The new UK Chancellor, Jeremy Hunt, delivered a fiscal statement on October 17th 2022, in a bid to reassure the markets and bring a degree of financial stability after Kwasi Kwarteng, the then Chancellor’s Mini-budget of September 23rd 2022 caused a period of economic turmoil for the UK. The Medium-Term Fiscal Plan is still scheduled to be announced on October 31st 2022. Further details of the new Chancellor’s October announcement can be found here.
What do we now know has changed in the corporate arena?
Corporation tax rate rise will go ahead
The planned increase of the main rate of corporation tax to 25% in April 2023 will go ahead.
The current rate for all companies is 19%, so this will be a substantial increase for many, and is expected to raise around £18 billion a year. However, it has been flagged for some time and most companies have already factored this into their planning scenarios. Many companies we spoke to had not been convinced that the increase would actually be scrapped, so those that did nothing and did not start updating their planning around the rate rise reversal have been vindicated. The introduction of a small profits rate of tax from April 1st 2023 (previously announced in the Spring Budget 2021), will now go ahead. Smaller businesses with less than £50,000 of profit will therefore continue to pay tax at 19%. Companies or groups with taxable profits between £50,000 and £250,000 per annum will pay tax at the 25% rate, reduced by a marginal relief. Companies or groups with taxable profits over £250,000 per annum will pay tax at 25%.
Annual Investment Allowance Increase Stays
The annual investment allowance for plant and machinery, which was due to revert to £200,000 on April 1st 2023, will remain at £1,000,000.
Chancellor Jeremy Hunt has confirmed in the UK Mini-budget update that this amendment will be kept. This is good news for those companies that were planning to take advantage of the increase. However, businesses will also want some certainty that the rate is here to stay for the long-term given the recent history. Certainty is vital for business planning, which of necessity must take a medium to long-term view.
Update to the Super-Deduction no longer required
The super-deduction is a tax incentive available from April 2021 to March 2023 which allows companies investing in qualifying new plant and machinery assets to claim:
– a 130% super-deduction on qualifying plant and machinery (normally eligible at 18%)
– a 50% first-year allowance for qualifying special rate pool assets (normally eligible at 6%)
The idea behind the super-deduction was to allow companies to cut their tax bills by up to 25p for every £1 they invested. It was introduced to incentivise current investment in plant and machinery, and sought to avoid an incentive to defer investment to take advantage of the expected tax rate increase to 25% in April 2023 when the relief would be of greater value.
As the corporation tax rate increase is now going ahead in April 2023, the proposed amendments are no longer needed.
Investment Zones Survive
The Investment Zone idea survives the government U-turn. The government still plans to fast-track infrastructure projects, including relaxing rules on onshore wind farms, as it hopes that this, plus the investment zones, will boost growth.
The proposed tax benefits on offer remain unchanged, but will remain subject to the passage of the relevant legislation through parliament.
Tax benefits being considered for businesses in a designated investment zone include:
- 100% business rates relief on newly occupied premises and for certain existing businesses expanding into the zone.
- full stamp duty land tax relief on land and buildings bought for use or development for commercial purposes.
- a zero rate for employer national insurance contributions on salaries of new employees working in the tax zone for at least 60% of their time, on earnings up to £50,270 per year.
- 100% first year enhanced capital allowance relief for plant and machinery used within designated sites.
- accelerated enhanced structures and buildings allowance relief of 20% per year on qualifying non-residential investment.
It will be interesting to see how the various measures fare in their passage through the parliamentary process. The pared-down set of measures now proposed have a much greater chance of successfully navigating parliament than the original proposals in the Mini-budget of 23 September 2022. We await further details in The Medium-Term Fiscal Plan, scheduled to be announced on October 31st 2022.
Contact our tax and accounting team today to continue the discussion!