Corporation tax - The Chancellor confirmed that the main corporation tax rate will increase from 19% to 25 with effect from 1 April 2023.
Capital Allowances - The super-deduction regime will end 31 March 2023, and will be replaced from 1 April 2023 with ‘full expensing’ - 100% capital allowances for qualifying plant and machinery. This will last for three years, to 31 March 2026, although the Government indicated that it is their ambition to make this permanent. The Government will also introduce 50% first year allowances for ‘special rate’ plant and machinery, including long life assets. These rules apply only for corporation tax purposes, and will not be available for businesses which are subject to income tax, unless they are below the Annual Investment Allowance threshold of £1m per annum.
The Government has also confirmed that the 100% first-year allowance for qualifying expenditure on electric vehicle charge-point equipment will be extended until 31 March 2025 for corporation tax, and 5 April 2025 for income tax.
Research & Development - From 1 April 2023, a higher rate of relief for loss-making R&D intensive SMEs will be introduced. SME companies whose qualifying R&D expenditure constitutes at least 40% of their total expenditure will be able to obtain an effective credit of 27p for every £1 of qualifying R&D expenditure.
The Government is still considering the responses to the consultation on merging the RDEC and SME schemes, and no decision has been made. Draft legislation on a potential merged R&D relief scheme will be published for technical consultation in the Summer. In the meantime, the previously announced restriction on the inclusion of some overseas expenditure in R&D tax relief claims is deferred for a year until 1 April 2024, to allow the government to consider the interaction of this with a potential merged R&D relief scheme.
Two new categories of qualifying R&D expenditure will be created, for data licences and cloud computing services.
It has also been announced that all R&D claims filed from 1 August 2023 will need to be filed using the new digital forms, regardless of the accounting period concerned.
Investment Zones - The Government has announced 12 Investment Zones across the UK, with the stated aim of helping drive economic growth and “levelling up” the country. The confirmed locations include the West Midlands, Greater Manchester, the North-east, South Yorkshire, West Yorkshire, East Midlands, Teesside, and Liverpool.
Each English Investment Zone will have access to £80m over 5 years, including a single five-year tax package matching that in Freeports (enhanced rates of Capital Allowance, Structures and Buildings Allowance, and relief from Stamp Duty Land Tax, Business Rates and Employer National Insurance Contributions), and grant funding to address local productivity barriers. The Government has invited local partners in eight areas in England to begin discussions on establishing Investment Zones.
The Government will work with the devolved authorities to support the introduction of Investment Zones in Scotland, Wales and Northern Ireland.
Transfer pricing documentation - Following consultations, it has been confirmed that large multinational businesses operating in the UK will be required to maintain a master file and a local file in a prescribed and standardised format, as set out in the OECD’s transfer pricing guidelines. HMRC are continuing to consult on the introduction of a summary audit trail, which is a short questionnaire detailing the main actions undertaken in preparing the local file.
Creative industry reliefs - From 1 April 2024 the existing additional deduction tax reliefs allowed for films, TV and video games will be reformed. Going forward, new Audio-Visual Expenditure Credits will be allowed for film and high-end TV (34% credit), and for animation and children’s TV (39% credit). The expenditure threshold for high-end TV will remain at £1 million per hour. The new Video Games Expenditure Credit will have a credit rate of 34%. Qualifying expenditure for this credit will be expenditure on goods and services that are used or consumed in the UK. Existing video games tax relief will sunset in April 2027, for games that have not concluded development on 1 April 2025.
The temporary higher rates of Theatre Tax Relief (TTR), Orchestra Tax Relief (OTR) and Museums and Galleries Exhibitions Tax Relief (MGETR) will be extended for 2 years so that from 1 April 2023, the headline rates for TTR and MGETR will remain 45% (for non-touring productions) and 50% (for touring productions), and the OTR rate will remain at 50%, with all rates tapering off thereafter (the TTR and MGETR will return to 20% and 25%, with the OTR returning to 25%). Qualifying expenditure for these reliefs will be changed to ‘expenditure on goods and services that are used or consumed in the UK.’, to align with audio-visual reliefs and ensure compliance.
Elective accruals basis for carried interest rules - UK resident investment managers will be able to make an election to accelerate their tax liabilities in order to align their timing with the position in other jurisdictions, where they may obtain double taxation relief.
Income tax rates and thresholds - There were no changes to previously-announced personal income tax and National Insurance Contribution thresholds or rates.
Pension tax relief - As part of a range of measures aimed at reducing economic inactivity, significant reforms to pension taxation were announced:
The amount that an individual can contribute tax free to their pension fund is to be raised from £40,000 to £60,000 per annum from April 2023.
The Government will work to abolish the Lifetime Allowance in future Budgets. It currently stands at £1,073,100.
For those who are already drawing down on their pension, the total amount they can save tax free under the Money Purchase Annual Allowance is to be increased from £4,000 to £10,000 from April 2023.
Indirect taxes & Duties
Fuel duty - The government has announced that fuel duty will be frozen and a 5p reduction will be maintained for another year.
Alcohol duty rates and Alcohol duty reform - Similarly, duty rates of alcohol will be frozen, with the exception of draught products (beer, cider, wine, etc). These changes will take effect from 1 August 2023.
Energy price support - The Energy Price Guarantee for households will continue at the current rate for three further months to June 2023, limiting the typical household energy bill to £2,500 per annum. The Energy Bills Relief Scheme, which supports businesses and other non-domestic energy users, is to be replaced by the Energy Bills Discount Scheme through to 31 March 2024.
Charity relief restricted to UK charities - EU and EEA charities and Community Amateur Sports Clubs will not qualify for charitable relief from 15 March 2023. There will be a transitional period until April 2024 for EU and EEA charities that HMRC has previously accepted as qualifying for relief.
Tonnage Tax - From June 2023 the Government will open an election window to permit shipping companies that left the Tonnage Tax regime to return to the UK.
Sovereign immunity from direct taxation - The Government has decided that there will be no change to the current exemption from direct taxation for sovereign investors, which will continue to operate as it does now.
Tax fraud - The Government has announced that it will double the maximum sentences for the most egregious cases of tax fraud from 7 to 14 years.
Promoters of Tax Avoidance Schemes - The Government will consult shortly on the introduction of a new criminal offence for promoters of tax avoidance who fail to comply with a legal notice from HMRC to stop promoting a tax avoidance scheme. The Government will also consult on expediting the disqualification of directors of companies involved in promoting tax avoidance including those who exercise control or influence over a company.