Investment zones
Twelve new ‘investment zones’ are to be created across parts of the UK. Government funding of around £80m will be available for each zone. The proposals are expected to be finalised by the end of this year but, broadly, the benefits for companies locating in these zones will include:
- A higher rate of tax relief on the cost of investing in commercial property (10% of the cost will be eligible for tax relief each year rather than the usual 3%).
- No stamp duty on the purchase of commercial property in the zone.
- No business rates on newly-occupied business premises (the idea here is to get businesses to move into the zone rather than reward companies already there!)
- No employer’s NI (usually 15.05% of salary) on any salaries of new employees on the first £25k of their annual salary (the employee will have to work in the ‘zone’ for at least 60% of their time).
R&D tax relief
Changes to how companies are rewarded for their R&D work had already been announced last autumn. Some amendments were made to that announcement which will be of benefit to ‘R&D-intensive’ companies – those in which at least 40% of their total annual expenditure is on qualifying R&D activities.
Currently, for every £100 an SME company spends on qualifying R&D activities, it gets tax relief on an additional 130%. So, spending £100 means tax relief on £230. From 1st April 2023, the 130% will be reduced to 86%, so they will only get tax relief on 186% of their expenditure. For companies paying 19% corporation tax this will mean that the tax benefit they receive from R&D activity will be reduced by a third.
For loss-making SMEs, the repayable R&D tax credit of 14.5% will be reduced to 10% from 1st April except for R&D-intensive companies (as defined above), where it will remain at 14.5%. this will preserve the R&D tax credit at its current level for such companies – these are likely to include loss-making start-ups where a high proportion of total expenditure (maybe well above the 40% threshold) is on R&D activity.
Some good news from an R&D point of view comes for large companies, with the R&D expenditure credit increased from 13% to 20%. There were also some restrictions on overseas R&D expenditure planned to come into effect this April, but those restrictions have now been pushed back to April 2024.
The process for submitting R&D claims is to change, with details of the tax agent, senior officer sign-off and descriptions of the R&D projects undertaken all needing to be included. This will take effect for R&D claims submitted from 1st August 2023.
Tax relief for assets bought
I won’t cover cars (including electric cars) here, as they are subject to different rules, but for general capital expenditure on assets such as plant and machinery, office equipment and fixtures and fittings the super-deduction (giving tax relief on 130% of the amount spent) ends on 31st March. tax relief will then be given on 100% of the expenditure. The current Annual Investment Allowance of £1m will be scrapped, so in the unlikely event that you did plan on buying (say) £3m of new equipment, you’d get immediate tax relief on the whole lot! The ‘unlimited’ amount will apply to assets bought between 1st April 2023 and 31st March 2026.
Tax fraud
The maximum sentence for the worst forms of tax fraud will double from seven years to fourteen years.
Annual pension contributions
So long as your total income for the tax year doesn’t exceed £240k you can currently put £40k p.a. into your pension. This will increase to £60k from 6th April 2023. Many clients get their limited companies to put contributions into their personal pension pots, so this increase in the annual allowance will enable profitable client companies to reduce their taxable profits by an additional £20k per annum for each director for which a full contribution is made.
The £240k mentioned above is to increase to £260k and, beyond this level, there’s a tapering of the maximum annual contribution.
Pension lifetime allowance
From 6th April 2023, the £1,073m lifetime cap on how much you can put into your pension (without having to pay an excess tax charge of up to 55% when you take it out) has been removed. You can now build a pension pot of unlimited size. Tax relief is available, of course, when you put money into your pension, so this policy will encourage taxpayers to continue working (and feeding their pension pots) beyond the point at which they reach the existing cap.
At present, you can take out 25% of your pension pot tax-free; the rest is subject to personal tax when you draw it. Under the new regime, the maximum you’ll be able to take out tax-free will be £268,275 (that’s 25% of the current £1.073m cap). So, if you did manage to build your pension pot to say £2m, you could take £268,275 tax -free and then draw the remainder over a period of year, paying income tax at 20% (if you keep your total income under the higher-rate threshold of £50,270).
Crypto-assets
Gains on the disposal of crypto-assets are subject to capital gains tax. At present, such gains (or losses) are recorded in the capital gains section of the self-assessment tax return. From 2024/25, gains and losses on crypto-assets will have to be separately disclosed on the tax return.
As well as the above, here’s a reminder of the announcements made last autumn which take effect from next month.
Corporation tax
For companies with taxable profits in excess of £250k p.a., the corporation tax rate increases from 19% to 25% as from 1st April. If taxable profit is £50k or below, the rate remains at 19%. For taxable profits between £50k and £250k, companies will pay a rate of between 19% and 25% (gradually increasing from 19% to 25% as profit climbs from £50k to £250k).
‘Additional rate’ of income tax
The 45% rate of income tax was initially abolished by Kwasi Kwarteng and then he did a U-turn. Jeremy Hunt has gone further, bringing the threshold at which this rate is paid down from £150,000 to £125,140.
Freezing thresholds
- Lots of tax thresholds have been frozen until 2028:
- The personal tax allowance will stick at £12,570
- The higher rate tax threshold remains at £50,270
- The national insurance thresholds stay the same
- Inheritance tax thresholds stay put
The impact of freezing all of these is that more people get dragged in to paying more tax – known as ‘fiscal drag’.
Dividend allowance shrinking
The first £2,000 of an individual’s annual dividend income is currently tax-free. From 6th April 2023 this will be reduced to £1,000 and then to just £500 from 6th April 2024.
Capital gains annual exemption cut
There were fears that the chancellor may significantly increase the rates of capital gains tax, aligning them with the more expensive rates of income tax. This didn’t happen, but the annual exemption (currently £12,300) will be cut to £6,000 from 6th April 2023 and then to just £3,000 from 6th April 2024. If you’re thinking of disposing of assets such as buy-to-let properties, you may want to do it this side of April.
Stamp duty
Cuts to stamp duty were announced by Kwasi Kwarteng in his mini-budget. These will remain in place but only until 31st March 2025.
Employment allowance
The first £5,000 of employer’s national insurance payable by a company is exempt from payment. One piece of good news is that this £5,000 exemption (it was recently increased from £4,000) will remain in place until 31st March 2026.
