The Chancellor of the Exchequer (Jeremy Hunt) gave his Spring Budget in March 2023, and there are many things to take away from it. After almost 2 months since the budget, there are still continuous debates about its implications for our future and the reality of the economic forecasts. Aside from the economic and growth forecasts, tax measures are always prominent in all budgets. Whether it is in the speech itself, or in the documents released by the UK Government shortly afterwards, tax is always a central feature of the content. This editorial will focus on two areas announced in the Spring Budget that will be important for businesses.
1) Capital Allowances and ‘Full Expensing’: Companies incurring qualifying expenditure on the provision of new plant and machinery, on or after 1 April 2023 but before 1 April 2026, will be able to claim:
a. 100% first-year allowances for main rate expenditure (e.g. plant & machinery). This is also known as ‘full expensing’; and
b. 50% first-year allowances for special rate expenditure (e.g. lifts, escalators & moving walkways, space & water heating systems, air-conditioning & air-cooling systems)
It should be noted that the above changes are separate to the existing ‘Annual Investment Allowance’ (“AIA”). The AIA allows businesses to fully deduct eligible capital expenditure (including special rate items) against a corporate group’s corporate taxes, up to a specified limit. The AIA limit was temporary increased from £200,000 to £1m per year (from 1 Jan 2019 – 31 March 2023). The 2023 Spring Budget will make this £1m ‘temporary’ limit ‘permanent’ from 1 April 2023.
These measures are designed to incentivise business investment in the UK. These allowances should be welcomed by businesses as it will allow ‘upfront’ tax relief which will align with cash flow needs. As a tax practitioner, I have seen the evolution of capital allowances for businesses. The recent capital expenditure incentives are tax measures that businesses really utilise and need.
2) Research & Development (“R&D”) Tax Relief Reform: The UK Government will legislate in the Spring Finance Bill 2023 to reform the administration of R&D tax reliefs. The legislation will mostly apply to accounting periods starting on or after 1 April 2023.
The R&D tax reforms include:
• Two new categories of qualifying expenditure for R&D tax relief. This will include the costs of datasets and cloud computing.
• The definition of R&D will be expanded to include all mathematics. This will clarify that ‘pure maths’ can qualify as R&D.
• A mandate that companies inform HMRC of their intention to make an R&D tax claim using a new digital form.
• From 1 August 2023, all R&D tax relief claims will have to be accompanied by a compulsory additional information form, providing HMRC with more details about the claim.
• Other measures to tackle abuse of the regime and improve compliance.
The UK has a generous R&D tax relief regime, offering additional tax deductions and credits even if a business is loss making. The reforms announced in the 2023 Spring Budget may increase administrative burden but the regime is still generous and beneficial to businesses.
Boat&Co is a tax consultancy (based in Dartford) that provides a variety of tax services to individuals and businesses. If you have any tax enquiries please contact us at enquiries@bncotax.com. Otherwise, check out the website www.bncotax.com.