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In an attempt to soften the impact on businesses of the hike in corporation tax to 25% the government will make changes to the capital allowance rules. From 1 April 2023, full expensing will replace the super deduction which comes to an end on 31 March 2023.
Only companies within the corporation tax regime will be able to benefit from the new full expensing rules. Unincorporated businesses cannot claim full expensing but are entitled to the Annual Investment Allowance (AIA) which offers the similar benefits as full expensing up to £1 million of expenditure.
Full expensing has been introduced from 1 April 2023 until 31 March 2026, allowing qualifying corporates to write off the full cost of qualifying plant and machinery in the first year via a 100% first-year allowance for main rate assets with no financial limit.
Companies investing in special rate (including long life) assets will continue to benefit from a 50% first-year allowance in the year of investment.
The government hopes make the full expensing rules permanent when fiscal conditions allow.
On the face of it, the new full expensing rules look like a much more generous relief to businesses. However, given the AIA already provided businesses with relief (up to £1 million of expenditure), it appears the full expensing rules will only really impact a small proportion of larger businesses that spend more than £1 million on plant and machinery and whom are likely to be paying corporation tax at the full 25% rate from the 1 April 2023.
Therefore, it appears the new full expensing rules will have limited impact on SMEs. As with all new rules, the devil will be in the detail, but it will certainly be important that businesses categorise expenditure correctly and consider which of the AIA and full expensing options give them the best outcome.
Back to top: Explore all Spring Budget measures announced
Small and medium-sized enterprises (SMEs) claiming research and development (R&D) tax credits were the biggest losers in Autumn Statement 2022. They are the bigger winners in Spring Budget 2023. From 1 April 2023, loss-making R&D intensive SMEs can claim £27 for every £100 of R&D investment.
R&D intensive loss-making SMEs will be able to claim a higher tax benefit than SMEs that are not R&D intensive. An R&D intensive SME must spend at least 40% of its total costs on qualifying R&D.
This is better than non-R&D intensive SMEs that will only be able to claim £18.60 for every £100. However, for the past few years loss making SMEs have been able to claim £33.35 for every £100 of qualifying expenditure. So, while they are still winners, the reality is that all SMEs have lost out from the changes announced in the past six months.
Might this incentivise some companies to inflate their costs to benefit from this additional payment? What impact will that have on HMRC’s ability to monitor? Will this increase the number of HMRC enquiries?
SMEs might be forgiven for thinking that this government is not really serious about their role in the UK’s innovation ecosystem. The government predicts 11,000 companies will benefit. Time will tell whether they will step forward.
You can find further details about the upcoming changes in our insight: Research and development tax relief changes from 1 April 2023.
The government considers the creative taxes sector to be one of the four future sectors in the UK and has signalled its intent to further support qualifying companies. It wants to accelerate the progress of the technologies that will define this century.
Following a recent consultation, the government has announced that audiovisual tax reliefs will be reformed. The government favours the research and development expenditure credit (RDEC) model for supporting companies and so audiovisual reliefs will switch to a credit of 34% of qualifying costs up from 25%. The minimum spend threshold of £1 million will also not change, which is a welcome relief for the film and TV production community. The government estimates this will cost around £150 million over the period to 2027-28.
Theatres, orchestras, museums and galleries will also be relieved that the temporary higher rates they have enjoyed are being extended for two more years from April 2023.
To further emphasise its intent the government has announced that Professor Dame Angela McLean will oversee a review of creative industries, so more changes will follow.
We await ‘L’ day this summer to receive the full detail of the changes to audiovisual reliefs, which are due to have an effect from January 2024, but companies in all creative tax sectors will welcome this news.