Spring Budget 2023 – what can we expect?
By Chris Campbell, Head of Tax (Tax Practice and Owner Managed Business Taxes)
7 March 2023
Chris Campbell considers what might be included in the Chancellor’s Spring Budget announcement on Wednesday 15 March.
What can we expect from the Spring Budget 2023?
As fiscal events go, we’ve seen a lot of activity over the last six months, including the UK Mini Budget in September, Autumn Statement in November, and the Scottish Budget in December. The UK Spring Budget on Wednesday 15 March will however mark Jeremy Hunt’s first full Budget as Chancellor.
In terms of tax, this is a difficult Budget to predict, and it could be that the Chancellor instead focuses on spending measures and the allocation of funding to Government departments over the next few years.
The Autumn Statement announced the freezing of various tax thresholds including the Income Tax Personal Allowance until April 2028, the Inheritance Tax nil rate band until April 2028, and VAT registration threshold until April 2026. The Chancellor also announced the reduction of the threshold at which the top rate of Income Tax applies to £125,140 from April 2023 (a similar move applying in the Scottish Budget, albeit at different tax rates). The Capital Gains Tax Annual Exempt Amount (AEA) is also due to reduce from £12,300 to £6,000 from 6 April 2023, and then to £3,000 from 6 April 2024.
Despite the fact that the Government received record tax receipts from Self Assessment in January 2023 of £21.9 billion (the highest January figure since monthly records began in April 1999), it seems unlikely that the Chancellor will take steps to reverse the above measures given the instability that arose in the aftermath of Kwasi Kwarteng’s Mini Budget in September. The Chancellor will wish to reassure the markets that the UK retains fiscal credibility and can fulfil its financial obligations.
It also seems unlikely that the Chancellor will want to reverse the introduction of the new 25% main rate of Corporation Tax from April 2023. Having already been introduced in the Finance Act 2021, briefly reversed in last September’s Mini Budget but then reinstated in the Autumn Statement, changing the plans may cause further instability in the tax system and leave the government looking like it has no clear direction.
What does seem likely, and there has been press speculation to this effect, is that the Chancellor may use the additional January tax income to fund the extension of the Energy Price Guarantee. This would seem a logical move at a time when increased energy bills will cause financial hardship to many families.
Although there were Capital Gains Tax changes in the Autumn Statement, it’s possible the Chancellor may want to align the Capital Gains Tax rates with UK Income Tax rates. There has been a reluctance to do so up until now, and the Chancellor will be mindful of the impact on UK business investment before making such a move.
The Chancellor will be under pressure from opposition parties to review the ‘non dom’ tax rules for those taxpayers who are domiciled outside the UK. Given the publicity around the wife of the now Prime Minister, Rishi Sunak, and her tax affairs, this is likely to receive some press attention. But there is certainly no indication that the Chancellor is looking at exploring this avenue.
With Baroness Neville-Rolfe’s review into the State Pension age due imminently, there might be measures to encourage the over 50s to remain/return to the workforce. This could include reforms to the pension rules, so that certain employees can contribute more than they can currently without losing tax relief.
Because of the cost of living crisis, there will be many taxpayers who would welcome an increase to the HMRC approved mileage rates, which have remained unchanged for over ten years. The Government may also wish to reflect on the final Office of Tax Simplification report on hybrid and distance working. This could include a review of the current £6 per week for the additional costs of employees working from home, both in terms of the weekly tax free/tax deductible amount and the scope of employees who can claim the relief.
In terms of increasing the availability of the workforce, the Chancellor could find ways to facilitate greater access to childcare, so that working parents are not financially disadvantaged from working longer hours than they do currently. This could be achieved by reviewing the Tax Free Childcare scheme, to provide additional support for families.
What is ICAS calling for in the Spring Budget 2023?
Achieving greater certainty
Our members continue to ask for stability, certainty and significantly fewer changes to the UK tax system. By having greater certainty in the tax system, businesses are able to plan investment decisions. A clearer picture of the long term fiscal framework would also have a positive impact on business confidence.
Ensuring tax simplification
ICAS strongly supports measures to simplify the tax system, because we believe that complexity increases costs for everyone engaging with the system. Complex tax law is reflected in complex tax administration systems which are difficult to use and do not help compliance.
If we have unnecessary complexity in the tax system, taxpayer resources are diverted into dealing with corrections, appeals and disputes. Increased digitalisation has the capacity to improve tax administration, but without simplification of the underlying rules, the full benefits will not be achieved. We want the Chancellor to use his Budget to take steps to help reduce, and not increase, UK tax complexities.
Improving HMRC resources
ICAS is calling for HMRC to be adequately resourced to support voluntary tax compliance and a business-friendly environment for the UK. Our members regularly tell us of their frustrations with long waiting times when calling HMRC. We have regularly raised this at our meetings with HMRC and at the recent HMRC Stakeholder Conference.
It’s vital that HMRC has enough resources to get service levels back to acceptable levels for all taxpayers, following a significant deterioration during the pandemic – and then to maintain those service levels. Poor service from HMRC causes delays, frustrations and difficulties for taxpayers, businesses and advisers.
We were recently part of a joint letter to the Chancellor with nine other professional bodies asking him to prioritise investment in HMRC’s service levels in his Spring Budget statement.
Supporting net zero
We have previously called for the Government to publish an environmental tax strategy or roadmap. In the absence of this, individuals and businesses will find it difficult to plan ahead for the tax changes and costs which will arise as part of the implementation of the Net Zero Strategy.
Tax certainly can’t do everything, but it can be a vital part of the package of measures needed to deliver net zero. We hope the Chancellor will use this Budget to take steps to deliver net zero (for instance the use of Capital Allowances to incentivise green investment).
Whatever the Chancellor announces, the ICAS Tax team will review the details to identify the impact on our members and their clients.
Let us know your views
We welcome members’ input to inform our work on consultations or other tax-related matters – email tax@icas.com to share your insights and feedback. ICAS responds to many tax calls for evidence and consultations, as well as producing tax policy papers and reports. We also regularly attend meetings with HMRC at which service levels, delays and other issues are discussed, and we raise problems being encountered by members.
