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What does the budget mean for your clients?

20th Mar 2023
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Budgets are the Chancellor’s opportunity to fix short-term woes and set out a long-term plan for the UK economy. Jeremy Hunt announced a plan for growth on 15th March.

What does the budget mean for your clients? | Futrli by Sage | Image of Jeremy Hunt holding the red budget box
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Quipped in the media as the ‘back to work’ Budget, Hunt’s announcement touched on everything from R&D and capital allowances to childcare and pensions. 

But what were the most important parts of the speech for your clients? Here’s our summary of what your clients need to know about the Spring 2023 Budget.

 

A “brightened” fiscal outlook

As usual, Hunt kicked off the Budget with a brief overview of the Office for Budget Responsibility’s (OBR) Economic and Fiscal Outlook report, which confirmed that the UK avoided a recession in 2022.

However, the economy will contract by 0.2% in 2023, according to the OBR, but because recessions are defined as two successive quarters of negative growth, the UK will avoid a technical recession if forecasts hold true. 

Regardless, this is a marked improvement in GDP figures since the OBR’s last forecast in November 2022, which pegged GDP as falling by 1.4% in 2023. The fiscal watchdog said the revised figures are primarily due to lower-than-expected energy prices and Government intervention.

Rapidly falling energy prices will also push down inflation faster than expected, the OBR said, which is to dive from a peak of 11.1% in October 2022 to 2.9% by the end of 2023 and 0.9% in 2024.

Real household disposable income, however, will fall by 5.7% over the 2022/23 and 2023/24 financial years. Although this is 1.4 percentage points less than forecast in November, it would still be the largest two-year fall since records began in 1956-57.

In all, then, while headlines might paint a broadly positive picture for 2023, your clients need to remain vigilant and careful with their money. Forecasting their cash flow is an obvious and important way to ensure that clients stay in the game. Use tools grounded in your clients’ data to make the most of their financial information.

 

Business changes

Hunt’s Budget reformed many aspects of company taxation.

First, the so-called ‘super-deduction’ capital allowance scheme is to end in March, Hunt announced a ‘full expensing scheme’ to encourage companies to invest in plant, machinery and technology. 

The policy means that from 1 April 2023 to 31 March 2026, companies can claim back 100% of qualifying costs — a huge opportunity for companies to benefit from their benefits soon. It may also become permanent after 2026.

Hunt also revealed more information about the 12 new investment zones in the UK, eight of which will be in the midlands and north of England, while Wales, Scotland and Northern Ireland will get at least one each. 

Each zone will get £80m of funding over five years, which they can use as investment and tax relief. 

The Chancellor then announced a new R&D policy for loss-making, ‘R&D-intensive’ SMEs that spend at least 40% of their total expenditure on R&D. 

These SMEs will be able to claim a higher — and the original — higher payable credit rate of 14.5%, rather than the reduced 10% that was announced in the Autumn 2022 statement. 

In practice, the policy means R&D-intensive companies will be able to claim £27 for every £100 they spend. Have you got any R&D-intensive clients? If you do, you can use this change to save them a lot of money.

Lastly, the corporation tax hike will go ahead in April as planned, bringing the headline rate to 25%. However, this will only apply to companies with profits above £250,000 — companies making between £50,000 and £250,000 will be eligible for marginal relief. 

 

Personal changes

A considerable focus for Hunt is to get some of the 8.86 million people who don’t have jobs and aren’t looking for one into the job market. To do that, he had some big announcements up his sleeve:

  • Pensions lifetime allowance (LTA) abolished. The ‘rabbit out of the hat’ moment. Rather than increasing the LTA from £1.07m to £1.8m as expected, Hunt abolished the point that workers pay tax on their overall pension contributions. 
  • Pension annual allowance increased. The maximum tax-free amount people can pay into private pension per year will rise from £40,000 to £60,000. The Government hopes this and removing the LTA will entice workers — particularly doctors — to stay in work for longer.
  • Expansion of free childcare. By September 2025, parents with children aged nine months to four-year-olds will be entitled to 15 hours of free childcare a week or 30 if both parents work and earn at least the national minimum (but not above a combined £100,000). The expansion will be phased in from April 2024. According to the Government, the policy will remove barriers to work for half a million parents.
  • ‘Returnerships’. Hunt also launched a ‘returnership’ programme that offers skills training for over-50s. The Government will also add a further 8,000 places per year to its ‘skill bootcamps’. 

 

Energy support

Following pressure to provide extra support for households struggling with soaring energy bills, Hunt also announced a three-month extension to the energy price guarantee.

The policy means that the average household’s energy bill will remain £2,500 a year until July — rather than increasing to £3,000 from April as previously planned. 

Furthermore, prepayment meter energy charges will be brought in line with prices customers pay with direct debit, but the £400 discount from the energy bills support scheme will end as planned. 

Finally, the 5p cut in fuel duty will remain in place for another year, cancelling the planned increase in line with inflation for 2023/24.

 

Futrli by Sage facilitates meaningful interactions between accounting firms and their clients. As the ultimate advisory solution for accountants, we provide users with powerful predictions to inform business decisions for both accountants and their clients. By synchronizing with clients' ledgers, thousands of algorithms process financial data, enabling the generation of three-year cash flow forecasts. Our platform also offers drag-and-drop reporting and allows users to move away from spreadsheets.

Don’t let a slow growth year put your client out of business, book a demo today or sign up to a 14 day free trial.