On Wednesday, 15 March 2023, the Chancellor of the Exchequer delivered his Spring Budget. While the focus of the Autumn Statement was on economic stability, the Spring Budget is focused on improving economic growth, and reducing inflation and unemployment. Apart from the previously announced rise to corporation tax, there are no new changes to headline tax rates, but the Government is proposing to fine-tune a number of tax rules to stimulate growth that may be welcomed by businesses.
The Chancellor highlighted his intention to improve the UK’s competitiveness in the world by creating an enterprise-focused economy that goes the extra mile to attract and support business investment and innovation. Amongst central tax measures is the introduction of the ability for businesses to expense the full cost of qualifying plant and machinery for an initial period of 3 years, the introduction of an enhanced rate of R&D relief for loss-making companies and an increased audio-visual tax relief for film, TV and video games producing industries.
Below is a summary of the key Spring Budget announcements affecting businesses and individuals, as well as a reminder of some changes coming into effect from April 2023.
• Capital allowances: the Government has announced that businesses will be able to claim a tax deduction for 100% of investments in qualifying plant and machinery. This measure has been costed by the Government at an average of around £9 billion a year for the next three years, at which point a decision will be made on whether to make it permanent. This measure will apply to investments made between 1 April 2023 to 31 March 2026. Companies that invest in certain special rate assets (including long life assets) during this three-year period will be eligible for a 50% tax deduction. Leased assets are not eligible for relief, but future changes in this area are being consulted on by the Government.
• Research & Development (R&D)
- R&D intensive companies: additional tax relief will be available for certain loss-making SMEs from 1 April 2023. Where these SMEs are R&D intensive businesses spending more than 40% of total expenditure on qualifying R&D, they will be able to claim a higher payable credit of 14.5%. This is an enhancement of the 10% credit rate for companies eligible under the existing R&D SME scheme. The additional deduction rate will remain at 86% on top of the normal 100% tax deduction for R&D.
- R&D tax relief review: the Government intends to publish its conclusions on the recently concluded R&D consultation which proposed the merger of the R&D Expenditure Credit and SME schemes. The option of implementing a merged scheme remains open for implementation from April 2024 and a final decision is expected to be announced at a future fiscal event. If this goes ahead, the Government plans to publish draft legislation for technical consultation in the summer alongside the next draft Finance Bill.
- Extension to qualifying R&D: the Government is introducing two new types of qualifying R&D expenditure that will include the costs of datasets and cloud computing.
- Digital claims for R&D reliefs: in the hope to tackle R&D relief abuse, the Government will in future require all claims to the R&D reliefs to be made digitally and to be accompanied by a compulsory information form. The information form will be required to be submitted for all claims on or after 1 August 2023 and will need to include (i) break down of costs across qualifying categories of R&D together with description, (ii) endorsement by a senior officer of the company and (iii) details of any R&D adviser to the company. In addition, certain companies would need to inform HMRC digitally in advance that they plan to make an R&D claim and within 6 months of the end of the accounting period to which the claim relates.
• Investment zones: the Government has announced 12 investment zones will be created across the UK. Each such zone would be eligible for £80 million over five years in the form of grants and tax relief, such as preferential rates of capital allowances, employer national insurance contributions and stamp duty land tax.
• Artificial Intelligence (AI) prize: the Government intends to award £1 million every year to a person or team making progress in the AI sphere. This forms part of the Government’s plan to improve the UK’s science and technology prospects. Further details on this initiative are expected to follow.
• Audio-visual industry-specific reliefs: following Government consultation, from 1 April 2024, a new Audio-Visual Expenditure Credit will be introduced to replace the existing film, TV and video games tax relief. For example, film and high-end TV will be eligible for a credit rate of 34%. Meanwhile, temporarily higher rates of relief will be also available for theatre, orchestra, museums and galleries in recognition of the effect these attractions have in drawing tourists to the UK.
• Share option schemes:
- Enterprise Management Incentives (EMI) option schemes: the Government has announced a package of measures to simplify the process for granting EMI options. From April 2023, the requirements for the company to set out details of share restrictions within the option agreement and include employee’s working time declaration will be removed. In addition, from April 2024, the period within which a company must notify HMRC of the grant of an EMI option will be extended from 92 days to the 6 July following the end of the tax year in which the option was granted.
- Company Share Option Plan (CSOP): as was announced in 2022, the Government plans to introduce improvements to CSOP rules to facilitate the running of the scheme. Amongst the measures, the share options limit under CSOP will be increased from £30,000 to £60,000. In addition, the “worth having” condition which limits the types of shares eligible for inclusion in a CSOP scheme will be removed. These changes will be effective for share options granted under CSOP schemes on or after 6 April 2023 but existing CSOP options granted before 6 April 2023 will also benefit from these changes.
• Tax offences: new criminal offence will be introduced to tackle promotors of tax avoidance schemes when they fail to comply with a legal notice from HMRC. In addition, it has been proposed that criminal sentences for tax fraud would be increased from 7 to 14 years.
• Gains under conditional contracts: The Government is introducing a new measure to ensure HMRC will be able to have sufficient time to assess tax on chargeable gains arising on a disposal of an asset under an unconditional contract. This measure will extend HMRC’s time period for assessment by reference to the tax year when an asset is transferred rather than the tax year in which the contract for the disposal was made which may be much earlier. The measure will apply to unconditional contracts entered into on or after 1 April 2023 for corporation tax and on or after 6 April 2023 for capital gains tax.
• VAT in finance sector: the Government is considering the responses to the recent consultation on VAT reform for fund management and intends to publish its conclusions in the next few months. In addition, the Chancellor announced that an industry specific group will continue working with the Government to consider reforms to simplify the VAT treatment of financial services. This follows the Government’s intention to provide more certainty and clarity to businesses.
• Carried interest accruals: the Government has announced a new set of elective accrual tax rules in relation to investment manager’s carried interest. The rules are intended to accelerate investment managers’ tax liabilities to align with the tax position in other jurisdictions in order to improve access of managers to double taxation relief.
• Qualifying Asset Holding Companies (QAHC): the Government plans to introduce certain targeted amendments to the recently introduced regime on QAHCs. The intention of the changes is to improve the regime’s efficiency and encourage more international groups and investment funds to locate their holding platforms in the UK.
• International tax: New OECD tax rules will be introduced in the UK which will affect companies with revenues in excess of €750 million. These rules will impose the global minimum 15% tax corporate rate agreed by the OECD in 2021 via two mechanisms: a multinational top-up tax and a domestic top-up tax. The rules will be effective for companies with accounting periods beginning on or after 31 December 2023. Given the revenue threshold, it is likely many UK businesses will not be affected by this regime.
• Previously announced measures: the Government confirmed the introduction of the following tax measures that were announced in the Autumn Statement:
- Corporation tax: As expected, corporation tax will rise from 19% to 25% on 1 April 2023. The Bank Corporation Tax Surcharge will also rise as a consequence.
- Annual investment allowance (AIA): From 1 April 2023, the £1 million threshold for claiming a full tax deduction on qualifying capital assets will become permanent.
- Seed Enterprise Investment Scheme (SEIS): The Finance (No. 2) Bill 2022-23 will include the changes previously announced in relation to SEIS. These changes will increase the annual investment amount on which investors can claim relief (now up to £200,000), the amount a qualifying company can raise from SEIS investors (now up to £250,000) and the limit on the gross assets a company can have when issuing SEIS shares (now up to £350,000). The age limit of the company’s trade will also be extended to 3 years. These changes take effect from 6 April 2023.
• Pensions: From 6 April 2023, the tax-free annual allowance for pensions will rise from £40,000 to £60,000 to incentivise individuals to invest more in their retirement. The Government will also abolish the lifetime allowance, which is currently £1.07 million. This is intended to discourage employees from retiring, in cases where their pension contributions may be near the allowance.
• Cryptoassets: the Government will introduce changes to self-assessment tax returns requiring specific disclosures with respect to cryptoassets starting with the 2024-25 tax year.
• Previously announced measures: as a reminder, the following previously-announced changes are expected to take effect from April 2023:
- Income tax: The Government is reducing the income tax additional rate threshold from £150,000 to £125,140 from 6 April 2023.
- Dividend Allowance: Taxpayers have an annual dividend allowance up to which dividends are received tax-free. This threshold falls from £2,000 to £1,000 from April 2023, with further changes in the following year. Currently, basic rate taxpayers are taxed at 8.75%, higher rate at 33.75% and additional rate at 39.35% on dividends.
- Capital Gains Tax (CGT) Annual Exempt Amount: As with the dividend allowance, the Government will also reduce the CGT Exempt Amount from £12,300 to £6,000 from April 2023, with further changes in the following year.