How the spring budget will impact on tax for businesses:
This March, Chancellor Jeremy Hunt delivered a ‘Budget for Growth’, this was after the forecast from the Office for Budget Responsibility was for a stronger than expected performance from the UK economy this year with inflation continuing to fall.
The latest on inflation from the BBC’s Economics editor, Faisal Islam is
“Inflation is now going to fall faster than expected, as a result of Budget measures. The Bank repeated language that further rises would be required “if there were evidence” of more inflationary pressures.
The Bank’s’ discussions suggested that some of that pressure, for example from wage growth, was declining even after yesterday’s shock inflation number. The next meeting in May is now a key point, where new quarterly forecasts for the economy and inflation could underpin a pause in rate rises.”
In this blog we will take a brief look at what the 2023 spring budget means for businesses, in particular tax allowance rates across different areas.
Changes to Corporate Tax and Allowances
Corporation Tax Rates to Rise
From April 2023, the rate of corporation tax will rise 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. For companies with profits between £50,001 and £250,000 the main rate of tax will be payable, reduced by marginal relief.
Also from April 2023, the rate of diverted profits tax will increase from 25% to 31%.
Currently, the super-deduction regime gives 130% enhanced first year allowance (FYA) to companies on the purchase of qualifying plant and machinery. This will come to an end on 31st March 2023. To replace this, the government has announced a Full Expensing, a 100% FYA, which allows those companies to deduct the cost of qualifying plant and machinery from their profits immediately, with no expenditure limit.
What does it include:
- Most plant and machinery, as long as it is unused and not second-hand.
Does not include cars.
In addition to this, a 50% FYA for other plant and machinery which includes long life assets and integral features. Please note, Full Expensing and the 50% FYA are only available for companies and not for unincorporated businesses.
Incorporated and Unincorporated Businesses
The annual investment allowance (AIA) is available to both incorporated and unincorporated businesses. The AIA gives 100% write-off on certain types of plant and machinery up to certain financial limits per 12-month period.
What is the limit?
Research and Development
The Research and Development Expenditure Credit rate will increase from 13% to 20% after 1st April 2023. For small and medium enterprises however, the additional deduction will decrease from 130% to 86% and the credit rate will decrease from 14.5% to 10%.
A higher rate of SME payable credit of 14.5% will apply to loss-making SMEs which are R&D intensive. This means that the ratio of the company’s qualifying R&D expenditure must be 40% or above the company’s ‘total expenditure’ for the period.
Cutting & Simplifying Tax for Businesses to Invest and Grow
“At Spring Budget 2023 the Chancellor Jeremy Hunt set out his vision to ensure that the UK’s tax system fosters the right conditions for enterprise by being one of the most competitive in the world.
To do this, the Chancellor transformed capital allowances to boost investment, increased support for R&D, and simplified the tax system for SMEs.”
Capital Gains Tax
Good news for some, there have been no changes to the current rates of Capital gains tax. You can read more about capital gains tax here.
If you would like help and advice on any affairs impacted by the spring budget, please contact us.