As expected, and in some cases already announced, most of the business tax measures in Kwasi Kwarteng’s short-lived mini-Budget have been abandoned.
In particular, the main rate of corporation tax will now increase from 19% to 25% from 1 April 2023 as was originally announced by Rishi Sunak in the March 2021 Budget.
In conjunction with this increase:
- Companies with taxable profits up to £50,000 will continue to pay corporation tax at 19%. Profits between £50,000 and £250,000 will be subject to a tapered rate.
- The bank corporation tax surcharge will fall from 8% to 3%, so the total corporation tax rate for banks will be 28% (25% plus 3%); and
- The rate of Diverted Profits Tax, which applies to certain profits considered to have been artificially diverted from the UK, will increase from 25% to 31%.
The capital allowances ‘super-deduction’, which gives 130% relief for qualifying plant and machinery costs, was introduced in 2021. The objective was to discourage companies from deferring capital expenditure to 2023 and beyond in order to obtain corporation tax relief at the higher 25% rate. The super-deduction will be withdrawn on 1 April 2023 when the corporation tax rate goes up.
One measure from the mini-Budget not reversed was the decision to maintain the Annual Investment Allowance (AIA) at £1 million. The AIA gives 100% relief in the period of acquisition for expenditure on qualifying plant and machinery. This annual limit was temporarily increased to £1 million but was due to return to £200,000 on 1 April 2023. The decision to retain the higher rate will be welcomed by businesses with significant fixed asset expenditure.
Also welcomed is the Chancellor’s announcement that the 100% First Year Allowance available on charging points for electric vehicles will be maintained until April 2025. The allowance was originally due to be withdrawn in April 2023.
Various measures to ease business rates have been introduced, most notable of which is a 75% discount for certain retail, hospitality and leisure businesses until 1 April 2024; and caps on the annual rate increases until 2026. However, the introduction of Improvement Relief, designed to provide 100% relief for rates in respect of qualifying property improvements, has been delayed by a year to 1 April 2024.
Consistent with the general theme of reducing or freezing tax thresholds, the VAT registration and deregistration thresholds (of £85,000 and £83,000, respectively) will be frozen until 1 April 2026. Given current and projected rates of inflation, this will bring a greater proportion of businesses with the scope of VAT as time progresses.
Research and Development (R&D) tax relief
Changes have been made to the rates at which R&D tax relief can be claimed. The government claims that the changes should improve the cost-effectiveness of the R&D relief system, but they will come as a significant blow to many smaller, particularly early-stage, companies.
From 1 April 2023, the enhanced deduction available to SMEs will be reduced from 130% of qualifying R&D expenditure to just 86%, and the rate of payable tax credits will be reduced from 14.5% to 10%.
This means that, for profit-making SMEs, an R&D claim will now yield additional tax relief of £21,500 for every £100,000 of qualifying expenditure (down from the current amount of £24,700). However, for loss-making SMEs the impact is more profound: whereas they can currently claim a payable cash credit equal to 33.35% of their qualifying R&D spend, this will nearly halve – to 18.6% – from next year.
However, there is good news for companies claiming under the R&D Expenditure Credit (RDEC) scheme – the RDEC rate will increase from 13% to 20%, meaning that the post-tax benefit of an RDEC claim will jump from 10.53% to 15% of qualifying expenditure.
Two additional windfall taxes – aimed at companies in the energy sector – were announced in this year’s Autumn Statement.
The Energy Profits Levy (EPL) was introduced in May 2022 as a temporary levy on profits made by oil and gas companies operating in the UK and the UK Continental Shelf, and is charged in addition to the 40% headline rate of tax that such companies already pay on their profits. It was originally set at 25% and due to be phased out from 31 December 2015. In the Autumn Statement, the Chancellor announced that the EPL will increase to 35% from 1 January 2023 and will now remain in place until 31 March 2028.
Along with the increase to the EPL, the government has announced a new Electricity Generator Levy (EGL) that will apply to companies generating renewable, nuclear and biomass electricity. It will be charged at 45% on any ‘extraordinary revenues’, measured by reference to a pre-energy crisis price baseline, earned between 1 January 2023 and 31 March 2028. A £10 million de minimis level will exclude small generators from the regime. The government expects to raise over £14 billion from the levy over the next five years.
Audio-visual tax reliefs
Alongside the Autumn Statement, a consultation has been published on audio-visual tax reliefs, including film tax relief, animation tax relief, high-end TV tax relief, children’s TV tax relief and video games tax relief. The consultation document highlights an independent report which shows that, since the introduction of film tax relief in 2007, the reliefs have made the UK a more attractive filming and production location, and led to more productions taking place in the UK than otherwise might have taken place.
Now, with the sector constantly developing and innovating, the government is seeking to simplify and modernise the reliefs to ensure they go further to support growth and innovation in these sectors, while remaining ‘fiscally sustainable’. The consultation closes on 9 February 2023.