Business Tax
Annual Investment Allowance (AIA)
The 100% AIA, which is available to companies and unincorporated businesses, is available for qualifying expenditure on plant and machinery (P&M) up to £1 million. The limit was intended to drop to £200,000 for expenditure after 31 March 2023, but the higher limit has now been made ‘permanent’. This is described as intended to ‘support business investment, provide businesses with more stability, and make tax simpler for any business investing between £200,000 and £1 million in plant and machinery’.
Reform of basis periods
The Chancellor did not mention any changes in the planned reform of basis periods for taxation of profits of unincorporated businesses and partners in Limited Liability Partnerships (LLPs). In spite of concerns expressed by some that businesses may not be ready, taxation of profits arising in the tax year will be introduced in 2024/25; 2023/24 will be a transitional year for moving from the old to the new basis of assessment. Any self-employed trader, partnership or LLP with an accounting date other than 31 March or 5 April should consider the effect of this change as a matter of urgency.
Corporation Tax
Rate of tax
As widely expected, the Chancellor confirmed that the planned increase in the main rate of corporation tax from 19% to 25% will not now take place on 1 April 2023, reducing government revenue by an estimated £67 billion over the next five years. The government states that ‘this will maintain a competitive business tax regime, which will support investment, innovation and economic growth in the UK’.
Super-deduction for plant and machinery
The March 2021 Budget introduced enhanced allowances for qualifying expenditure on P&M contracted for from 3 March 2021 and incurred from 1 April 2021 to 31 March 2023 by companies. They can claim:
· a ‘super-deduction’, providing allowances of 130% on new P&M investment that would ordinarily qualify for 18% annual writing down allowances (WDAs) in the main capital allowance pool;
· a first-year ‘special rate allowance’ of 50% on new P&M investment that would ordinarily qualify for 6% annual WDAs in the special rate pool (e.g. integral plant in buildings).
Rules were introduced to prevent the super-deduction being relieved at an effective rate of more than 19%, where an accounting period straddles 1 April 2023. These rules will be amended now that the 25% rate has been cancelled, in order to ensure that the relief continues to operate as intended.
Businesses may have made plans for capital expenditure that take account of the withdrawal of the super-deduction, reduction in AIA and increase in the rate of corporation tax, all expected to take place on 1 April 2023. Now that none of those changes will take place, the plans should be reviewed.
Research & Development (R&D)
A number of reforms to the enhanced reliefs for R&D have already been announced, including bringing pure mathematics research within the scope of the reliefs, including data and cloud computing as new qualifying costs, and refocussing the reliefs towards innovation in the UK. No new changes have been announced, but the government intends to continue the review that was started in 2021, with any further reforms to be announced as usual at a fiscal event.