By SARAH BALCHIN
WITH all the speculation around changes to personal tax in the run up to the Spring Budget, in the end, very little was said. No rate-change in capital gains tax, nor an introduction of a wealth tax or inheritance tax reforms.
Instead, we saw a freezing of personal allowances, the inheritance tax “nil rate band” and the income tax higher-rate threshold, along with the mortgage guarantee scheme and continuation (in part) of the higher Stamp Duty Land Tax nil rate band until September 30. But what are the core updates for UK businesses?
Business tax
The key change coming down the track is the corporation tax rate increase to 25 percent from April 2023 for businesses with profits over £250,000. The small company rate has also returned; businesses with profits of £50,000 or less will remain subject to the 19 percent rate. Taper relief will apply to those with profits between the £50,000 and £250,000 thresholds, providing a gradual increase in the effective corporation tax rate (with these thresholds being proportionately reduced for short accounting periods and group companies).
To balance this jump, Chancellor Rishi Sunak has announced the generous “super-deduction”, carry-back of losses, and further consultation on R&D reliefs, all of which operate to lower the effective rate of corporation tax.
The super-deduction will allow companies investing in new qualifying (main rate) plant and machinery from April 1 until March 31, 2023, to benefit from a first-year 130 percent capital allowance. Importantly, the relief won’t apply where a contract to acquire the plant/machinery was entered into before the Budget.
There is also a 50 percent first-year allowance for qualifying special rate assets, enhanced allowances within the new Freeport sites, and the retention of the £1m annual investment allowance until December 31.
Business will be able to carry back-trading losses for up to three years to set against profits of the same trade. This applies to losses incurred in accounting periods ending between April 2020 and the end of March 2022 for incorporated businesses (and in tax years 2020/21 and 2021/22 for unincorporated businesses), subject to a £2m cap for each year (with apportionment between group companies).
Other announcements included the extension of the five percent VAT rate for the tourism and hospitality sectors until September 30 (rising to 12.5 percent until March 31, 2022, before returning to the standard rate). There is also an increase in incentive payments under the apprenticeship scheme, and measures to further cut tax evasion and avoidance.
Incentives for entrepreneurs
The other positive news from the Budget was the call for evidence around the Enterprise Management Incentive regime, a tax-advantaged share option scheme aimed at employees of early-stage businesses. Now that the UK isn’t subject to EU State Aid rules, the government may seek to expand the scheme to include larger businesses, which are currently curtailed by the restrictions on gross assets (£30m) and number of employees (250 full-time equivalents). Hopefully, this means that employee share schemes will continue to play their part in driving growth for companies.
At the time of writing, a number of consultations are also due to be announced on March 23 (“Tax Day”), so only time will tell whether there are seismic changes to personal tax still to come.
* Sarah Balchin is a senior associate at Stevens & Bolton LLP.
