On 22 November 2023, the Chancellor of the Exchequer, Jeremy Hunt, delivered his Autumn Statement. Full details of the Autumn Statement measures can be found here.
The Chancellor emphasised his commitment to improving business growth and productivity. He introduced measures around capital allowances and late payment of invoices that could affect companies operating in the project finance sector.
The business headline measure in the Autumn Statement was the extension of the Full Expensing regime for capital allowances indefinitely. This scheme had been due to end on 31 March 2026 and this date will now be removed from the legislation.
With Full Expensing, companies can claim 100% capital allowances on new qualifying main rate pool plant and machinery in the year of investment. This equates to a 100% first year allowance for eligible expenditure. This means companies could be rewarded with up to 25p off their tax bill for every £1 that they invest.
This does not yet mean the abolition of writing down allowances as:
- For historic pooled expenditure the writing down allowances will continue as before.
- Full Expensing is not right for every business as the interaction with the UK’s loss relief rules means that some businesses will be better off with writing down allowances, taking relief more steadily over the life of a project rather than front loading relief.
- Special rate pool asset additions qualify for 50% expensing, now indefinitely, with the remaining 50% of expenditure entering the pool for writing down allowances.
- Other forms of capital expenditure, such as assets which qualify for the structures and buildings allowance, will be unaffected by the new legislation.
Late Payment of Invoices
From April 2024, firms bidding for government contracts over £5 million will have to demonstrate that they pay their own invoices within an average of 55 days, tightening to 45 days in April 2025, and to 30 days in the coming years.
The Chancellor announced his commitment to Investment Zones, announcing a new one in Wrexham in the Autumn statement speech itself, and confirming the next set in Greater Manchester, the West Midlands and the East Midlands.
- The Greater Manchester Investment Zone will focus on advanced manufacturing and materials and local partners expect it to help to leverage £1.1 billion in private investment and help to create 32,000 jobs in the region over the next 10 years.
- The West Midlands Investment Zone will focus on advanced manufacturing and local partners expect it to help to leverage £2 billion in private investment and help to create 30,000 jobs in the region over the next 10 years.
- The East Midlands Investment Zone, with a focus on green industries and advanced manufacturing, is expected by local partners to help to leverage £383 million in private investment and help to create 4,200 jobs in the region over the next 10 years.
Research and Development
Further changes to the Research and Development tax regime were announced for April 2024, intended to simplify the system, provide greater support for UK companies and drive innovation.
The existing Research and Development Expenditure (RDEC) and SME schemes will be merged, with expenditure incurred in accounting periods beginning on or after 1 April 2024 claimed under the merged scheme. Merging schemes is a significant tax simplification, including an aligned set of qualifying rules and a more visible above the line credit.
The notional tax rate applied to loss-making companies in the merged scheme will be lowered from 25% as per the current RDEC scheme, to 19%. The intensity threshold in the R&D intensives scheme will also be reduced from 40% to 30% for accounting periods that start on or after 1 April 2024. One of the objectives is to equalise the benefit for loss making companies with the benefit for profitable companies, so loss-making companies receive more cash benefit up-front.
Energy Profits Levy (EPL)
The government introduced the EPL on 26 May 2022 to respond to exceptionally high prices that meant oil and gas companies were benefiting from profits above and beyond what they might have expected to earn. The levy rate is currently 35%, and is due to end on 31 March 2028.
The government announced that the levy would permanently end if average oil and gas prices are at or below the Energy Security Investment Mechanism (ESIM) price for 2 consecutive quarters. At the Autumn Statement 2023, details regarding the ESIM have been published.
Electricity Generator Levy (EGL)
A new exemption from the EGL is being introduced for renewable generation projects which create a new electricity generating station or expand an existing generating station where the substantive decision to proceed is made on or after 22 November 2023.
New electricity generating projects will include new standalone stations, capacity increases and wholescale replacement of electricity generating plant at existing stations. This will benefit solar and offshore wind projects.
OECD Pillar 2 Global Minimum Tax
The government has confirmed that it will introduce the Undertaxed Profits Rule for accounting periods beginning on or after 31 December 2024 as part of its commitment to the OECD’s global minimum tax framework.
One of the Chancellor’s headline announcements for companies was making Full Expensing for capital allowances permanent. In practice, for project finance companies, the timing of capital expenditure is often inflexible and driven by non-tax requirements.
Take up to date since the regime was introduced in April 2023 has been low in the project finance sector. The interaction with the UK’s carried forward loss restriction rules may make claiming the proposed reliefs more expensive in tax terms for some companies than choosing not to claim them, so we will wait to see whether making this allowance permanent increases take up of the relief within the sector.
If you have any questions on how the proposed measures might affect your business, please contact us today!