The UK Chancellor, Rishi Sunak, delivered his Spring Statement today (23 March 2022). In terms of measures relating to companies involved in the project finance arena, one of the main items of note was the announcement of the government’s Tax Plan for the remainder of this parliament.
At the Autumn Budget 2022, the government will set out its plans for reform of the business tax system. The intention is for key changes to be brought in from April 2023.
With the Tax Plan, the government is hoping to improve UK productivity by focussing on :
Cutting and reforming taxes on business investment to encourage businesses to invest in productivity-enhancing assets (see Capital Allowances Reform below).
Encouraging businesses to offer more high-quality employee training and exploring whether the current tax system – including the operation of the Apprenticeship Levy – is doing enough to incentivise businesses to invest in the right kinds of training.
Increasing public investment in Research & Development (R&D) and doing more through the tax system to encourage greater private sector investment in R&D (see R&D Tax reliefs below).
Capital Allowances Reform
In the Spring Statement, the government states that “an analysis of the Net Present Value of different countries’ capital allowances suggests that despite the UK’s highly competitive headline corporation tax rates, the overall tax treatment provided for capital investment is less generous than the OECD average”.
Options under consideration to improve this situation for April 2023 are:
Increasing the permanent level of the Annual Investment Allowance, for example to £500,000.
Increasing Writing Down Allowances for main and special rate assets from their current levels of 18% and 6% to 20% and 8%.
Introducing a First Year Allowance for main and special rate assets where businesses can deduct, for example, 40% and 13% in the first year, with the remaining expenditure written down at standard Writing Down Allowances.
Introducing an Additional First Year Allowance, to bring the overall amount that can be claimed to greater than 100% of the initial cost.
Introducing full expensing, to allow businesses to write off the costs of qualifying investment in one go.
We await to see which, if any, of these options the government decides to adopt in Autumn Budget 2022.
R&D tax reliefs
It was confirmed that these will be reformed to include some cloud and data costs and refocus support on R&D carried out in the UK. The government will legislate so that expenditure on overseas R&D activities can still qualify where there are:
Material factors such as geography, environment, population, or other conditions that are not present in the UK and are required for the research – for example, deep ocean research.
Regulatory or other legal requirements that activities must take place outside of the UK – for example, clinical trials.
To support the growing volume of R&D underpinned by mathematical advances, the definition of R&D for tax reliefs will be expanded by clarifying that pure mathematics is a qualifying cost.
Legislation will be included in a future Finance Bill to come into effect in April 2023.
Other Measures announced in the Spring Statement
Annual Investment Allowance
The Chancellor reiterated the statement he made in the Autumn Budget 2021 that the annual investment allowance will continue at the temporary £1,000,000 level until March 2023.
Cut to fuel duty
The government will cut the duty on petrol and diesel by 5p per liter for 12 months. This will take effect from 6pm today (23rd March) on a UK-wide basis. Where practical, a proportionate cuts will also apply to fuel duty rates which are lower than the main rates for petrol and diesel, including red diesel.
Green reliefs for Business Rates
At the Autumn Budget 2021 the government announced the introduction of targeted business rate exemptions from 1 April 2023 until 31 March 2035 for eligible plant and machinery used in onsite renewable energy generation and storage, and a 100% relief for eligible low-carbon heat networks with their own rates bill, to support the decarbonisation of non-domestic buildings. The government is bringing forward the implementation of these measures which will now take effect from April 2022 in England.