As Jeremy Hunt’s Spring Budget got underway, his first full Budget as Chancellor of the Exchequer, domestic and international members were quietly poised for further announcements regarding the OECD/G20 Pillar Two Framework. As previously mentioned during the Autumn Statement 2022 and with no decoupling of the legislation from the Finance Bill 2023, HMT have announced that further legislation relating to the Qualifying Domestic Minimum Top-up Tax (QDMTT) and the Income Inclusion Rule (IIR) will be included in the Finance Bill. The ABI and its members have consistently warned against rushing ahead with the implementation of the OECD tax reforms and looking forward, the speed of the global implementation of the reforms will in a large part determine whether the UK government has been right in its approach.
Stepping back from what, for many tax professionals, was, the elephant in the room - not mentioned in Mr. Hunt’s hour-long address - there was a consistent theme running throughout the Budget of long-term, sustainable, healthy growth with tackling business investment and labour shortages at its core. With Rishi Sunak’s super-deduction, a popular policy amongst parliamentarians and businesses alike, coming to an end in April 2023, the Chancellor announced a new long-term replacement. This came in the form of ‘Capital Allowances: Full Expensing’ which will be legislated for in the Spring Finance Bill 2023 and introduces two temporary (for 3 years), first-year allowances for companies incurring qualifying expenditure on the provision of new plant and machinery on or after 1 April 2023. The OBR forecasts that this will increase business investment by 3%, an outcome which would be worthy of its precursor.
Whilst the previously mentioned elephant did not make an appearance until much later in the day, being a release of further detail on Pillar Two in the Overview of Tax Legislation and Rates (OOTLAR), there was a well-received rabbit out of the hat moment during the speech itself. Pensions Tax and more specifically the Lifetime Allowance (LTA), had figured prominently in pre-budget speculation in the financial pages, predicting that the LTA would increase to £1.8m. This speculation, although on topic, was some way shy of what the Chancellor announced: a full abolition, ensuring no-one will face an LTA tax charge from 6 April 2023. Taken alongside increases to the Annual Allowance, Money Purchase Annual Allowance, Tapered Annual Allowance and thresholds, this was very much in line with the ABI’s recommendations to government regarding Pensions Tax, but nevertheless decisive and bold tax policy changes.
There were several other wins for the ABI from our submission, which included: a continued freeze on Insurance Premium Tax (IPT) supporting our sector’s provision of a vital safety net to customers at a time when many are facing increasing cost pressures across daily life; a renewed continued commitment to the review of VAT relating to financial services, building upon the recommendations of the industry working group with which the ABI has been heavily involved; and measures announced on 15 December 2022 which addressed industry concerns relating to BLAGAB reinsurance, on which the ABI and its members have been extensively engaging with HMRC, were to be included in the Spring Finance Bill.
Jeremy Hunt’s optimistically titled ‘Budget for Growth’ is set however against a backdrop of planned Corporation Tax (CT) increases coming into force on 1 April 2023, with the main rate of CT set to rise to 25%. Whether the set of measures announced today will in fact stimulate growth and push the UK up the G7 league tables in relation to business investment remains to be seen, however. It is likely that much more in the way of smart tax policy that genuinely moves the dial for businesses planning their long-term futures will be needed going forward in order to modernise an already heavily burdensome UK tax and regulatory environment. Much more attention needs to be paid towards what businesses express as their priorities to Government Stakeholders.
Many of the announcements made at the Budget will be discussed in detail at the ABI’s Breakfast Tax Update, Insurance Tax: Imminent Challenges, sponsored by Pro-Tax, to add your name to the waiting list of this sold out event, please visit here.