Key business tax updates from the 2023 Spring Budget

Corporation Tax rates

The expected increase in the rate of Corporation Tax to 25% for many companies from April 2023 will go ahead. This means that, from April 2023, the rate will increase to 25% for companies with profits over £250,000. The 19% rate will become a ‘small profits’ rate, payable by companies with profits of £50,000 or less. Companies with profits between £50,001 and £250,000 will pay tax at the main rate reduced by a marginal relief, providing a gradual increase in the effective Corporation Tax rate.

In addition:

• 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.
• Also from April 2023, the rate of diverted profits tax will increase from 25% to 31%.

Capital allowances

The super-deduction regime, which gives a 130% enhanced first year allowance (FYA) to companies on the purchase of qualifying plant and machinery, came to an end on 31 March 2023. Instead, the Government has announced Full Expensing, a 100% FYA, which allows companies to deduct the cost of qualifying plant and machinery from their profits straight away with no expenditure limit. Qualifying expenditure will include most plant and machinery, as long as it is unused and not second-hand, but will not include cars. Full Expensing will be effective for acquisitions on or after 1 April 2023 but before 1 April 2026.

A 50% FYA for other plant and machinery including long life assets and integral features (known as special rate assets) will operate along similar lines. Full Expensing and the 50% FYA are only available for companies and not for unincorporated businesses.

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 has been £1 million for some time but was scheduled to reduce to £200,000 from April 2023. The Government has announced that the temporary £1 million level of the AIA will become permanent and the proposed reduction will not occur. The AIA amounts to full expensing for 99% of businesses. The long-term ambition is to make Full Expensing and the 50% FYA permanent.

The Government will also extend the 100% FYA for electric vehicle charge points to 31 March 2025 for Corporation Tax purposes and 5 April 2025 for Income Tax purposes.

Research and Development (R&D) relief

For expenditure on or after 1 April 2023, the Research and Development Expenditure Credit (RDEC) rate will increase from 13% to 20%, but the small and medium-sized enterprises (SME) additional deduction will decrease from 130% to 86%, and the SME credit rate will decrease from 14.5% to 10%. A higher rate of SME payable credit of 14.5% has been announced and will apply to lossmaking SMEs which are R&D intensive. To be R&D intensive, the ratio of the company’s qualifying R&D expenditure must be 40% or above the company’s ‘total expenditure’ for the period. This equates to a receipt of £27 for every £100 of R&D expenditure.

The increase in the RDEC rate means the UK now has the joint highest uncapped headline rate of tax relief in the G7 for large companies. The Government is currently considering responses to a consultation on merging the RDEC and SME schemes and expects to publish draft legislation for technical consultation in the summer.

Other announced changes to the R&D regime include expanding qualifying expenditure to include the costs of datasets and of cloud computing. All claims for R&D reliefs will have to be made digitally and be accompanied by a compulsory additional information form. Companies will also 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, generally if they have not made an R&D claim in the previous three years. These changes apply to claims in respect of accounting periods which begin on or after 1 April 2023 apart from the additional information form, which will be required for claims made on or after 1 August 2023.

The restriction to relief on overseas expenditure, designed to refocus support towards UK innovation, will now come into effect from 1 April 2024 instead of 1 April 2023.

For further advice on what these changes mean for you and your business, contact Mark Baycroft, Business Tax Partner, or your usual haysmacintyre contact.