Following the Spring Budget 2023, businesses across the UK are still adapting to the series of tax changes that were announced. To dispel some of the confusion, our Corporate Tax experts summarise the impact that the Budget has had on Corporate Tax.
On 15th March 2023, the Chancellor of the Exchequer, Jeremy Hunt, announced his Spring Budget in the House of Commons. In his Budget, the Chancellor revealed a string of Corporate Tax changes and reliefs, with a focus on balancing business investment, controlling inflation, and increasing tax revenues.
What changes to Corporate Tax were announced?
New Corporate Tax rates
From April 2023, the Corporation Tax rate has increased to 25% for companies with profits over £250,000. The 19% rate has become a small profits rate payable by companies with profits of £50,000 or less.
Companies with profits between £50,001 and £250,000 now pay tax at the main rate reduced by a marginal relief, providing a gradual increase in the effective corporate tax rate. It is worth noting that these limits are proportionately reduced by a company’s associated companies. Careful planning is therefore required for companies between this band of profitability.
Other changes include:
- Bank corporation tax surcharge changes will proceed, meaning that from April 2023 banks will be charged an additional 3% rate on their profits above £100 million.
- From April 2023, the rate of diverted profits tax has increased from 25% to 31%.
The end of Super-deduction, the start of Full Expensing
The Super-deduction regime, which gives a 130% enhanced First-Year allowance (FYA) to companies on the purchase of qualifying plant and machinery, ended on 31st March 2023.
Full Expensing, a 100% First-Year Allowance (FYA), has taken its place, allowing companies to deduct qualifying plant and machinery costs from their profits straight away with no expenditure limit.
- Effective for acquisitions on or after 1st April 2023 but before 1st April 2026, qualifying expenditure will now include most plant and machinery, provided it is unused and not second-hand. The new capital allowance will also not apply to cars.
For Special rate assets, there is a 50% FYA for integral features and long-life assets, will now operate along similar lines. The remaining 50% will be subject to normal writing down allowances. Full Expensing and the 50% FYA are only available for companies and not for unincorporated businesses.
Annual Investment Allowance (AIA)
The Annual Investment Allowance (AIA) is available to both incorporated and unincorporated businesses. It gives a 100% write-off on certain types of plant and machinery up to certain financial limits per 12-month period. The limit was scheduled to reduce to £200,000 from April 2023, however, the Government have now confirmed that the temporary £1 million limit previously in force is now permanent.
The interaction between the two systems therefore needs to be carefully managed for capital-intensive businesses and clients acquiring or improving commercial property need to take advice.
Help with R&D
For expenditure on or after 1st April 2023, the Research and Development Expenditure Credit (RDEC) rate has increased from 13% to 20%. This is still a taxable for receipt for claimants. While this is positive, the small and medium-sized enterprises (SME) additional deduction has decreased significantly from 130% to 86%, which detrimentally affects innovative small business.
The SME payable tax credit rate for loss-making companies has also decreased from 14.5% to 10%. However, companies that are considered R&D intensive will be able to benefit from the 14.5% rate. To be R&D intensive, the proportion of the company’s qualifying R&D expenditure must be 40% or more of the company’s total expenditure for the period. This can provide to a receipt of up to £27 for every £100 of R&D expenditure.
Other changes to R&D include:
- Qualifying expenditure will now include dataset and cloud computing costs.
- All R&D relief claims are to be made digitally and accompanied by a compulsory additional information form.
- Companies will need to notify HMRC that they intend to make a claim within six months of the end of the period of account to which the claim relates if they have not made an R&D claim in the previous three years.
- The restriction to relief on overseas expenditure, designed to refocus support towards UK innovation, will come into effect from 1st April 2024 instead of 1st April 2023.
These new changes apply to claims in respect of accounting periods which begin on or after 1st April 2023, apart from the additional information form, which will be required for claims made on or after 1st August 2023.
HMRC is also consulting on reforming the SME and RDEC schemes into a single scheme with more details on their proposal expected this summer. We will make further commentary on this issue in the future.
Changes for the Cultural and Creative Industries
Film, TV, and video games reliefs – A reformed tax relief scheme for the film, TV and video games sectors will be introduced from 1st April 2024, with expenditure credits replacing additional deductions.
Theatre and Orchestra Tax Relief – The temporary higher headline rates of 45/50% for tax credits for theatres and orchestras have been extended until 31 March 2025.
Museums and Galleries Exhibitions Tax Relief (MGETR) – In addition to the extension to temporary headline rates of 45/50%, the period for which MGETR will be available will be continued until the 31st March 2026.
Is your business maximising its tax position?
With the world of Corporate Tax ever-changing, business will continue to look different following the Budget. At PKF Smith Cooper, our Corporate Tax experts are here to help you fully understand new tax changes and identify tax-relief opportunities for your business.
For more information on the new Corporate Tax legislation and how this may affect you, get in touch with us today.