Business

Capital allowances

The super-deduction regime, which gives a 130% enhanced first year allowance to companies on the purchase of qualifying plant and machinery, comes to an end on 31 March 2023.

Instead, the government has announced Full Expensing, a 100% first year allowance, which allows companies to deduct the cost of qualifying plant and machinery from their profits straight away with no expenditure limit.

Qualifying expenditure will include most plant and machinery, as long as it is unused and not second-hand, but will not include cars. Full Expensing will be effective for acquisitions on or after 1 April 2023, but before 1 April 2026.

A 50% first year allowance for other plant and machinery, including long life assets and integral features (known as special rate assets) will operate along similar lines.

Full Expensing and the 50% first year allowances are only available for companies and not for unincorporated businesses.

The Annual Investment Allowance (AIA) is available to both incorporated and unincorporated businesses. It gives a 100% write-off on certain types of plant and machinery up to certain financial limits per 12-month period.

The limit has been £1 million for some time but was scheduled to reduce to £200,000 from April 2023. The government has announced that the temporary £1 million level of the AIA will become permanent and the proposed reduction will not occur.

The government will also extend the 100% first year allowance for electric vehicle charge points to 31 March 2025 for corporation tax purposes and 5 April 2025 for income tax purposes.

 

Research and Development (R&D Relief)

For expenditure on or after 1 April 2023, the Research and Development Expenditure Credit (RDEC) rate will increase from 13% to 20%, but the small and medium-sized enterprises (SME) additional deduction will decrease from 130% to 86% and the SME credit rate will decrease from 14.5% to 10%.

A higher rate of SME payable credit of 14.5% will apply to loss-making SMEs which are R&D intensive.

To be R&D intensive the ratio of the company’s qualifying R&D expenditure must be 40% or above the company’s ‘total expenditure’ for the period. This equates to a receipt of £27 for every £100 of R&D expenditure.

All claims for R&D reliefs will have to be made digitally and be accompanied by a compulsory additional information form.

Companies will also need to notify HMRC that they intend to make a claim within six months of the end of the period of account to which the claim relates.

These changes apply to claims in respect of accounting periods which begin on or after 1 April 2023 apart from the additional information form, which will be required for claims made on or after 1 August 2023.

The restriction to relief on overseas expenditure, designed to refocus support towards UK innovation, will now come into effect from 1 April 2024 instead of 1 April 2023.

 

Making Tax Digital (MTD) for income tax

The MTD regime that has been continuously postponed for the last few years is now set to be introduced from April 2026, with businesses, self-employed individuals and landlords with income over £50,000 mandated to join first, a change from the original £10,000 limit.

Those with income over £30,000 will be mandated from April 2027.

Following the new approach, the government will not extend MTD for ITSA to general partnerships in 2025.

HMRC has previously announced that MTD for corporation tax will not be mandated before 2026. This now looks even further away.

Capital allowances

The super-deduction regime, which gives a 130% enhanced first year allowance to companies on the purchase of qualifying plant and machinery, comes to an end on 31 March 2023.

Instead, the government has announced Full Expensing, a 100% first year allowance, which allows companies to deduct the cost of qualifying plant and machinery from their profits straight away with no expenditure limit.

Qualifying expenditure will include most plant and machinery, as long as it is unused and not second-hand, but will not include cars. Full Expensing will be effective for acquisitions on or after 1 April 2023, but before 1 April 2026.

A 50% first year allowance for other plant and machinery, including long life assets and integral features (known as special rate assets) will operate along similar lines.

Full Expensing and the 50% first year allowances are only available for companies and not for unincorporated businesses.

The Annual Investment Allowance (AIA) is available to both incorporated and unincorporated businesses. It gives a 100% write-off on certain types of plant and machinery up to certain financial limits per 12-month period.

The limit has been £1 million for some time but was scheduled to reduce to £200,000 from April 2023. The government has announced that the temporary £1 million level of the AIA will become permanent and the proposed reduction will not occur.

The government will also extend the 100% first year allowance for electric vehicle charge points to 31 March 2025 for corporation tax purposes and 5 April 2025 for income tax purposes.

 

Research and Development (R&D Relief)

For expenditure on or after 1 April 2023, the Research and Development Expenditure Credit (RDEC) rate will increase from 13% to 20%, but the small and medium-sized enterprises (SME) additional deduction will decrease from 130% to 86% and the SME credit rate will decrease from 14.5% to 10%.

A higher rate of SME payable credit of 14.5% will apply to loss-making SMEs which are R&D intensive.

To be R&D intensive the ratio of the company’s qualifying R&D expenditure must be 40% or above the company’s ‘total expenditure’ for the period. This equates to a receipt of £27 for every £100 of R&D expenditure.

All claims for R&D reliefs will have to be made digitally and be accompanied by a compulsory additional information form.

Companies will also need to notify HMRC that they intend to make a claim within six months of the end of the period of account to which the claim relates.

These changes apply to claims in respect of accounting periods which begin on or after 1 April 2023 apart from the additional information form, which will be required for claims made on or after 1 August 2023.

The restriction to relief on overseas expenditure, designed to refocus support towards UK innovation, will now come into effect from 1 April 2024 instead of 1 April 2023.

 

Making Tax Digital (MTD) for income tax

The MTD regime that has been continuously postponed for the last few years is now set to be introduced from April 2026, with businesses, self-employed individuals and landlords with income over £50,000 mandated to join first, a change from the original £10,000 limit.

Those with income over £30,000 will be mandated from April 2027.

Following the new approach, the government will not extend MTD for ITSA to general partnerships in 2025.

HMRC has previously announced that MTD for corporation tax will not be mandated before 2026. This now looks even further away.

Business Tax

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