Despite the hike, the UK will still have the lowest headline rate of corporation tax in the G7. Interestingly, the Chancellor noted that the former 19% rate had little impact on investment with the UK having lower productivity and business investment levels than countries such as Germany, France and the US.
This Spring Budget presented a plan to deliver on three of the five key priorities set out by the Prime Minster in January – to half inflation, grow the economy and reduce debt. Furthermore, the economic growth strategy contained four key ‘pillars’ with the Enterprise pillar seeking to attract and support the most dynamic and productive companies through the introduction of additional tax incentives.
The main impacts for businesses will be in respect of Capital Allowances and Research & Development incentives.
Companies, unincorporated businesses and most partnerships will continue to benefit from the Annual Investment Allowance providing 100% first-year relief for investment in plant and machinery up to £1 million.
The Chancellor introduced a new policy for companies, known as ‘full expensing” meaning that companies will be eligible for 100% capital allowances on qualifying, new main rate plant and machinery investment expenditure incurred between 1 April 2023 and 31 March 2026. There will also be a 50% first-year allowance for expenditure by companies on new special rate (including long life) qualifying assets.
These measures are intended to ensure that the UK capital allowances regime is world leading; from April it will have the joint most attractive plant and machinery capital allowance regime across the 38 OECD member countries and is predicted to save £9 billion a year in corporation tax for UK businesses.
Businesses should however be aware; if a company sells an asset on which it has claimed either full expensing or the 50% first-year allowance, there are special disposal rules that will apply, crystallising a balancing charge equal to 100%, or 50%, of the disposal value.
Research & Development
It was announced today that from 1 April 2023, a higher rate of relief for loss-making, R&D intensive, small and medium enterprises (“SME’s”) will be introduced. SMEs with qualifying R&D expenditure constituting at least 40% of their total expenditure will be able to claim a higher payable credit of 14.5% such that they will receive almost £27 from HMRC for every £100 of R&D investment. Note however, that both the R&D expenditure and total expenditure amounts include those of “connected companies” so this measure is less likely to impact companies which are part of a larger group.
For those R&D intensive companies, this partially compensates for the R&D announcements previously made in the Autumn Statement due to come into play from 1 April 2023. These included the reduction in the SME deduction from 130% to 86%, and the reduction in the SME credit rate from 14.5% to 10%.
It is predicted that this additional relief will benefit 20,000 SMEs in the UK and is worth around £500 million per year.
In addition, the measure announced at the Autumn Budget 2021 removing overseas subcontracting and non-UK payroll Externally Provided Workers as expenditures that qualify for R&D tax relief, with exemptions built in for R&D activity that cannot be conducted within the UK, has been delayed such that this will now be effective from April 2024 rather than April 2023.
As previously announced in the Autumn Statement 2022, the rate of the ‘large company’ Research & Development Expenditure Credit (RDEC) will increase from 13% to 20% with effect from 1 April 2023.
The government will uprate the Plastic Packaging Tax rate in line with CPI, from 1 April 2023.
- Some simplification measures for small businesses, including consultations for future reform have also been announced with the objective of making the tax system easier for small businesses to deal with.
- The government released a policy paper on Investment Zones that were announced in last year’s Mini-Budget. Investment Zones will have access to a range of tax benefits including enhanced rates of Capital Allowances, Structures and Buildings Allowance and relief from Stamp Duty Land Tax, Business Rates and Employer National Insurance Contributions. The Government is committed to establishing at least one Investment Zone in Northern Ireland however this will subject to the restoration of the Northern Ireland Executive.