Annual Investment Allowance – extension of temporary £1 million limit
The Annual Investment Allowance (AIA) was set to return to its “permanent” level of £200,000 from 1 January 2022, having been temporarily extended to £1 million for the calendar years 2020 and 2021. It was announced today that the increased limit will continue to apply until the end of March 2023.
The Spring Budget introduced a new “super-deduction” of 130% for most new and unused plant and machinery, including commercial vehicles, which means that for most everyday equipment purchases, this extension will mean very little.
However it is good news for businesses going through a substantial building refit or refurbishment which may involve significant spend on “special rate” expenditure – largely meaning “integral features” such as heating, air conditioning, water systems, electrics and similar. Under the super-deduction rules this expenditure obtains a 50% allowance in year 1, but the extension of the AIA increased limit means for many smaller commercial buildings, 100% allowances will be available for up to £1 million of such costs.
Once again, the tax professional bodies have lobbied the government to change the transitional rules for when the AIA limit does drop, as this has some very nasty results around the timing of capital expenditure, but once again nothing has been done about this – indeed the Budget note published today sets out the same old example about how it works.
So our advice remains the same as always – please speak to us when the change in AIA rate of March 2023 is approaching, as the timing of your spend on plant and equipment could have a dramatic effect on the timing of your tax liabilities.
Research & Development (R&D) tax relief reform
Following the consultation launched at Spring Budget 2021, R&D tax reliefs will be reformed to support modern research methods by expanding qualifying expenditure to include data and cloud costs, to more effectively capture the benefits of R&D funded by the reliefs through refocusing support towards innovation in the UK, and to target abuse and improve compliance.
These changes will be legislated for in Finance Bill 2022-23 and take effect from April 2023. Further details of these changes and next steps for the review will be set out in due course.
It will be interesting to see what they mean by refocusing support towards innovation in the UK, particularly as the recently published R&D claim statistics show the costs of overseas labour increasing dramatically as a percentage of costs claimed for the reliefs. It is very common practice for claimant companies to use a mixture of both on-shore and off-shore employees and/or externally-provided workers to develop processes and products, particularly in the IT sector, so it is to be hoped that any changes here do not negatively affect these businesses where the ultimate Intellectual Property will remain in the UK.
Business Rates Relief
Further relief from Business Rates for the retail, hospitality and leisure sector was announced, meaning that over 90% of businesses in the sector will receive at least 50% off their bills in the 2022-23 year.
Up to 400,000 properties in the sector will be eligible for the relief, which will provide support until the next revaluation.
In a further reform, where businesses make improvement to premises that support net zero targets (such as renewable energy investments), they will not face higher rates bills on the enhanced value until 12 months after the improvements.
Further changes have been promised for 2023 giving more reliefs to support the decarbonisation of buildings.
A consultation has been launched on a “re-domiciliation” process which would allow non-UK resident companies to relocate their tax residence to the UK under a much simpler process, without the need to carry out complex corporate restructures.
This would bring the UK into line with some 50 other countries who have re-domiciliation regimes.
This is very early days at the moment but could become of more interest where a business is active in the UK but due to overseas residence, is not able to benefit from UK tax breaks, for example.
At this time we anticipate this will not be of interest to the majority of our clients, but it is an interesting development and one we will keep an eye on as things progress.
If you have any questions for our Tax experts as a result of this Budget, please contact us on 01242 776000 or email@example.com.