduces the AA from £40,000 down to a floor of £4,000 once income reaches £312,000. For 2023/24 this will be relaxed and the taper will only start from “Adjusted Income” of £260,000 and the minimum tapered AA will be increased to £10,000, which would be reached once income hit £360,000.
  -Money Purchase Annual Allowance (MPAA): For individuals who have started to draw down from a defined contribution scheme, the MPAA caps the amount that can be contributed to their defined contribution pensions while still getting tax relief. It does not apply in respect of defined benefit schemes. For 2022/23 the MPAA is £4,000 but it was announced this will increase to £10,000 for 2023/24.
• Tax-free cash sum: The tax-free cash sum at retirement is typically up to 25% of the value of the benefits but capped at no more than 25% of the LTA. With the abolition of the LTA from 6 April 2024, the maximum tax-free cash sum will remain at 25% of the benefits but capped at the current level of £268,275 (25% of the current LTA).
• Benefits above the LTA: From 6 April 2023, taxable benefits above the LTA would be taxed at the individual’s normal marginal rate of income tax and not at the 55% tax rate imposed by the LTA.

 

Vialto View

The increase to the AA and the removal of LTA charges before the LTA itself is abolished in 2024 will be welcomed by those otherwise caught by them. The two-stage process for the LTA, to remove the LTA charge in April 2023 but not abolish the LTA itself until April 2024, may reflect caution by HMRC to identify unintended consequences of removing the LTA. For example, the tax-free cash sum is capped by the LTA and in future will be subject to its own stand-alone cap, which will need to be put into legislation.

However, the AA increase also highlights how far it has fallen behind inflation. Ten years ago, in 2013/14, the AA was £50,000. Had it simply been increased by inflation each year it would now be worth over £64,000 in 2023/24. Even after this Budget’s announcements, pension savers still have a lower AA in real terms than they had ten years ago.

The pensions industry has been campaigning for a rise in the MPAA – a blocker for many individuals after retirement age who would like to continue to work. The level of the MPAA may reflect a tension between encouraging older workers to stay in the workforce and continue to rebuild their pension savings, even if they had dipped into these during the COVID-19 pandemic, and HMRC’s concern of tax leakage if earnings for the over 55s are diverted through pension schemes and immediately paid out.

What look on the face of it to be simple changes potentially have wider ranging implications than at first glance and we’ll be sharing more insights in this regard.

 

Childcare

A number of announcements were made in relation to childcare, including:

• Free childcare for working parents: Currently, working parents with earnings above specified age-based thresholds may be entitled to up to 30 hours of free childcare per week during school term time for their three and four year old children. The Chancellor announced that the current scheme will be extended to provide support from when the child is 9 months of age. However, this will have a phased roll out as follows:     – From April 2024, working parents of 2 year-olds will be able to access 15 hours of free childcare per week.
  – This will be extended to working parents of 9 months to 2 year-olds from September 2024.
  – From September 2025, all eligible working parents of children aged 9 months up to 3 years will be able to access 30 free hours per week.

 

• Increased help with childcare costs for those on Universal Credit: The government has increased the cap on childcare support for Universal Credit claimants for one child from £646 to £951 per month (increased to £1,630 for two children). To further help with cash flow, this will also be paid in advance rather than in arrears (as is currently the case).

 

• Wraparound childcare: The government will introduce a national pathfinder scheme for wraparound childcare in England, to stimulate supply in the wraparound market and support the ambition that all children should be able to access 8am-6pm childcare provision in their local area.

 

Vialto View

The announcement to expand the current 30 hours of free childcare to those between the ages of 9 months and 3 years will be welcome news to many employees and employers. This, combined with other announcements (such as wraparound care availability), demonstrates that the government is committed to supporting parents to return to the workforce. However, as always the devil is in the details. The existing scheme has limitations (for example availability for expatriates is linked to immigration status) and there are income restrictions. If either partner (rather than considering joint incomes) earns over £100k, they are not eligible.

From an employer perspective, many employers have shown an interest in supporting employees with childcare costs but there are limited ways this can be provided in a tax efficient manner following the barring of new entrants to childcare voucher schemes. Despite the announced changes to various childcare support, no announcements were made to enable employers to better support employees with childcare costs without further taxable earnings or a taxable benefit arising. Whilst the government is focused on lower paid earners, the prohibitive costs of childcare often inhibit both parents returning to work leading to a reduction in the UK’s overall productivity, a loss of experienced workers and acts to exacerbate various pay and pension gaps. Many employers may be disappointed that their options in this regard remain limited.

Migration: UK immigration and business visitor rules

The government has announced an intention to simplify business visitor rules in the UK from autumn 2023; specifically, it is looking at expanding the range of short term business activities that can be carried out in the UK for up to 6 months and also reviewing permitted paid engagements. In addition, the government is looking at more enhanced provisions and a wider range of allowable activities as part of individual negotiations with various trade partners.

The Migration Advisory Committee (MAC) is undertaking a rapid Shortage Occupation List (SOL) assessment for the construction and hospitality sectors to address labour supply pressures – the full review concludes later this year. Before the summer, the government has confirmed they will add five construction occupations to the SOL which will come into effect before the summer parliament recess, although we have not been told which jobs. Finally, the government has indicated their commitment to review the SOL more regularly so that the legal migration system is quicker and more responsive.

Vialto View

A very welcome announcement. We hope that the government will look broadly at the business visitor rules to align and simplify the business visitor rules across all compliance aspects (immigration, tax, payroll, social security).

Focusing on UK immigration, a commitment to review the list of permissible activities for business visitors is also a positive move. The distinction between a visit and work is often grey or, worse, too tightly drawn. The government is considering how the list can be expanded and we understand it is a cross-government effort. We will continue to contribute actively to that review and clients should get in touch if they have their own ideas to put to the government.

The commitment to review the Home Office’s Shortage Occupation List is welcome. Minimum salaries are lower for jobs on the shortage list, fees are lower, supplemental work becomes easier and employers can employ some asylum seekers, while they wait for a decision. That review is not new, it was announced a few weeks ago, and Vialto can help clients to understand the process or submit responses where helpful.

Other announcements

• Corporation Tax rates and reliefs: The main Corporation Tax rate will increase from 19% to 25%. However, a new scheme will allow every pound invested by businesses in IT equipment, plants or machinery to be deducted in full from taxable profits.
  Individual Savings Account (ISA): Annual subscription limit will remain unchanged at £20,000 for 2023/24.
• Crypto assets: With effect from the 2024/25 UK tax year, HMRC are introducing changes to self assessment income tax returns to identify reporting amounts in respect of crypto assets separately.
• Carried interest: A new election is being introduced to enable participants in carried interest arrangements to elect to pay tax on an accruals basis rather than when carry arises, as is currently the case. This will be relevant for carried interest holders who are subject to tax in the UK and another country where the other country taxes the carry at an earlier point than the UK does. The intended impact of the election is to bring forward UK tax charges on carry, enabling individuals to minimise any double taxation that would otherwise arise because of differences in the timing of UK and non-UK tax charges. More detail will emerge when the draft legislation becomes available, but we do know that the election can be made with effect from the 2022/23 tax year and it will be irrevocable. The fact that the election cannot be revoked is likely to reduce the number of taxpayers who make it. It also adds significant complexity to an area of tax reporting that was already very complex.
• Investment zones: In the Budget, the Chancellor formally announced a scaled back version of previously announced investment zones, with funding to be made available for 12 high-potential knowledge-intensive growth clusters (to drive the growth of green industries, digital technologies, life sciences, creative industries and advanced manufacturing) including four across Scotland, Wales and Northern Ireland, with the other eight being in the East Midlands, Greater Manchester, Liverpool City Region, North East, South Yorkshire, Tees Valley, West Midlands and West Yorkshire. Amongst other tax reliefs, eligible employers will benefit from relief from employer Class 1 National Insurance on the earnings of eligible employees up to £25,000 per annum.
• Share plans: The deadline for employers to notify grants of Enterprise Management Incentive (“EMI”) share options is being extended from 92 days following grant to the 6 July following the end of the tax year, with effect from 6 April 2024. In addition, two administrative requirements for Enterprise Management Incentive (“EMI”) share options are being removed from 6 April 2023:
  – The requirement for the company to set out within the option agreement the details of any restrictions on the shares to be acquired under the option.
  – The requirement for the company to declare that an employee has signed a working time declaration when they are issued an EMI option.
• Restriction of charitable reliefs to UK charities: Following a transitional period, tax relief will no longer be available for donations to EU and EEA charities from 6 April 2024.
• Removal of a taxpayer’s ability to legally assign to a third party their income tax repayments: Assignments of income tax repayments will have no legal effect and the repayment will remain the property of the taxpayer. It is important to note that taxpayers will still be able to authorise a tax repayment to be made to their employer, but by using nominations which are not legally binding, and which they can, in theory, rescind.
• Capital Gains Tax measures: A number of technical measures were announced to 1) simplify and clarify the rules in certain areas (transfer of assets on separation/divorce and rollover relief on disposal of land/propery for LLPs and Scottish Partnerships) and 2) introduce anti-avoidance rules for disposals under unconditional contracts and for certain share for share exchanges involving non-UK companies and UK close companies.
• Returnerships: The government will introduce Returnerships, a new offer promoting existing skills interventions to the over-50s, focussing on flexibility and previous experience to reduce training length.
• Energy Price Guarantee: The government previously limited the energy bill of a typical household to £2,500 a year. This was due to rise to £3,000 on 1 April but it was instead announced that the Energy Price Guarantee will be maintained at current levels until the end of June.

Quick recap: key previous announcements relevant for 2023/24

Here is a reminder of some of the measures that were announced in the Autumn Statement last November and which will be relevant from 6 April 2023.

• Tax thresholds frozen: The thresholds, bands and allowances for Income Tax and Inheritance Tax are currently frozen until April 2028.
• 45% tax rate: The threshold at which the Additional Rate (the 45% tax rate) starts will reduce from £150,000 to £125,140.
• National Insurance/Health and Social Care Levy: After many changes, the end result is that National Insurance rates and thresholds for 2023/24 will remain the same as for 2022/23 and the Health and Social Care Levy will not be introduced.
• Dividend allowance: The tax-free allowance for dividend income reduces from £2,000 to £1,000. It will be further reduced to £500 from 6 April 2024
• CGT annual exemption amount: The annual exemption amount reduces from £12,300 to £6,000 for individuals, and from £6,250 to £3,000 for most trustees.
• National Living Wage: This increases from 1 April 2023 from £9.50 to £10.42 an hour, in addition to increases to all National Minimum Wage rates.
• Company Share Option Plan (“CSOP”): The cap on the value of shares that can be the subject of a CSOP grant is doubling from £30,000 to £60,000 with effect from 6 April 2023. The ‘worth having’ restriction on share classes within CSOP is being removed at the same time.

Consultations and calls for evidence

• Promoters of tax avoidance to face criminal charges: The government will consult on the introduction of a new criminal offence for promoters of tax avoidance who fail to comply with a legal notice from HMRC to stop promoting a tax avoidance scheme. The government will also consult on expediting the disqualification of directors of companies involved in promoting tax avoidance including those who exercise control or influence over a company.
• Consultation on increasing occupational health coverage: The government will consult on increasing occupational health provision by UK employers, including regulatory options, boosting the supply of occupational health professionals, and kitemarking to indicate the quality of occupational health provision.
• Consultation on occupational health tax incentives: The government will consult on options to increase investment in occupational health services by UK-wide employers through the tax system (including a potential expansion of the existing benefits in kind for occupational health services or a potential super-deduction style relief for businesses who provide services to their employees).
• Strengthening employment rights and Call for Evidence on informal flexible working: The government is supporting Private Members’ Bills that provide a day-one right to request flexible working and grant specific groups protections or leave entitlements, including enhanced redundancy protection for pregnancy, family leave, carer’s leave, and neonatal care leave. In addition, the government will bring forward a call for evidence to launch in summer 2023 on informal and ad hoc flexible working to better understand informal agreements on flexible working between employees and employers.
• Consultation on the childcare market: The government will launch a consultation on further measures to support reform of the childcare market to improve the childcare offer for parents. This will include exploring further flexibilities for providers; allowing childminders more choice over how they operate, and introducing a new, streamlined childminder-specific Early Years Foundation Stage framework.
  All employee share plans: The government will be launching a call for evidence on the Share Incentive Plan (SIP) and Save As You Earn (SAYE) employee share schemes, and will then consider opportunities to improve and simplify the schemes.
• Simplifying and modernising HMRC’s Income Tax services through the tax administration framework: A new consultation running to 7 June 2023 is looking at and seeking feedback on HMRC’s plans to modernise and simplify the PAYE and Income Tax Self Assessment regimes. Vialto Partners will be responding to the consultation with focus in particular of the difficulties in respect of globally mobile employees, employers and individuals.

What we did not see

As well as the announcements made in the Budget, there were other possible announcements that were noticeable by their absence. Some of the possible tax changes that had been discussed before the day, but which were not mentioned include the following:

• Non-domiciled taxpayers: Nothing material was said in the Budget about the taxation of non-domiciled taxpayers. This continues to be an area of wide debate so it remains to be seen if the government will launch any consultations and/or announce any changes in any future fiscal events.
• Off-payroll worker rules: Despite a review being promised by previous administrations, no announcements were made as regards a comprehensive review and/or reform of either the off-payroll working rules or the tests applied to ascertain employment status for tax purposes.
• High Income Child Benefit Charge: It had been hoped that changes would be made to the threshold at which any child benefit claimed starts to be clawed back, particularly to consider this on a per-household basis. However, no changes were announced in this regard, such that households with one higher earning partner will continue to be penalised
• Employee benefit exemptions: No changes were announced in respect of either the conditions to be met for exemptions to be available (in particular removing the arbitrary distinction between employer-provided benefits which may be exempt and reimbursed expenses which in many cases are not) or the amounts which can be provided free of tax, in particular the amounts employers can reimburse for business mileage (despite pressure from a number of organisations).
• Apprenticeship Levy changes: Whilst the government noted that UK employers spend just half the European average on vocational training for their employees, with less than 10% of the spend being on high quality external training, no changes were announced in respect of the use of Apprenticeship Levy funds. To support investment in employees, many businesses would welcome a review and potential expansion of the use of the funds.
• Disbandment of the Office of Tax Simplification (OTS): Whilst documents confirm the OTS will be formally disbanded when the the Finance Bill 2023 receives Royal Assent, the Chancellor neither made comment on the reasons for the decision for disbandment nor addressed how the government will make tax simplification a focus in its absence. It is difficult to see how HMRC will be able to be as candid, or use its already stretched resources to apply the same focus, as the OTS.

 

Contact us

For a deeper discussion on the above, please reach out to your Vialto Partners’ point of contact, or alternatively one of our technical experts:

• Tim Sexton, Pensions | tim.sexton@vialto.com
• Ash Majithia, Employment Tax | ashish.majithia@vialto.com
• Sarah Hewson, Employment Tax | sarah.hewson@vialto.com
• Nick Carling, Global Mobility | nicholas.carling@vialto.com
• Jenny Adams, Global Mobility | jenny.adams@vialto.com
• Quentin Holt, Global Mobility | quentin.holt@vialto.com
• Ian Robinson, Immigration | ian.j.robinson@vialto.com

Further information on Vialto Partners can be found here: www.vialtopartners.com

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