The 2023 Spring Finance Bill consolidates changes proposed in the 2023 Spring Budget as well as additional changes to tax duty rates and tax relief allowances.You can click here for our breakdown of the relevant changes to income tax, corporation tax, and tax-free allowances.
In this post, we will outline the changes to capital allowances and tax relief schemes for businesses. We will also cover changes to pension allowances, alcohol duty, and air travel taxes which were also included in the Spring Finance Bill.
Permanent increase to £1 million for the Annual Investment Allowance
Capital allowances allow businesses to deduct a portion of the value of assets they purchase from their taxable profits each year. You can claim capital allowances on items that you keep to use in your business – these are known as ‘plant and machinery’.
The primary types of capital allowance are ‘writing down allowances’. Under this scheme, most assets qualify for the ‘main rate’, allowing you to deduct 18% of their value from taxable profits each year, with a 6% ‘special rate’ for assets like integral features of buildings.
The Annual Investment Allowance is a 100% capital allowance available for the cost of most plant and machinery incurred by most businesses up to a specified annual amount. This means you can deduct the full value of purchased assets from your taxable profit in the year of purchase. You can do this until the total value of assets purchased exceeds £1 million, after which you will have to use writing down allowances at the rates described above.
The AIA was temporarily raised from £200,000 to £1 million in 2019, and the 2023 Spring Finance Bill makes this permanent. The measure aims to provide a continued incentive to support business investment with a simple legislative change.
Full capital expensing and extension of 50% special rate
Capital allowances allow certain capital expenditure to be deducted when calculating a business’s taxable profits. As described above, writing down allowances are 18% per year for main rate expenditure and 6% per year for special rate items. For main rate assets, this means you can deduct 18% of the asset’s value from your taxable profits each tax year.
Special rate items include assets with an expected lifetime of over 25 years, integral building features, and cars in the higher bands of CO2 emissions.
The 2023 Spring Finance Bill provides for 100% first-year allowances for main rate expenditure (known as full expensing) and the extension of 50% first-year allowances for special rate expenditure. This is subject to certain exclusions, most notably cars, and will last until 2026.
This change gives an increased incentive to invest in plant and machinery by providing higher rates of relief immediately in the year that assets were purchased, rather than over many years.
Expansion of R&D relief
There are currently two schemes aimed at providing tax relief for research and development (R&D) in science or technology. First is the ‘Small and medium-sized enterprise (SME) R&D tax relief’. For larger businesses, there is the R&D expenditure credit (RDEC) system.
The Spring Finance bill makes the following changes to these tax relief schemes:
- Requiring claimants to submit a pre-notification of their claim, unless they are new claimants or have not claimed in the previous three accounting periods.
- Expands the categories of qualifying expenditure to include data licences and cloud computing costs to better reflect developments in technology and the different ways that cutting edge R&D is now undertaken.
- Require the provision of additional information to support claims.
- Address several unintended consequences in the legislation.
Expansion of Seed Enterprise Investment Scheme
The UK Seed Enterprise Investment Scheme (SEIS) is a government-backed initiative designed to encourage investment in early-stage and startup companies. It offers tax incentives to individual investors who purchase shares in qualifying companies, including income tax relief, capital gains tax exemption, and loss relief.
The 2023 changes to the SEIS scheme raises limits on investment and expands which businesses are eligible.
To be eligible for the scheme, companies must have fewer than 25 employees, be less than two years old, and have assets worth less a certain amount. The Spring Finance Bill raises this from £200,000 to £350,000.
The Bill also increases the maximum amount that a company can raise through SEIS from £150,000 to £250,000. Investors can now also claim SEIS relief on investments up to £200,000 per tax year.
Pension lifetime allowance scrapped; allowances increased
The Spring Finance Bill will be abolishing the pension lifetime allowance and increasing pension-related tax-free allowances.
It also includes incentives to help get over 50’s back to work, including expanding the DWP’s “Mid-life MOT” Strategy. This helps people to access financial, health and career guidance ahead of retirement. There will also be a new kind of apprenticeship targeted at the over 50s who want to return to work, called Returnerships.
What is the lifetime pension allowance?
The UK’s pension lifetime allowance (LTA) is a limit on the total amount of pension benefits an individual can receive without incurring an additional tax charge. For the 2022/2023 tax year, the LTA was £1,073,100. If the value of an individual’s pension savings exceeds this limit, they may be subject to a tax charge of up to 25%.
The LTA was designed to limit the amount of tax relief that high earners can receive on their pension contributions and to ensure that the pension system is sustainable. However, it can also affect individuals with long careers or high salaries, as their pension savings may exceed the LTA even with relatively modest contributions over time.
Changes to pension allowances
The 2023 Spring Finance Bill removes the tax charge on pension savings that exceed the lifetime allowances for the 2023/24 tax year. Future legislation will aim to remove the concept of an LTA for pensions entirely.
The Bill raises the pension annual allowance from £40,000 to £60,000, allowing individuals to make more pension contributions each year without incurring tax charges.
The adjusted income threshold for the Tapered Annual Allowance will also be increased from £240,000 to £260,000 from 6 April 2023. This means that those earning over £260,000 (from 6 April 2023) will begin to see their £60,000 annual allowance tapered. For every £2 that your income exceeds £260,000, your annual allowance is reduced by £1.
The annual allowance cannot be reduced to be less than £10,000 (up from £4,000 in 2022/23).
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Changes to alcohol duty
HMRC’s Spring Budget also announced changes to the tax charged on alcoholic products. The policy document outlines how these changes will affect the average consumer:
- 4% ABV pint of draught beer will be 0 pence higher.
- 4% ABV 500ml bottle of non-draught beer will be 5 pence higher.
- 5% ABV pint of draught cider will be 2 pence higher.
- 5% ABV 500ml bottle of non-draught cider will be 5 pence higher.
- 40% ABV 25ml serving of whisky will be 3 pence higher.
- 5.4% ABV 250ml can of spirits-based RTD will be 6 pence lower.
- 11% ABV 250ml glass of still wine will be 5 pence higher.
The document also states that individuals who drink stronger alcoholic products may pay more through the revised duty structure. Individuals who drink draught products in on-trade venues (such as pubs) will pay less tax than on the equivalent non-draught product in off-trade venues (such as supermarkets).
Air Passenger Duty changes
Air Passenger Duty is charged on commercial passenger flights. Previously, these charges had two bands based on distance travelled. Band A is for flights with a distance between 0 and 2000 miles, and Band B for those over 2000 miles.
The Spring Finance Bill introduced two new bands – one for domestic flights and one for long-haul flights of over 5500 miles. These changes will reduce the tax burden on domestic flights while increasing taxes on ultra-long-distance trips.
The full table of Air Passenger Duty rates is below. The reduced rate applies to the lowest class of travel available on the aircraft, and the standard rates to any other class. The higher rates apply to aircraft of 20 tonnes or more equipped to carry fewer than 19 passengers.
Domestic (within UK)
0 -2000 miles
2001 – 5500 miles
over 5500 miles
The 2023 Spring Finance Bill is broadly aimed at stimulating the UK economy by lowering limits and taxes on business investment, and encouraging individuals to work more (via increased annual pension allowances) and longer (via incentive schemes for over 50’s).
Most notably, the Bill makes permanent the previously temporary £1 million Annual Investment Allowance, and provides ‘full expensing’ for most capital purchases until 2026.
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