Change

Key Accounting Changes Taking Effect in April 2023

There are some important accounting and finance changes taking effect in April 2023 for both incorporated and unincorporated businesses and you may need to act now.

In this article we outline 8 important accounting and finance changes taking effect in April 2023 for both incorporated and unincorporated businesses.

As a result of some of these changes, you may need to take action now.

Most of these accounting changes (and the National Insurance deadline) were announced before the Spring Budget 2023 but were confirmed in the Chancellor’s statement.

If you have a question about any of these measures, or if you think you may need to take action now, we urge you to contact Leonherman without delay or email: partners@leonherman.co.uk

1. Corporation Tax Rise and Associated Companies Rules

Corporations

From 1st April 2023, the Corporation Tax rate will increase to 25% for companies whose taxable profits exceed £250,000.

For companies with profits less than £50,000, the current 19% rate will still apply.

Companies with profit levels between £50,000 and £250,000 will pay tax at 25%, reduced by marginal relief. That is, they will pay a tapered rate between 20% and 24%.

Because of this tapered rate (marginal relief), some business owners may have tried to split their profits between 2 or more companies, in order to keep the profits of each company below £50,000 where the 19% corporation tax rate applies.

However, this splitting of profits will not be possible under the updated ‘Associated Companies Rules’.

From 1st April 2023, if you try to split your profits between 2 or more companies which are deemed to be associated, you will fall foul of the associated companies rules.

Under the rules, the upper and lower corporation tax limits will be divided between the total number of companies deemed associated, creating lower thresholds for the 19%, tapered tax rates and 25% tax rate.

Importantly, because marginal relief will start at the relatively low limit of £50,000, the associated companies rules will affect a significant number of small businesses.

If you think that you may be affected by the corporation tax rises and the associated companies rules, or if you would like further advice specific to your situation, we strongly advise you to take contact us to assess your situation before acting.

In particular, if you and/or your family or other associates have interests in multiple businesses, we would be happy to advise you on how best to structure your businesses and to comply with the regulations.

More detailed information about these changes can be found here: The April 2023 Corporation Tax Rise and Associated Companies Rules FAQs

2. Basis Period Reform

Electrician at work

A major change is on the way for unincorporated businesses (sole traders and partnerships) who prepare their accounts to a date other than 5th April or 31st March.

Importantly for businesses affected, a transition will take effect in the tax year to 5th April 2024, starting on 6th April 2023.

From 6th April 2024, unincorporated businesses who prepare their accounts to a date other than 31st March or 5th April must use the tax year as their basis period, regardless of their accounting period.

If you are the proprietor of an unincorporated business whose accounts are prepared to a date that isn’t 5th April or 31st March, you will need to decide whether you want to move your accounting period year end, or keep it the same.

Each decision will have ramifications on your tax due, cashflow and ongoing accounting processes.

More detailed information about these changes can be found here: Basis Period Reform: What it is, when it is, who is affected, and how to comply with the changes

3. Review your National Insurance Record

This is not strictly a change, but a deadline you need to be aware of.

If you are planning to claim the UK state pension, we urge you to check your National Insurance (NI) record before 31st July 2023, particularly if you are, or have been, self-employed and may have gaps in your NI history.

Currently, voluntary contributions can be made to fill gaps in NI contributions back to April 2006.

But from 31st July 2023, the timeframe for making voluntary contributions will revert back to the normal six years, to the 2017/18 tax year only.

Please note that this deadline has recently been moved from 5th April 2023 to 31st July 2023.

More detailed information about this deadline can be found here: Review your National Insurance record before 31st July 2023 deadline

4. Super Deduction Ends – Full Capital Expensing Begins

To try to offset the rise in corporation tax, coinciding with the end of the generous super-deduction scheme on 31st March 2023 (which gave enhanced 130% relief for new qualifying plant and machinery acquired by companies), in his Spring Budget 2023, the Chancellor introduced a new “Full Capital Expensing” policy which will be in place from 1st April 2023 to 31st March 2026.

Full Capital Expensing (effectively 100% tax relief, called a ‘First Year Allowance’), enables businesses to deduct the cost of any eligible investment from their corporation tax bills in one go, rather than over several years. The full list of eligible investment can be found here on the Government’s website.

The hope is that this policy will make it more attractive for companies to invest in new plant and machinery.

The government announced:

Full expensing – which offers 100% first-year relief to companies on qualifying new main rate plant and machinery investments from 1 April 2023 until 31 March 2026

A 50% first-year allowance (FYA) for expenditure by companies on new special rate (including long life) assets until 31 March 2026

Up to now, businesses could only deduct a small fraction of the cost of an investment each year over the accounting lifespan of the investment. In reality, this meant that businesses wouldn’t get the full cost of the investment, because inflation eroded the value of the money firms could claim back in future years. So, the longer the right off time, the less of the cost of the investment that could be written off.

Now, businesses will be able to deduct the cost of any eligible investment from their corporation tax bills straight away.

5. Changes to Research and Development (R&D) Reliefs

Research and Development

From 1st April 2023, significant changes will be made to the R&D tax relief regime and if you’re planning to claim R&D tax relief you should seek advice now.

In the Budget, the Government announced that there will also be an enhanced tax credit scheme for small and medium sized businesses that spend 40% of their total expenditure on R&D. Qualifying businesses will be able to claim credit worth £27 for every £100 spent.

From 1st April 2023:

– The Research and Development Expenditure Credit (RDEC) available to non-SME companies will be increased from 13% to 20%.

– For SME companies, R&D tax relief rates will be reduced from 130% to 86%.

– For loss-making SME companies, the current payable credit of 14.5% will only be available for companies whose R&D expenditure constitutes at least 40% of their total expenditure.

– For R&D claimants that don’t meet the new 40% test, the payable credit will be reduced from 14.5% to 10% of the eligible loss.

– Qualifying R&D expenditure will be expanded to include data licences and cloud computing services.

Additional information will also need to be provided by businesses when making a R&D claim:

i. All companies will have to submit their R&D claim online and include additional information to support claims, such as a breakdown of the types of R&D expenditure.

ii. All claims will need to be supported by a named officer of the company, so unauthorised claims cannot be made in the business’s name.

iii. All claims will need to include details of any agents associated with the submission. This will enable HMRC to spot the involvement of agents with a track record of making spurious claims on behalf of clients.

iv. New claimants (those who have not made a claim in the previous 3 years) will be required to inform HMRC of their intention to make a R&D claim within 6 months of the end of the accounting period to which the claim relates.

6. Seed Enterprise Investment Scheme Extended

From 6th April 2023, the government is increasing the availability and generosity of the Seed Enterprise Investment Scheme for start-up companies.

The amount of investment that companies will be able to raise under the scheme will increase from £150,000 to £250,000.

The gross asset limit will be increased from £200,000 to £350,000 and the investment must be made within 3 years (increased from 2 years) of trade commencing.

To support these changes, the annual investor limit will be doubled to £200,000.

7. National Minimum Wage Increase

Recurring Revenue

From 1st April 2023, the National Minimum Wage Rates will be:

– Over 23 £10.42
– 21 to 22 £10.18
– 18 to 20 £7.49
– Under 18 £5.28
– Apprentice £5.28

8. Employee Share Options

From 6th April 2023, the Company Share Option Plan (CSOP) employee share options limit will increase from £30,000 to £60,000 and restrictions on the types of shares eligible for CSOP options will be lifted.

Simplifications will also be made to the process to grant Enterprise Management Incentive (EMI) options.

From 6th April 2023, there will no longer be a requirement for the company to set out any restrictions to the shares being acquired in the option agreement, and the employee will no longer have to sign a working time declaration.

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