Next Wednesday 15 March, Jeremy Hunt will deliver his Spring Budget, around 12:30pm.

This will be the second major fiscal statement of his time as Chancellor of the Exchequer, amid many calls to reduce taxes.

Due to the decrease in energy prices and higher-than-expected tax revenues, the outlook for the Spring Budget is looking slightly less bleak than previously anticipated.

However, the reduction in the energy bills Price Guarantee does not necessarily mean there will be any long-term policy adjustments.

Unfortunately, the Treasury has advised that any major tax cuts are simply not feasible.

Changes to Research & Development (R&D) tax credits

Hunt has planned that for expenditure on or after 1 April 2023, the R&D Expenditure Credit (RDEC) rate for large companies will increase from 13% to 20%, but the SME additional deduction will decrease from 130% to 86%.

Furthermore, the SME credit rate will decrease from 14.5% to 10%.

The government will also eventually consult on the design of a single scheme.

We have gone into further detail on changes to R&D here.

Changes to Enterprise Investment Scheme (EIS)

Within EIS, you can save up to 30% on this year’s income tax bill and/or potentially get back tax you’ve already paid last tax year.

Furthermore, you may be able to invest up to £2 million per tax year.

The EIS and VCT schemes are due to be extended past the original 2025 ‘sunset clause’ and the Seed Enterprise Investment Scheme (SEIS) caps will be increased as of 6 April 2023:

  • Companies can now raise £250,000 in SEIS. This was previously £150,000.
  • Companies can raise SEIS within the first 3 years of trading. This was previously 2 years.
  • Companies must have less than £350,000 in gross assets to be able to raise SEIS. This was previously £200,000.

However, there is no SEIS after EIS – if your company has ever issued EIS shares, you are not able to raise SEIS after that.

Freeports

It is likely that the existing Freeports developments will feature in next week’s announcement in an effort to attract business to the UK.

Moreover, the Chancellor’s first steps toward creating new ‘investment zones’ in under-performing areas of the UK designed to boost high growth industries will likely be announced. This may be in the form of a bidding process for sectors and local government.

It is still unclear exactly how these investment zones will be supported, whether that is with tax incentives or grants.

Corporation tax rise

It is almost a certainty that the Chancellor with press ahead with the planned rise in corporation tax, despite fears that it will hamper economic growth.

Businesses will see an increase in corporation tax of 6%, from 19% to 25% following 1 April.

Businesses with profits of more than £250,000 will be most impacted by the upcoming changes and companies with profits of between £50,000 and £250,000 will get marginal relief.

For those with profits of less than £50,000, there will be no change and corporation tax will continue to be payable at 19%.

We have discussed the changes in more detail here.

Super-deduction axed

The corporation tax super-deduction, which allows businesses to cut their tax bill by 25p for every £1 that they invest, is scheduled to end on March 31.

Business leaders have warned that this, along with the corporation tax increase, are among the biggest threats they will face this year.

Moreover, three former chancellors have said going ahead with the rise in corporation tax will be a mistake for the country.

Energy bills

The Government’s Energy Price Guarantee, which caps energy costs for households, is scheduled to rise from £2,500 to £3,000 on April 1. After this date, support for businesses will become more targeted.

Certain groups have urged the Government to extend support to help protect people from the high energy costs.

Energy prices are indeed falling, but households will still see their energy bills increase by several hundred pounds as the government support lessens.

It is a possibility that the Chancellor will provide additional support. However, Hunt has signalled that he is not in favour of blanket support and is likely to prefer a means-tested approach.

Fuel duty cuts

Fuel duty is planned to rise by RPI inflation in April, this would add 7p to the price of a litre of fuel.

A temporary 5p fuel duty cut, which was announced in March 2022 by Rishi Sunak, is due to expire this month.

These two factors combined mean the cost of fuel duty will rise by 23% – an extra 12p per litre.

It is probable that Hunt will stop this. The RPI fuel duty increase has been cancelled by every chancellor every year since 2011, thereby setting a precedent that would make it politically difficult for Hunt to proceed with the rise.

Public Sector pay

The Government is under pressure to introduce a stronger public sector pay deal and bring an end to the continual flow of strikes that have plagued the country of late.

However, the Chancellor will be wary of opposing the Bank of England, which is raising interest rates to tame inflation and has warned that large pay settlements could fuel price rises.

Even so, the Treasury has reportedly concluded that a 5% increase for the public sector would carry a “low risk” of contributing to protracted high private sector pay growth.

Furthermore, there is the possibility that the payment will be backdated, welcome news to those in the public sector whose wages have been the source of much contention.

Contact us today if you have any queries regarding the above.