Blog

Tax Bite - Budget March 2023

Tax Bite - The Budget

The Budget of 15 March was relatively benign in terms of major tax announcements for business but did have a few welcome highlights. There were no changes made to the headline tax rates – so corporation tax will still increase to 25% from 1 April for companies with annual profits in excess of £250k – and BADR was left untouched.

Full expensing

The main announcement for corporation tax was a move to “full expensing” announced initially for a three year period from 1 April 2023, but with the expectation it may become permanent. The aim is to encourage investment by businesses, with capital costs able to be set off against profits sooner than is currently the case. Presently there is an investment allowance of £1m per year, which effectively allows “full expensing” for expenditure up to that limit. The new regime will not be capped but will only apply 100% deductions for new (i.e. not second hand) “main rate” plant and machinery, but excludes cars and anything that is bought to lease to someone else. “Main rate” plant and machinery is anything that would qualify under current rules for the more generous 18% writing down allowances. There is also a new 50% first year deduction allowed for new “special rate” plant and machinery (which is anything that would qualify under current rules for the existing 6% writing down capital allowance), with the remaining balance then subject to the existing 6% writing down allowances in subsequent years. This change is aimed at big business as the majority of companies could already achieve “full expensing” through the £1m annual investment allowance, but is a welcome measure to try to encourage investment to deliver growth.

Improved R&D relief for R&D intensive SMEs

As well as the previously announced extension of R&D reliefs to include the costs of datasets and cloud computing (with effect from 1 April 2023), a new announcement was made that means that for expenditure on or after 1 April 2023 R&D intensive SMEs will benefit from a higher rate of payable tax credit of 14.5% (which is the old tax credit rate that applied to SMEs generally, prior to its reduction (to 10%) as part of the Autumn Statement in 2022). To be R&D intensive a company’s R&D expenditure must broadly be more than 40% of its total expenditure. Claims cannot be made for the increased amount until the new rules are in place, but HMRC has said that a claim could initially be made at the current rates with an amendment made to that claim in due course to get the increased benefits. This change seems designed to prevent R&D intensive businesses from relocating after the general reduction in R&D allowances made as part of the Autumn Statement last year.

Relaxation of certain administrative requirements in relation to EMI options

• The requirement to include within the option contract details of any restrictions that apply to the shares is to be dropped from 6 April 2023. This means the option contract can be simpler, although as best practice optionholders should be directed to the articles of the company (as we used to do pre-2016) so they have an awareness of the rights and restrictions applying to the relevant shares. Even better news is that the announcement indicated that this change will apply to all existing, unexercised EMI options too. This rule has been a thorn in the side of the EMI regime for a number of years, with companies and advisors often overlooking it regularly leading to questions about the tax treatment of the options.
• Requirements around the employer company making declarations about the working time requirement, and penalties if the requirements around this declaration are not met, are also to be removed. This does not change the working time requirement itself, which still must be met in each case, but is a welcome relaxation which will streamline the option grant process but otherwise we do not anticipate this will have much impact as in our experience the company declaration was usually made.
• From 6 April 2024, the EMI notification deadline will be extended, from its current period of 92 days from the date of grant, to any time before the 6 July following the tax year in which the option was granted. An option must be notified to HMRC within this window as a qualification condition for EMI treatment. At its longest this would give a 15 month window to notify the grant of an option. Whether this change will lead to more companies complying with this requirement remains to be seen and, for options granted in the 2023/24 tax year, the existing 92 day window continues to apply.