Spring budget special

A) Capital allowance: full expensing

Companies incurring qualifying expenditure on the provision of new plant and machinery on or after 1 April 2023, but before 1 April 2026 will be able to claim one of two temporary first-year allowances:

• A 100% first-year allowance for main rate expenditure (full expensing)
• A 50% first-year allowance for special rate expenditure

B) Research and development (R&D) reliefs

From 1 April 2023, a number of changes are coming to the R&D tax relief regime and claimant companies should consider obtaining updated advice if they’ve not already done so.

The key changes are:   

• 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 three years) will be required to inform HMRC of their intention to make a R&D claim within six months of the end of the accounting period to which the claim relates

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

C) Corporation tax

• From 1 April 2023, the rate of corporation tax will increase to 25% if a company’s profits exceed £250,000 a year. The current 19% rate, however, will continue to apply where profits are no more than £50,000 a year. 
• Where a company’s profits fall between £50,000 and £250,000 a year, the profits are taxed at the higher 25% rate, but a ‘marginal relief’ is given to reduce the liability, with the effective rate being closer to 19% for those with profits just over £50,000.
• Companies in the same corporate group (or otherwise connected by association) must share the £50,000 and £250,000 thresholds between them, making the 25% rate more likely to apply.

D) Value added tax (VAT)

• All VAT rates remain unchanged with the registration threshold already frozen at £85k until 2026.

E) Employment taxes

• Reform of company share option plan rules: The Spring Finance Bill 2023 will include changes to company share option plan (CSOP) rules, previously announced in September 2022. Qualifying companies will be able to issue up to £60,000 of CSOP options to employees, double the current £30,000 limit, from 6 April 2023.
• Enterprise management incentives: changes to the process of granting options: Simplifications will also be made to the process to grant Enterprise Management Incentive (EMI) options. From 6 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.
• National insurance contributions: Employer and employee national insurance contribution (NIC) thresholds are now also frozen until 5 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.

F) Venture capital schemes

The government is increasing the generosity and availability 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 three years (increased from two years) of trade commencing. In a bid to support these changes, the annual investor limit will be doubled to £200,000. The changes take effect from 6 April 2023.

G) Investment zones

The government will establish 12 ‘investment zones’ across the UK, including a promise to have at least one in Scotland, Northern Ireland and Wales. Each successful zone will have access to £80m funding over five years and benefit from a package of tax reliefs. These include 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.

A) Capital gains tax

The Chancellor announced that the £12,300 annual tax-free capital gains tax exemption (or allowance) will be reduced to just £6,000 in 2023/24 and only £3,000 in 2024/25. This change will mean that those disposing of capital assets will pay more tax, where the new lower allowance is exceeded.

Couples who are in the process of separating, or who have commenced divorce proceedings, need to be aware of new rules taking effect from 6 April 2023 concerning the transfer of capital assets between them as a result of their separation.

B) Inheritance tax

In the 2023 Autumn Statement, the inheritance tax nil rate band was frozen at £325,000 until April 2028. The residence nil rate band will also remain at £175,000 and the residence nil rate band taper will continue to start at £2 million.

C) Income tax

The personal allowance and basic rate band threshold are now frozen in place until 5 April 2028. As earnings increase, individuals will move into higher tax bands. This is often referred to as ‘fiscal drag’ because it will raise more tax without the government increasing income tax rates.

The personal allowance continues to be partially and then fully withdrawn for higher earners, with £1 of personal allowance lost for every £2 of adjusted net income over £100,000.

D) Savings tax reliefs

The starting rate for savings will be frozen at £5,000, enabling individuals with less than £17,570 in employment income to receive up to £5,000 of savings income free of tax. Annual subscription limits for Junior Individual Savings Accounts (ISA) and Child Trust Fund accounts will remain at £9,000 and the annual subscription limit for adult ISAs will remain at £20,000 (para. 4.37 of the Budget document).

We have summarised below some key dates that businesses and individuals should be aware of as we approach the end of financial year 2022/23.