The Chancellor's motto of "Enterprise, Education, Employment, Everywhere" seems to me a little optimistic so the title of this update is my attempt to moderate it. Listening to the Budget Speech one could be forgiven for thinking the Chancellor finds tax - and I don't know quite how to put this - boring? There were very few tax announcements in the speech itself, which majored on the Chancellor's report of the economy and the many and varied spending plans he has in mind. Extra childcare spending hit the headlines yesterday, and the Chancellor had plenty more to say than that. But we don't just listen to the speech here of course! We hit the documents. And in fact there were more tax changes than the speech would indicate.
If you're surprised by the lack of newly-announced tax increases, don't worry, we'll all be paying more tax due to the previously-announced freezing of many tax thresholds, and even the reduction of some allowances (CGT annual exemption and dividend exemptions). Sneaky stuff.
Some of the changes are big. But there's also a low-level thrum of technocratic improvements that we haven't seen as much of over the past few years. Small, incremental improvements to tax rules that aren't showy, will never hit the headlines, but just make things a bit better / easier / tighter. Call it tinkering if you like, but it's generally good to see (and I've picked out a couple below). Here's my usual summary of tax changes for business.
The increase of corporation tax to 25% is locked in. No grumbling at the back, it's happening, get used to it. But to sweeten the pill and to prevent a 'cliff edge' when the super-deduction regime comes to an end in April, the Chancellor announced a new regime which he dubbed 'full expensing', and which we might reasonably rename 'most expensing'. It amounts to three years of 100% capital allowances on qualifying plant and machinery, and 50% first year allowances on special rate (including long-life) assets. The question is: if it's not truly permanent, and it doesn't get cross-party support, will it actually incentivise long-term investment into the UK? The worst case scenario is that it just leads to a short term acceleration of investment that would have happened anyway. A return to stability and predictability would be very welcome.
On the techno-tinkering side, a whole raft of proposed tweaks to the Corporate Interest Restriction rules have been announced. Large multinational groups with substantial finance expenses taken against UK taxable profits may want to review their position.
This is a local tax system, for local people
Freed from the shackles of the EU the Government is keen to make a big play of its new-found liberties. April 2024 is being targeted for the abolition of UK tax reliefs for EU / EEA charities and the limiting of qualifying R&D spending to the UK (where previously spending in the EU / EEA could qualify).
Similar targeting is being applied to all of the cultural credits and tax reliefs (discussed below).
Catch them if you can
The tax 'avoidance' industry (in practice, some of it is barely distinguishable from evasion / fraud) still refuses to die, despite many years of legislation trying to do just that. The government plans to introduce new criminal offences for those who promote tax avoidance schemes after being formally told to stop. Maybe the threat of criminal sanction will change a few minds, even if it won't necessarily change hearts.
Remember that if someone tries to sell you something that sounds too good to be true, it probably is.
Cultural tax reliefs
In a week that has shown that the government and the media are - at best - uneasy bedfellows, Jeremy Hunt has decided to be the bigger person and extend or reform a number of the existing tax reliefs for various cultural outputs.
Film, tv, animation and children's tv reliefs will become a new Audio-Visual Expenditure Credit. Video games tax relief will be reborn as video games expenditure credit. The new regimes will come in from 2024, and affected sectors will no doubt be poring over the new regimes to check how they fare.
Temporary boosts to Theatre Tax Relief, Orchestra Tax Relief and Museums and Galleries Exhibitions Tax Relief will be extended at their current rate until April 2025, reducing in the year to April 2026 before dropping down to previous levels from April 2026.
Research & Development Tax Reliefs
As previously announced, the payable tax credit for loss-making companies who incur R&D expenditure is coming down from 14.5% to 10%. To soften this specifically for high-R&D SMEs the existing rate of 14.5% will be retained for loss-making companies if at least 40% of their total expenditure qualifies for R&D relief.
The government hasn't lost sight of its plans to merge the SME and expenditure credit regimes for R&D. That is still (lightly) pencilled in for April 2024, and we can expect draft legislation over the summer.
In addition to previously announced relaxations / higher limits for the tax-advantaged Company Share Option Plan (more commonly known as CSOP), some further welcome improvements were announced today to CSOP's more-generous younger sibling the Enterprise Management Incentives regime. None of these changes are earth shattering, but by removing a few conditions and time limits that were unnecessarily tight the government has made real improvements that will make these incentives easier to access. And most of these changes come in from April 2023.
A call for evidence has also been announced on the SIP and SAYE rules for non-discretionary share plans. All of the tax-favoured share incentive regimes have - to some extent - stagnated for years now, so this renewed interest seems positive.
First trailed in the infamous Kwarteng budget, the plan now is to identify 12 investment zones which will benefit from a package of tax reliefs including relief from business rates, employer's NICs, stamp duty land tax, and reliefs for capital investment. There will be a bid process to identify the lucky sites, across the whole UK.
Pensions Tax Changes
These also got some serious headlines when they were leaked yesterday. The key points are that:
- the lifetime allowance has been abolished
- annual allowances have been increased from £40k to £60k
- the tapering of the annual allowance for ultra-high earners has been eased somewhat
The lifetime allowance was always capable of having arbitrary effects so its abolition is welcome. But combining it with an increase to annual allowances looks like a substantial giveaway to a narrow (and surely grateful!) slice of the workforce. The intention seems to be to remove disincentives to work which hit some older, higher-earning individuals. However it's not immediately obvious that flinging money at that same group will keep them working for many years. It seems equally plausible that it's a very expensive way to entice people to work a couple more years before they retire in a much more comfortable fashion thanks to Mr Hunt's generosity.
(Image generated using midjourney.com)