The UK Chancellor of the Exchequer, Kwasi Kwarteng, delivered his Mini-budget on 23 September 2022. The full suite of documents can be found here. The proposed tax measures of particular interest to companies involved in the project finance arena are discussed below.
Corporation tax rate rise scrapped
‘The planned increase of the main corporation tax rate to 25% in April 2023 has been scrapped. This means that the main corporation tax rate will remain at 19%, regardless of the size of a company’s profits. The 19% rate is currently the lowest in the G20.’
While many companies will want to assess their bids and ongoing projects regarding corporation tax costs in light of the announcement, consideration should also be given to deferred tax liabilities and assets.
Companies with deferred tax liabilities will see those decrease in value in line with the rate reduction, which will be welcome news. However, those with deferred tax assets will see value wiped off those assets, and the overall net assets on their balance sheets will decrease in value.
Annual Investment Allowance
‘The annual investment allowance for plant and machinery, which was due to revert to £200,000 on 1 April 2023, will remain at £1,000,000.’
While this will be welcome news for companies investing in plant and machinery, this allowance has oscillated since its introduction in 2008, ranging from just £25,000 to the £1,000,000 we see today. Businesses will want to take advantage of the increased allowance where it fits with their business plans. 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 must take a medium to long-term view.
Update to the Super-Deduction
The super-deduction is a tax incentive available between April 1st, 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 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.
Clause 4.16 of The Growth Plan 2022, notes that: “The government will amend some of the technical provisions for the super-deduction as a consequence of the Corporation Tax rate being retained at 19% from 1 April 2023. This will ensure that the relief continues to operate as intended”.
While the corporation tax rate increase has been cancelled, the incentive to invest must remain. Hopefully the government’s detailed amendments will have the desired effect when they are introduced.
The Chancellor announced that the government is in discussion with 38 English councils regarding the creation of new investment zones, and with the devolved administrations in Scotland, Wales, and Northern Ireland. Businesses in investment zones will benefit from time-limited tax incentives over 10 years.
- 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 a qualifying non-residential investment.
Which 38 English Councils are in discussion with the government?
Bedford Borough Council
Central Bedfordshire Council
Cheshire West and Chester Council
Cumbria County Council
Derbyshire County Council
East Riding of Yorkshire Council
Essex County Council
Greater London Authority
Gloucestershire County Council
Greater Manchester Combined Authority
Hull City Council
Kent County Council
Lancashire County Council
Leicestershire County Council
Liverpool City Region
North East Lincolnshire Council
North Lincolnshire Council
Norfolk County Council
North of Tyne Combined Authority
North Yorkshire County Council
Nottinghamshire County Council
Plymouth City Council
Somerset County Council
Southampton City Council
Southend-on-Sea City Council
Staffordshire County Council
Stoke-on-Trent City Council
Suffolk County Council
Sunderland City Council
South Yorkshire Combined Authority
Tees Valley Combined Authority
Warwickshire County Council
West of England Combined Authority
West Midlands Combined Authority
West Yorkshire Combined Authority
For those companies already bidding for a project in one of the areas represented by these councils and authorities, or thinking of doing so, it would be worth considering whether the new regime will be of assistance in putting together a competitive bid, particularly as the government has set out a list of infrastructure projects it plans to accelerate in The Growth Plan 2022. The UK Mini-budget has sparked negative sentiment in global markets with a brisk sell-off of the GBP. Let us know what you think this means for the UK economy.
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