In the next few posts in our series about the recent Budget, we take a look at announcements and changes that may affect entrepreneurs and businesses.
Business Tax
Corporation tax rates
The expected increase in the rate of corporation tax for many companies from April 2023 to 25% will go ahead. This means that, from April 2023, the rate will increase to 25% for companies with profits over £250,000.
The 19% rate will become a small profits rate payable by companies with profits of £50,000 or less. Companies with profits between £50,001 and £250,000 will pay tax at the main rate reduced by a marginal relief, providing a gradual increase in the effective corporation tax rate.
If a company has associated companies, the amounts of £50,001 and £250,000 will be divided equally between the company and its associated companies.
Capital allowances
The super-deduction regime, which gives a 130% enhanced first year allowance (FYA) to companies on the purchase of qualifying plant and machinery, comes to an end on 31 March 2023.
Instead, the government has announced Full Expensing, a 100% FYA, which allows companies to deduct the cost of qualifying plant and machinery from their profits straight away with no expenditure limit. Qualifying expenditure will include most plant and machinery, as long as it is unused and not second-hand, but will not include cars.
Full Expensing will be effective for acquisitions on or after 1 April 2023 but before 1 April 2026. A 50% FYA for other plant and machinery including long life assets and integral features (known as special rate assets) will operate along similar lines. Full Expensing and the 50% FYA are only available for companies and not for unincorporated businesses, such as sole traders, partnerships and limited liability partnerships.
The Annual Investment Allowance (AIA) is available to both incorporated and unincorporated businesses. It gives a 100% write-off on certain types of plant and machinery up to certain financial limits per 12-month period. The limit has been £1 million for some time but was scheduled to reduce to £200,000 from April 2023. The government has announced that the temporary £1 million level of the AIA will become permanent and the proposed reduction will not occur.
The government will also extend the 100% FYA for electric vehicle charge points to 31 March 2025 for corporation tax purposes and 5 April 2025 for income tax purposes.
The AIA amounts to full expensing for 99% of businesses. The long-term ambition is to make Full Expensing and the 50% FYA permanent.
Employment Tax
Taxable benefits for company cars
The rates of tax for company cars remain frozen until 2024/25. Future car benefit rates have been announced for 2025/26 to 2027/28:
The charge for electric cars will rise from 2% to 5% over that period.
For cars with emissions of 75gm/km and above, there will be a 1% rise in 2025/26 only, subject to a maximum of 37%.
From 6 April 2023 the figure used as the basis for calculating the benefit for employees who receive free private fuel from their employers for company cars is increased to £27,800.
Taxable benefits for company vans
For 2023/24 the benefit increases to £3,960 per van and the van fuel benefit charge where fuel is provided for private use increases to £757. If a van cannot in any circumstances emit CO2 by being driven, the cash equivalent is nil.
As always, the contents of this post are meant as guidance only and if you have any concerns or wish to discuss any of the issues arising, please get in touch.