Chancellor Jeremy Hunt delivered his first full Budget on Wednesday 15 March, announcing a ‘full expensing’ policy to incentivise businesses to invest after the super-deduction ends, while confirming that the headline rate of corporation tax will rise from 19% to 25% in April.
Key announcements aimed at growing the workforce included an extension of the free childcare scheme to help parents return to work and the abolition of the lifetime pension allowance to encourage doctors and other higher earners to continue working.
The Chancellor confirmed that the main corporation tax rate will increase from 19% to 25% with effect from 1 April 2023. There will be a marginal rate for companies with profits between £50k-£200k. For non-resident companies a flat rate of 25% will apply, however where applicable, a non-discrimination clause in the double tax treaty could give a non-resident company access to the marginal rate.
The super-deduction regime will end 31 March 2023, and will be replaced from 1 April 2023 with ‘full expensing’ - 100% capital allowances for qualifying plant and machinery. This will last for three years, through to 31 March 2026, although the Government indicated that it is their ambition to make this permanent. The Government will also introduce 50% first year allowances for ‘special rate’ plant and machinery, including long life assets. These rules apply only for corporation tax purposes and will not be available for businesses which are subject to income tax, unless they are below the Annual Investment Allowance threshold of £1m per annum.
The Government has also confirmed that the 100% first-year allowance for qualifying expenditure on electric vehicle charge-point equipment will be extended until 31 March 2025 for corporation tax, and 5 April 2025 for income tax.
From 1 April 2023, a higher rate of relief for loss-making Research & Development (R&D) intensive SMEs will be introduced. SME companies whose qualifying R&D expenditure constitutes at least 40% of their total expenditure will be able to obtain an effective credit of 27p for every £1 of qualifying R&D expenditure.
12 Investment Zones will be introduced across the UK, with the stated aim of helping drive economic growth and ‘levelling up’ the country. The confirmed locations include the West Midlands, Greater Manchester, the North-east, South Yorkshire, West Yorkshire, East Midlands, Teesside, and Liverpool.
Each English Investment Zone will have access to £80m over 5 years, including a single five-year tax package matching that in Freeports (enhanced rates of Capital Allowance, Structures and Buildings Allowance, and relief from Stamp Duty Land Tax, Business Rates and Employer National Insurance Contributions), and grant funding to address local productivity barriers. The Government has invited local partners in eight areas in England to begin discussions on establishing Investment Zones.
Following consultations, it has been confirmed that large multinational businesses operating in the UK will be required to maintain a master file and a local file in a prescribed and standardised format, as set out in The Organisation for Economic Co-operation and Development’s (OECD) transfer pricing guidelines. HMRC are continuing to consult on the introduction of a summary audit trail, which is a short questionnaire detailing the main actions undertaken in preparing the local file.
UK resident investment managers will be able to make an election to accelerate their tax liabilities in order to align their timing with the position in other jurisdictions, where they may obtain double taxation relief.
There were no changes to previously announced personal income tax and National Insurance Contribution thresholds or rates.
As part of a range of measures aimed at reducing economic inactivity, significant reforms to pension taxation were announced:
- The amount that an individual can contribute tax free to their pension fund is to be raised from £40,000 to £60,000 per annum from April 2023.
- The Government will work to abolish the Lifetime Allowance in future Budgets. It currently stands at £1,073,100.
- For those who are already drawing down on their pension, the total amount they can save tax free under the Money Purchase Annual Allowance is to be increased from £4,000 to £10,000 from April 2023.
Indirect taxes & Duties
The government plans to make what are described as ‘minor, technical changes’ to the new harmonised interest and late penalty rules for VAT which came into force from 1 January 2023. The changes are as follows:
- where HMRC makes an assessment because it has made a payment or repayment to a taxpayer which is too high, late payment interest will be charged from the date HMRC made the payment (as opposed to 30 days after the date of the assessment)
- late payment penalties and interest will not be charged on annual accounting scheme instalments that are paid late but will still apply to balancing payments
- an obsolete uncommenced repayment interest provision will be removed
A consultation on the VAT treatment of fund management ended in February 2023. Proposed reforms are not intended to result in a substantive policy change but instead to clarify the VAT legislation in this area.
The Government announced a package of measures apparently aimed at simplifying customs import and export procedures. The package included:
- a review into simplifying customs declaration requirements
- introducing voluntary standards for customs intermediaries
- transit policy simplifications
- modernising authorisations (trusted trader schemes)
- changes to customs guarantees for special procedures, temporary storage and duty deferment.
Each element of this package will require stakeholder engagement, and this is scheduled to take place throughout the course of 2023.
Fuel duty will be frozen and a 5p reduction will be maintained for another year.
Anti Avoidance measures
The Government has announced that it will double the maximum sentences for the most egregious cases of tax fraud from 7 to 14 years.
The Government will also consult shortly on the introduction of a new criminal offence for promoters of tax avoidance who fail to comply with a legal notice from HMRC to stop promoting a tax avoidance scheme. They will also consult on expediting the disqualification of directors of companies involved in promoting tax avoidance including those who exercise control or influence over a company.
ETSL Key Contacts
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