Corporate Tax Rate Reversed
The main rate of corporation tax will no longer rise to 25% in April 2023, but will remain at 19%. The tax rate for diverted profits tax will now remain at 25%, maintaining the current 6% differential with the main corporation tax rate.
The bank corporation tax surcharge will remain at 8%, making the combined rate of tax on profits paid by affected banks and building societies 27%. However, the level at which the bank surcharge takes effect will be increased to £100 million.
Given the likely timing of the next Finance Bill (normally July), the changes are expected to be provisionally introduced by way of the Provisional Collection of Taxes Act 1968.
This will have a significant impact upon deferred tax balances in company financial statements, as it will need to be reflected in the rates used to calculate deferred tax once the rate is substantively enacted.
Capital Allowances - AIA Increase, Super deduction changes
Annual Investment Allowance
The temporary increase in the limit of the Annual Investment Allowance (AIA) of £1 million per annum will be made permanent.
This measure will continue to benefit businesses investing in qualifying plant and machinery in the period from 1 April 2023 and provide greater stability for planning investments. The AIA level will be of particular benefit to businesses investing up to £1 million per annum on plant and machinery.
Amendment to super-deduction rules
As a consequence of reversing the planned increase in Corporation Tax from 1 April 2023, the government has announced that some amendments will be made to the current rules in respect of the super-deduction to ensure that the enhanced relief will operate as originally intended. No details have been provided at this stage.
The changes are likely to apply in respect of:
- Calculating the disposal value of assets on which the super-deduction has been claimed for chargeable periods ending after 1 April 2023
- Adjustments that can apply for situations where qualifying expenditure was incurred in the temporary first year allowance period, and the chargeable period ended after 1 April 2023, but a reduced super-deduction applied.
New Investment Zones
The Chancellor announced the creation of low-tax, low-regulation investment zones in every part of England “as quickly as possible”, with the aim of encouraging rapid development and business investment. The government is in discussions with 38 local authorities, including Greater London, Liverpool, Greater Manchester, Cornwall, the West Midlands, Cumbria, the Tees Valley, West Yorkshire and Norfolk.
For 10 years, businesses in designated areas in investment zones will benefit from:
- 100% first year enhanced capital allowance relief for plant and machinery used
- Accelerated Enhanced Structures and Buildings Allowance relief of 20% per year
- 100% relief from business rates on newly occupied business premises and some existing businesses expanding into an Investment Zone tax site
- Full stamp duty land tax relief for land and buildings for commercial purposes, and for land or buildings for new residential development
- A zero rate for Employer National Insurance contributions for new employees working in the tax site for at least 60% of their time, on earnings up to £50,270 per year.
Local authorities hosting Investment Zones will receive 100% of the business rates growth above an agreed baseline for 25 years. Subject to demonstrating readiness, Mayoral Combined Authorities hosting Investment Zones will receive a single local growth settlement in the next Spending Review period.
In designated development sites, more land will be released for housing and commercial development. The need for planning applications will be minimised and applications streamlined. Development sites may be co-located with, or separate to, tax sites, depending on what makes most sense for the local economy.
The government will work with the devolved Scottish, Welsh and Northern Ireland governments to create investment zones in those regions.
CSOP / SEIS /VCT changes
Enterprise Incentives
The government aims to help businesses in the UK to grow through a number of changes to existing enterprise incentives. It is increasing the generosity and availability of the Seed Enterprise Investment Scheme (SEIS) and the Company Share Option Plan (CSOP), designed to improve ability of the UK to raise money, attract talent, grow and succeed.
CSOP
A CSOP is a tax-advantaged employee share plan allowing companies to grant options to employees which confer certain tax benefits. Companies can currently grant qualifying CSOP options over shares worth up to £30,000 to each eligible employee. This limit has applied since the introduction of the CSOP in the 1995 and has, therefore, been eroded through inflation.
Today, the government announced that the personal CSOP limit will be doubled to £60,000 from April 2023. This should make CSOP more attractive to companies looking to incentivise employees using options, in particular for senior executive schemes.
There are certain conditions which must be met in relation to the shares which are subject to CSOP options. These are known as the “worth having” conditions. In essence, these conditions require CSOP options to be granted over a class of shares that overall control the company or that are held in the majority by investors. In some cases, these “worth having” conditions can mean that VC backed companies do not have a class of share that can be used to grant CSOP options.
Addressing this issue, the government has announced that the “worth having” conditions for CSOP will be removed for options granted from 6 April 2023. The details of any change to these rules will need to be considered carefully, but it will allow many more companies to use CSOP in order to incentivise staff as well as providing flexibility for companies to grant options more flexibly over an appropriate share class.
SEIS
Companies can currently raise up to £150,000 of SEIS investment. As announced today, the amount that companies may be able to raise under SEIS will be increased by two-thirds to £250,000. Companies that qualify for SEIS will therefore have access to a larger amount of funds that they can then invest.
There is also an annual limit on how much an individual can invest in SEIS shares, which has been doubled to £200,000.
Currently, only companies with gross assets below £200,000 at the date of investment can raise funds under SEIS. Under the new measures, this limit will be increased to £350,000.
Another qualifying rule for SEIS is that companies must not have been trading for more than two years: this period will be increased to three years.
Both of these changes should allow more companies to qualify for SEIS and, in total, the government estimates that these changes from 6 April 2023 will help over 2,000 companies a year that use the scheme to grow.
EIS and VCT Tax Relief
The government remains supportive of the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT) and sees value in extending them in the future (beyond their current 2025 expiry date).
If you have any questions, please contact Claire McGuigan or Karen Doherty.
With thanks to our colleagues in BDO UK.