With business taxes, as with other areas, this “mini” fiscal event turned out to be a very significant one in terms of changes. Some of these were expected, nearly all are welcome. The most significant ones are set out in this article.
As had been expected, the planned rise in the main rate of Corporation Tax from 19% to 25% from April 2023 has been cancelled, so we will remain with a single rate of 19%.
This will be a big positive for companies who will be able to invest more in their workforce and capital as a result.
It is also a very positive step for simplicity, as the proposed rise was also going to include a two-rate system, bringing back the complexities of a “marginal relief” and the return of having to consider “associated companies” when working out what thresholds applied in the calculation.
Alongside these changes, we are told that the current “temporary” Annual Investment Allowance will become permanent at the current £1 million level. The AIA, which provides full tax relief on the first £1 million of annual expenditure on machinery and equipment for all businesses (not just companies) was due to drop back to £200,000 in April 2023.
We are told there will be some “technical changes” to the super deduction rules as a result, we need to await these details, but suspect this will be principally the rules around asset disposals.
However we are still awaiting the outcome of the wider review of Capital Allowances which has been consulted on this year, with the government considering various radical changes such as making the super deduction permanent, or even (although unlikely) removing Capital Allowances in favour of allowing commercial depreciation for tax. We await further announcements probably later in the year on any further changes here.
Planning point – there is no indication that super deduction for companies (due to end on 31 March 2023) is being removed. This is interesting because the effect of the relief was to give tax relief on equipment at the equivalent of what was going to be the new 25% Corporation Tax rate. This is now even more incentive for small and medium sized businesses to invest in equipment before the end of March, when relief will (subject to any further announcements) reduce back to 19%.
The government have announced they are going to implement a number of investment zones which will benefit from lower rates of tax to focus investment and growth in particular geographical areas. Although separate from the relatively new “freeports” initiative, we are told that the two schemes should be able to complement one another.
The government are already talking to 38 local authorities about potential locations in England, and are also intending to work closely with the devolved administrations (Wales, Scotland and Northern Ireland) to make this available more widely. Gloucestershire County Council is one of the 38 they are already talking to.
The following benefits will apply in these zones:
- 100% business rates relief on newly occupied and expanded premises
- Full relief from Stamp Duty Land Tax on land bought for commercial or residential development
- No employer’s National Insurance for new employees earning up to £50,270 per year each.
- 100% Capital Allowances for plant and machinery used in the zones (insofar as the AIA will not provide this anyway)
- Accelerated Structures and Buildings Allowances – currently these allowances provide a 3% rate of relief (so taking 33 1/3 years to get full relief) but in investment zones this will be increased to 20% (reduced full relief to just 5 years)
We will be keeping a close eye on these developments, particularly in light of the fact that Gloucestershire is one of the areas already being considered.
Off payroll working
In a surprise announcement, the reforms to the off payroll working rules introduced in 2017 and 2021 (for the public and private sectors respectively) will be reversed, reverting to the previous “IR35” rules where contractors are responsible for self-assessing whether the rules apply and making any additional tax payments themselves.
This will move us back to the previously very unclear system, which resulted in huge non-compliance that the government simply could not manage. While it is good news in that it would mean an end to some of the current uncertainties around how to present such income in the accounts of personal service companies, the impact on the systems and processes of both small and large businesses alike is going to take a lot of time to resolve.
There was a mention of making share incentives more generous in the speech which sounded promising for the very popular EMI (Enterprise Management Incentive) schemes, however it appears the changes are doubling the limits on value of options under the Company Share Option Plans (CSOP). These plans are more suited to larger businesses so this is not as helpful for most small and medium sized businesses as originally hoped.
SEIS (Seed Enterprise Investment Scheme)
With growth on their mind, the government is aiming to help businesses grow by increasing the generosity and availability of the Seed Enterprise Investment Scheme, which was designed to improve the ability of new British companies to raise money, attract talent and ultimately grow and succeed.
Companies will be able to raise up to £250,000 of SEIS investment, a two-thirds increase. The idea is that the increase will enable new companies to raise a greater amount of investment with the attraction of SEIS for their investors. Furthermore, the gross asset limit will be increased to £350,000 and the age limit from 2 to 3 years. To support these increases, the annual individual investor limit will be doubled to £200,000. These changes will come into effect from April 2023.
Other areas not covered
There are a number of areas which are currently under major review but announcements are still awaited, potentially at a full Budget later in the year:
- Reforms to R&D Tax Reliefs
- Capital Allowances reforms
It remains to be seen whether there will be a further Budget later in the Autumn which will provide outcomes of these ongoing areas of review, but in the meantime today’s announcements will give tax advisers and businesses alike plenty to discuss and plan around, especially as the impacts become clearer over the next few weeks.
If you have any questions for our Tax experts as a result of this mini-Budget, please contact us on 01242 776000 or email@example.com.