With the upcoming increase in the rate of corporation tax, the Chancellor was under pressure to do something to take the edge off it.

An incentive to invest

The main move was to incentivise business investment with the announcement of a full expensing policy for qualifying plant and machinery – this was both in an attempt to boost economic growth and to balance the looming end to the super-deduction, although in the same way, this will only apply to companies and to expenditure which would otherwise fall into the main pool.

For companies paying corporation tax at the main rate, this will provide a 25% tax saving on capital spend (in line with what they would have received with the super-deduction). That said, with only 10% of companies expected to fall within that bracket, the majority of the companies expected to benefit from this will do so at either the starting rate of corporation tax (19%) or the marginal rate (26.5%).

With the immediate relief comes an immediate claw back – on the disposal of an asset which has been fully expended, the proceeds will generate a balancing charge in full at that time, rather then simply being added to the main pool.

This change will come into effect from 1 April 2023 and, although it is currently time limited and due to end on 31 March 2026, there is the stated intention for this to become permanent.

For those companies incurring expenditure on special rate pool assets (commonly integral features such as air conditioning, electrical systems etc), the 50% first year allowance which was due to expire on 31 March 2023 has been extended to 31 March 2026.

Partnerships and sole traders who are not eligible for these reliefs, will continue to benefit from the annual investment allowance which will remain at £1 million.

Additional benefit for R&D intensive SME’s

A number of changes announced at the Autumn Statement 2022 are due to come into effect from 1 April 2023 which effectively reduced the benefit available under the SME scheme and increased the benefit under the RDEC scheme.

In what can only be seen as a slight reversal of this, the Chancellor announced a change for loss making SME’s which spend 40% of their total expenditure on R&D – although this does not impact on the reduction of the additional deduction (which from 1 April 2023 is reduced from 130% to 86%) it reinstates the rate of the repayable tax credit to 14.5% (which was due to be reduced to 10%). In effect this provides a repayable credit worth £27 for every £100 spent – a reduction on the previous rate of £33, but still better than the intended move to £18.

The quirk in all this is that, although this change will take effect from 1 April 2023, a claim can not be made until the legislation is in place, and this is only going to be issued for consultation in the summer of 2023. Whether companies fall into the black hole this creates is yet to be seen.

Equity reward and investment

There have been a number of tweaks around the edges of the incentive and investment schemes for companies.

The most significant was around the Seed Enterprise Investment Scheme (‘SEIS’) provisions. These saw changes to allow more companies to qualify, with the gross asset limit being increased from £200,000 to £350,000, the age limit on a qualifying trade being increased from two to three years and an increase in the limit which a company can raise from £150,000 to £250,000. In addition, from an investor’s perspective, the annual limit was doubled to £200,000. All of these changes take effect from 6 April 2023.

Very minor changes were announced to the Enterprise Management Incentive (‘EMI’) scheme, which very slightly simplify  changes to the process required from 6 April 2023 – from that date, any options granted will no longer need to set out details of share restrictions within option agreements and the company will no longer need to declare that an employee has signed a working time declaration (although that condition will still need to be met). More critically though, from 6 April 2024 the requirement to notify HM Revenue & Customs of an EMI option within 92 days of them being granted will be moved to 6 July following the end of the tax year – this neatly ties in with other employer share annual reporting.

If you would like to discuss this in further detail, please get in touch with your usual contact or e-mail us at experts@tacs.co.uk.