Houses of Parliament

The Spring Budget 2023 – The Key Announcements for Businesses

We outline the key announcements that will affect businesses following the Spring Budget on 15th March 2023.

Corporation Tax Increase

The Chancellor confirmed that Corporation Tax will increase from 19% to 25% on 1st April 2023 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%.

Importantly, because marginal relief will start at the relatively low limit of £50,000, the associated companies rules could affect a significant number of small businesses. Find out more about the associated companies rules and what you need to do now here.

Energy Costs

The Chancellor confirmed that The Business Energy Bills Discount Scheme will run until 31st March 2024, giving non-domestic customers discounts on their gas and electricity bills.

So despite the ongoing economic challenges and rising business costs, the energy bill price cap increase is still going ahead in April. Businesses will get a discount on wholesale prices of gas and electricity, rather than a fixed price.

For households, the Chancellor announced that the £2,500 Energy Price Guarantee will be extended by 3 months to 30th June 2023, before increasing to £3,000 until the end of the EPG period on 31st March 2024.

Full Capital Expensing

However, 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), 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.

Similar to the super-deduction, Full Capital Expensing also results in a 25p tax saving for every £1 a company invests (19% x 130% super-deduction rate = 25%).

The Office for Budget Responsibility (OBR) argues that because this is initially only a temporary measure for 3 years, it provides a strong incentive for businesses to bring forward investment that had been planned.

For “special rate” expenditure, which doesn’t qualify for full expensing, a 50% first-year allowance can be claimed instead, subject to the same conditions that apply for full expensing. This means that a company can claim a deduction from taxable profits that is equal to 50% of their qualifying expenditure in the year that expenditure is incurred.

Please note that full capital expensing is only available to companies who pay Corporation Tax. Unincorporated businesses cannot claim, but they are entitled to claim the Annual Investment Allowance which offers the same benefits as full expensing for the investments it covers. The Annual Investment Allowance is now permanently set at £1million.

Subsequent disposals of assets on which one of these ‘First Year Allowances’ has been claimed will trigger a clawback of tax relief at a rate of 100% or 50% of the disposal proceeds, depending on the rate of the original relief.

These new FYAs will mainly be of interest to companies that have already fully used their £1million Annual Investment Allowance.

VAT

The VAT registration and deregistration thresholds will continue to be frozen at £85,000 and £83,000 respectively, instead of increasing each year in line with inflation. This will remain the case until March 2026.

Please note that since 1st January 2023, a new penalty regime has been in operation for late VAT return submission and late payment of VAT. You can find out about the new VAT penalty regime here.

Research & Development (R&D) Reliefs

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 230% to 186%.
  • 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.
  • 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.

From 1st August 2023, additional information requirements will need to be fulfilled when making a R&D claim.

Creative Industries Tax Reliefs

Filming

The government outlined that it will continue to support the creative industries by reforming and enhancing film, TV and video games tax reliefs. Expenditure credit will be introduced with a rate of 34% for film, high end television and video games, and 39% for the animation and children’s TV sectors. The qualifying threshold for high end television will be maintained at £1m.

The government will also extend the temporary higher rates of theatre, orchestra, and museums and galleries tax reliefs for a further 2 years, until April 2025, at their current 45% and 50% reliefs.

Investment Zones

The Government announced that it will establish 12 ‘Investment Zones’ across the UK with at least one investment zone each in Scotland, Wales, and Northern Ireland.

8 locations in England will be eligible to host a UK investment zone:

Greater Manchester
– Liverpool
– West Midlands
– North East
– South Yorkshire
– West Yorkshire
– East Midlands
– Teeside

Each investment zone will have access to £80m funding over 5 years and benefit from a package of tax reliefs including: relief from Stamp Duty Land Tax (SDLT), enhanced capital allowances for plant and machinery, enhanced structures and buildings allowances, and relief from secondary Class 1 National Insurance Contributions (NICs) for qualifying employers on the earnings of eligible employees up to £25,000 per annum.

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.

National Insurance Contributions (NICs)

Employer and employee NIC thresholds are frozen until 5th April 2028.

This broadly means that employers’ NIC will continue to apply at 13.8% to earnings in excess of £9,100 a year (£175 per week) and employees will continue to pay 12% on earnings between £12,570 and £50,270 and 2% thereafter.

National Insurance Contributions (NIC) for the Self-Employed

Electrician at work

Self-employed individuals are required to pay Class 2 and Class 4 NICs if their profits exceed £12,570. These NICs are usually collected with the individual’s income tax self-assessment payments.

For 2023/24, Class 2 NICs will be calculated at £3.45 per week and Class 4 NICs calculated at 9% on profits between £12,570 and £50,750, and at 2% on profits over £50,750.

Company Cars and Other Benefits

Employees are required to pay income tax on certain non-cash benefits and the provision of a company car constitutes a taxable ‘benefit in kind’.

Employers also pay Class 1A NIC at 13.8% on the value of benefits.

The set percentages used to calculate company car benefits are fixed until 5th April 2025 before slight increases apply to most car types, including electronic and ultra-low emission, from 6th April 2025.

From 6th April, the figures used to calculate benefits-in-kind on employer-provided vans, van fuel (for private journeys in company vans), and car fuel (for private journeys in company cars) will increase in line with the Consumer Price Index (CPI).

These will become:

–  Van benefit £3,960
– Van fuel benefit £757
– Car fuel benefit multiplier £27,800

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.

Alcohol, Tobacco and Fuel Duty

From 1st August 2023, the duty on draught products will be up to 11p lower than the duty in supermarkets. The alcohol duty freeze announced in December 2022 will remain in place until 1 August, after which duty will increase in line with inflation.

Tax on tobacco to increase by 2% above inflation, and 6% above inflation for hand-rolling tobacco

Fuel duty has been frozen for a further 12 months.

Science

£900m of funding has been committed to implement an Exascale supercomputer for Artificial Intelligence (“AI”) complex algorithms and the government announced a £1m annual prize to be awarded for the next 10 years to the person or team delivering the most ground-breaking British AI research – to be named “the Manchester prize”.

National Minimum Wage Increase

From 1st April 2023, the National Minium 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

The Full Spring Budget

We have outlined many of the key announcements made by the Chancellor affecting small businesses from the Spring Budget 2023. To see all the measures, visit the Government’s website to view the Budget in full.

Contact Leonherman’s Accounting Experts

If you have a question about any of the measures outlined by the Chancellor in the Spring Budget 2023, or if you think you need to act before April 2023, then don’t hesitate to let us know your query or call us on 0161 249 5040 to discuss your situation without delay with one of our team.

Important Disclaimer:

This material is published for client information. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. No responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by Leonherman.

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