On Wednesday 15 March 2023, Chancellor Jeremy Hunt presented his first Spring Budget to Parliament. His aim was to deliver on 3 of the 5 key priorities set out by the Prime Minister in January 2023,  against a backdrop of a challenging economic environment, recent political disarray, the highest level of unemployment for nearly 50 years, the cost of living crisis and spiraling inflation. The Chancellor made it clear that the Budget measures were aimed at addressing the following 3 immediate priorities:

• Halving inflation;
• Growing the economy;
• Getting debt falling.

It was predicted that this Budget would be fiscally conservative,  and this was the case. Most of the key measures announced had been widely voiced, including the increase in corporation tax rates, changes to the R&D regime, full expensing first year capital allowances and investment to be achieved via Investment Zones. In summary the impact for businesses of the increase in corporation tax rates and the cessation of the capital allowance super deduction regime has been softened with counter targeted incentives which will be available to certain businesses and welcomed.

Corporation Tax Rate

Jeremy Hunt stood his ground and there was no movement in the proposal to increase the baseline corporation tax rate, albeit having faced significant recent challenge by some MPs. From 1 April 2023, the main rate for corporation tax will be set at 25% and the small profits rate at 19%. Those with profits between these two limits will have a marginal rate of between 19% and 25%.

Investment Zones

To boost the economy, to encourage investment by businesses into areas that have suffered economically and to get individuals back to work, the Chancellor has proposed that 12 new investment zones be introduced. The zones are yet to be announced and the Government will legislate in the Spring Finance Bill 2023 to allow special tax sites in or connected with Investment Zones, these sites will be subject to approval by the Government. This measure will result in specific and targeted tax reliefs being available including:

• Stamp Duty Land Tax relief on the purchase of land or buildings subject to meeting certain criteria; namely that the acquisition is for qualifying commercial purposes and used for those purposes within a period of 3 years.
• Structures and Buildings allowances of 10% per annum for 10 years on expenditure on non-residential structures and buildings situated in the zones.
• Employer National Insurance Contributions relief on earnings of up to £25,000 for new employees, who spend 60% of their working time within the special tax sites for up to 3 years.
• Enhanced capital allowances of 100% will be made available for companies incurring qualifying expenditure on new plant and machinery primarily for use in a special tax site.

Research and Development Tax Reform

From 1 April 2023, there will be additional research and development credits available for research intensive, loss making small and medium enterprises at a rate of 14.5%. In order to qualify for the additional credits the key consideration needed to be met is that qualifying expenditure must be at least 40% of total expenditure incurred. Eligible loss making SMEs will be able to claim £27 credit for every £100 of qualifying R&D spend at the main rate. This measure also reduces the rates in the R&D tax relief for SMEs, the additional deduction rate will be reduced from 130% to 86%, and the rate of the SME payable credit rate which can be claimed for surrenderable losses will be decreased from 14.5% to 10% .

The legislation will apply generally to accounting periods starting on or after 1 April 2023 except for the requirement to provide additional information, which will apply to all claims made on or after 1 August 2023.

The reform also seeks to extend the scope of qualifying expenditures to include the costs of datasets and of cloud computing. This will apply to accounting periods beginning on or after 1 April 2023.

Also, from 1 August 2023 all claims to the R&D reliefs will have to be accompanied by a compulsory additional information form, providing HMRC with more detail of the claim. The reform will mandate that companies must inform HMRC of their intention to make a claim for R&D tax relief using a new digital form. This requirement will apply for claims to relief for accounting periods starting on or after 1 April 2023. As this measure is intended to allow HMRC to perform more upfront compliance on new claimants, companies which have claimed R&D tax reliefs in the previous three years will be exempted from this requirement.

Other points to note, the previously announced restriction on some overseas expenditure will now come into effect from 1 April 2024 instead of 1 April 2023 and the Government are considering the interaction between this restriction and the mechanics of a potential merged R&D, draft legislation will be released alongside the draft Finance Bill in the summer regarding the merger of the RDEC and SME tax relief schemes

Capital Allowances

Changes to the capital allowance regime and the new “full expensing” policy will be well received. Companies incurring qualifying expenditure on the provision of plant and machinery on or after 1 April 2023 and prior to 1 April 2026 will have the opportunity to claim the new temporary first year allowances, a 100% full expensing deduction for qualifying expenditure on main rate pool assets or a 50% allowance for qualifying expenditure on special rate pool assets. The Chancellor has articulated his intention to make the full expensing permanent with no time limit imposed once it is economically viable and responsible to do so.

Audio-Visual Tax Credits

Draft legislation will be published in Summer 2023 to reform the tax reliefs afforded to the audio-visual sector into tax credits, akin to the R&D tax credit regime. This will apply to relevant companies and take effect for accounting periods commencing on or after 1 January 2024. The available tax credit rates will be set at 34% for video games, high end TV and film, and 39% for animation and childrens’ TV.

 

We will keep you updated on these changes and would be delighted to discuss these measures with you in more detail.