From a corporate and business tax perspective, the so-called “mini” budget arguably made more significant announcements than a proper “full-fat” budget. Certainly, the changes that will be made to the tax system came thick and fast, no doubt helped by the lack of talk around how the tax changes will actually be funded.
As expected, the headline rate at which companies pay corporation tax will no longer increase to 25% from 1 April 2023, instead, the rate of corporation tax will remain at 19% for all companies, regardless of their profit levels. This will be a welcome announcement for many companies and will keep the UK competitive with other major economies – the objective being to encourage investment in the UK from overseas organisations. One other benefit that companies will see from corporate tax rates remaining at their current levels will be a release of deferred tax provisions that have currently been provided at 25% but can now be reduced to 19%. Whilst this doesn’t provide a cash benefit to companies, it can provide a welcome boost to balance sheets.
Capital allowances have been constantly tinkered with over the last few years, and today was no exception as the Chancellor confirmed that the Annual Investment Allowance will remain at its current level of £1 million, rather than reducing to £200,000 as had previously been expected from 1 April 2023. This is welcome news and means that companies and businesses investing in qualifying items of plant and machinery can claim a 100% tax deduction against the first £1 million of expenditure they incur.
The Chancellor did not however make any comments regarding the “super deduction” which provides companies with a 130% tax deduction against qualifying items of plant and machinery as long as it is purchased prior to 31 March 2023. It is therefore looking increasingly likely that this very generous allowance will end as planned. As a result, any companies planning capital expenditure over the next six months should plan the timing of that expenditure carefully.
The Chancellor made repeated references to “growth” during his speech, and in particular, he wants investment to be encouraged in the private sector. The Enterprise Investment Scheme (“EIS”) was originally scheduled to end in 2025, however, the Chancellor today confirmed that he is supportive of EIS and would look at extending its availability beyond 2025. This will be welcome news for private investors who can benefit from generous income tax reliefs when they purchase EIS shares, and capital gains tax reliefs when they sell those shares. The Chancellor has also extended the amount of investment a company can raise from Seed EIS from £150,000 to £250,000 and increased the value of shares that can be offered by companies via a Company Share Option Plan from £30,000 to £60,000, both welcome increases.
Research and Development (“R&D”) tax relief was not directly mentioned in the Chancellor’s speech, however the backing documents have indicated that this valuable relief remains under review and further details will be released at a “fiscal event”, i.e. the main Budget. The current mood from HMRC is that the rules around R&D need to be tightened up to ensure that claims which are made meet the strict tax definition of R&D.
All in all, there are some beneficial changes for companies and businesses, however, the main benefit will come from certainty as to what will happen in the short to medium term, especially as we come off the back of the Conservative leadership battle which created uncertainty as to the government’s future tax direction. Whether or not the gamble for low tax and high growth will pay off in the long run for our economy is yet to be seen, but at least we now know what the tax position will be moving forwards.