The R&D reforms have been coming for over a year now, with the publication of a major discussion document at Budget 2021, with subsequent feedback and discussions. The full detail of changes to be implemented from April 2023 will be published at the Autumn Budget later this year, but we have a clear direction of travel on many aspects of the reform:
- Restricting qualifying costs for overseas personnel, with certain exceptions
- Inclusion of cloud computing and pure mathematics costs
- Potential increase in rates of relief
- Continuing work on combatting abuse of the schemes
The other major aspect of step 2 was not expected, and that is a longer term review of tax relief on business capital expenditure. Currently the highlights of the Capital Allowances system are:
- Annual Investment Allowance (AIA) of £1 million
- Super Deduction of 130% for qualifying machinery costs by a limited company with no upper limit
- Annual writing down allowances (WDAs) of 18% or 6% on expenditure remaining unrelieved after the above
- Annual allowance of 3% on buildings or structures
The Government has recognised that once the super deduction is abolished, the UK tax system will be uncompetitive against other major economies, and is therefore considering options to continue to boost investment from April 2023. They state that this could take the form of one or more of the following:
- Increasing the permanent level of AIA, “for example” to £500,000
- Increasing WDAs to 20% and 8% respectively
- Reintroducing First Year Allowances e.g. 40% and 13% for costs not falling within AIA
- An “additional FYA” of possibly 20% (making 120% equivalent tax relief)
- Full expensing of costs in year 1 (effectively a permanent AIA with no upper limit)
- Improving relief on buildings and structures, or bringing back allowances on green technology
They are considering these options ahead of the Autumn Budget, and consultation with business and professional bodies is expected between now and then.
Enterprise Management Incentive
On a separate note, Enterprise Management Incentive (EMI) share option schemes have been confirmed to continue without change. However they are now looking to review other tax advantaged share schemes to ensure they are supporting businesses.
If you have any questions for our Tax experts as a result of these announcements, please contact us on 01242 776000 or firstname.lastname@example.org.