Business Tax
In the second part of our series of posts in respect of the recent Budget, we take a look at changes made that may affect entrepreneurs and businesses, and we start with a quick look at Business Tax.
Corporation tax (CT) rates
The main rate of CT is 19% for the Financial Year (FY) beginning 1 April 2022. This rate will increase to 25% for the FY beginning on 1 April 2023.
If a company’s accounting period straddles more than one FY, the amount of profits for that accounting period must be apportioned to arrive at the tax rate charged.
A small profits rate will be introduced for qualifying companies with no associated companies in the accounting period and profits of £50,000 or less so that they will continue to pay CT at 19%. Companies with profits between £50,000 and £250,000 will pay tax at the main rate reduced by a marginal relief providing a gradual increase in the effective CT rate.
Annual Investment Allowance for Plant and Machinery
A further extension to the temporary increase in the Annual Investment Allowance (AIA) to 31 March 2023 allows 100% tax relief to businesses investing up to £1 million in qualifying expenditure.
The AIA reverts to £200,000 for expenditure incurred on or after 1 April 2023 and special rules apply to accounting periods which straddle these dates.
The “Super-deduction” for investment in new plant and machinery
It has previously been announced between 1 April 2021 and 31 March 2023 that companies investing in qualifying new plant and machinery will benefit from new first year capital allowances.
Under this measure a company will be allowed to claim:
- a super-deduction providing allowances of 130% on most new plant and machinery investments that ordinarily qualify for 18% main rate writing down allowances
- a first year allowance of 50% on most new plant and machinery investments that ordinarily qualify for 6% special rate writing down allowances.
This relief is not available for unincorporated businesses.
Preventing abuse of the R&D tax relief
From April 2023 a number of changes are proposed to the regimes from both existing schemes of relief which will include the expansion of relief to cloud and data computing.
Claims for relief will have to be made digitally and more detail will be required within the claim. Each claim will need to be endorsed by a named senior officer of the company and companies will need to inform HMRC, in advance, that they plan to make a claim. Claims will also need to include details of any agent who has advised the company on compiling the claim.
Cultural relief
A temporary increase in cultural tax reliefs for theatres, orchestras, museums and galleries across the UK will apply until 31 March 2024, increasing the relief organisations can claim as they invest in new productions and exhibitions.
From 1 April 2022 changes will also be introduced to better target the cultural reliefs and ensure that they continue to be safeguarded from abuse.
Residential Property Developer Tax
The Residential Property Developer Tax (“RPDT”) will be introduced on the very largest property developers for accounting periods beginning on or after 1 April 2022.
Broadly RPDT is a charge of 4% treated as corporation tax on the profits of the residential property developer over an allowance of £25 million in a 12-month period.
Increased Employment Allowance
Employers are able to claim the Employment Allowance which reduces their employer Class 1 NICs each year.
In the Spring Statement, the Chancellor announced an increase from April 2022 of £1,000 for eligible employers to reduce their employer NICs by up to £5,000 per year.
The allowance can be claimed against only one PAYE scheme, even if the business runs multiple schemes. Connected businesses, such as companies under the control of the same person or persons, are only entitled to one Employment Allowance between them.
VAT on energy saving materials
The Chancellor announced a UK wide, time-limited zero rate of VAT from April 2022 for the installation of energy-saving materials. This will apply to installations such as rooftop solar panels.
This is in addition to the extension of the VAT relief to include additional technologies and the removal of complex eligibility conditions.
Green reliefs for business rates
The government is introducing targeted business rates exemptions for eligible plant and machinery used in onsite renewable energy generation and storage, and a 100% relief for eligible low-carbon heat networks with their own rates bill. It was announced in the Spring Statement, that these measures will now take effect from April 2022, a year earlier than previously planned.
In our next post in this series, we’ll summarise the provisions in the recent Budget in respect of Employment Tax.
You should contact us before taking any action as a result of the contents of this summary.