In association with
Save content
Have you found this content useful? Use the button above to save it to your profile.
Paul Aplin explores the twists and turns of a macroeconomic-driven Budget
iStock_druvo_Cheddar Gorge

Budget 2023 policy highways and tax by-ways

by

Paul Aplin seeks out the less travelled taxation side roads in a Budget sorted around the chancellor’s big four themes, all beginning with E.

15th Mar 2023
In association with
Save content
Have you found this content useful? Use the button above to save it to your profile.

The road signs in the Spring Budget were clear: building on the Prime Minister’s five priorities and pursuing the Chancellor’s four “Es”.

On the PM’s first priority, halving inflation, the Office for Budget Responsibility (OBR) now forecasts inflation in Q4 of 2023 at 2.9% compared to the peak of 11.1% in October 2022.

On the second, reducing debt, UK debt is forecast to be 92.4% of GDP next year, 93.7% in 2024-25,94.6% in 2025-26 and 94.8% in 2026-27 before falling to 94.6% in 2027-28.

Underlying debt will therefore increase as a percentage of GDP for the next four years and then start to fall. That refers to the percentage measure: the total UK national debt will of course continue to rise, and currently stands at a staggering £2.5 trillion.

The Chancellor said that the PM’s third priority, growth, was the focus of the Spring Budget. The OBR forecasts growth over the next few years at 1.8% in 2024; 2.5% in 2025; 2.1% in 2026; and 1.9% in 2027. The current year is expected to show a contraction of 0.2%.

The Chancellor then turned to his pet themes, all beginning with E: enterprise, employment, education and everywhere. Rather follow the now familiar route by which the Chancellor covered those “Es”, let’s look at what we already knew and then head off down some Budget by-ways of more interest to tax professionals. 

What we knew

Leaks have sadly become a part of the pre-Budget playbook in recent years. On the tax front we had been alerted there would be no reversal of the proposed increase in the main rate of corporation tax (CT) to 25% from 1 April and primed for the possibility of full expensing of the cost of plant and machinery. 

The speech therefore contained no surprises on that front other than the detail that full expensing would apply only to companies within the charge to CT and that it would apply for the next three years with an aspiration for it to become permanent. The cost of full expensing and the 50% first year allowance for special rate assets is put at just short of £28bn in the Red Book.

Changes to the rules for pension contributions were also heavily trailed, but with few of the salient details. What did emerge today was an increase in the annual allowance from £40,000 to £60,000; an increase in the money purchase annual allowance and the minimum tapered annual allowance from £4,000 to £10,000 and the abolition of the lifetime allowance).

Further energy cost support and the continued freezing of fuel duty also hardly came as surprises.

Further announcements on R&D tax relief were also a given, though the detail we have now seen was not.

More interesting by-ways

The really interesting stuff is always in the Red Book and Overview of Tax Legislation and Rates (OOTLAR). The abolition of the Office of Tax Simplification will, as expected, take effect from royal assent of the Spring Finance Bill.

The Finance Bill will also ensure that assignments of income tax repayments received by HMRC on or after 15 March 2023 will be legally invalid.

There will be a consultation on cash basis reform, focusing on, but not restricted to four policy proposals:

  • Increasing the turnover thresholds for businesses to use the cash basis
  • Setting the cash basis as the default, with an opt-out for accruals
  • Increasing the £500 limit on interest deductions in the cash basis
  • Relaxing restrictions on using relief for losses made in the cash basis.

We have a discussion document on HMRC’s intention to move to a “digital by default” approach for some of its outputs, seeking views on improving PAYE processes and launching a review of the Income Tax Self-Assessment criteria.

There will be a new consultation on specific measures designed to tackle promoters of tax avoidance arrangements. 

The self assessment tax return CGT pages will be revised to show amounts in respect of crypto assets from 2024/25. The Red Book also tells us that there will be additional investment in HMRC’s debt management capability.  

I am intrigued by the cost shown in the Red Book for “Making Tax Digital for income tax Self-Assessment and digital prompts: phased introduction from 2026”, which accumulates to a cost of £1.775bn to the Exchequer by 2027-28. Less surprising is the increased revenue forecast for “Penalty reform for income tax Self-Assessment: phased introduction from 2026”.

Uneven surface

As has been the case for some years now, the incumbent Chancellor has not had an easy task framing his Budget. The OBR’s projections are more encouraging than they were last November, but we still live in very uncertain times. The number of new tax measures was relatively small, but as always, they will take time to fully digest.

And we now know for sure that we are back to the joy of marginal rate calculations for CT. On a self-interested note, as a resident of a village the Daily Telegraph once described as “blighted by potholes”, perhaps I should be grateful to see the £235m potholes fund in the Red Book.

PracticeWEB 2023 Budget Report Covers

Replies (3)

Please login or register to join the discussion.

Jozef Behr
By jozefbehr
20th Mar 2023 10:42

Really Interesting article , thank you for share...

Thanks (0)
avatar
By alishakihn
24th Mar 2023 04:12

Best article of the day I read , I appreciate you sharing this information. I will visit your website often.

Thanks (0)
Morph
By kevinringer
09th Apr 2023 08:00

"I am intrigued by the cost shown in the Red Book for “Making Tax Digital for income tax Self-Assessment and digital prompts: phased introduction from 2026”, which accumulates to a cost of £1.775bn to the Exchequer by 2027-28."

That is just the tax cost 2023-28. That does not include the actual costs incurred to date 2015-24, not only the cost to HMG (which of course we all pay for), but the massive costs to businesses and advisors in dealing with MTD ITSA to date. Not just financial cost, but time and stress. And all for nothing. How much will this vanity project cost before it is finally abandoned?

Thanks (0)