The main tax headline from Jeremy Hunt’s first Spring Budget as Chancellor of the Exchequer is already old news. The hike in the main rate of Corporation Tax to 25% marked an abrupt about-turn from Kwasi Kwarteng’s doomed slash-and-burn tax-cutting mini-budget barely six months earlier.
While no one exactly welcomes tax increases, it was acknowledged as a necessary return to grown-up fiscal management.
But elsewhere, the Chancellor had done his best to use the (admittedly limited) tax levers at his disposal to signal his support for business and personal wealth growth wherever possible. Though perhaps a little drowned out in the headline noise at the time, many of those proposals have now come into force, after the Finance (No. 2) Act 2023 – the bill to legislate for the measures outlined in the Budget – received Royal Assent on 11th July.
Here’s a summary of the various tax incentives that have now come into effect since 1st April.
Full Expensing Corporation Tax Relief on Qualifying Capital Investments
While Corporation Tax went up for companies with a taxable profit of more than £250,000 in April, the sweetener was a new raft of attractive capital allowances. Not quite the 130% COVID-era ‘super-deduction’ intended to keep businesses spending through the pandemic, which came to an end at the close of the last tax year. But still, businesses can now deduct the full cost of qualifying first-year capital expenditure on plant and machinery (excluding cars) from their taxable profits up until April 2026.
Enhanced Research & Development Relief
The Finance (No. 2) Act 2023 expands the definition of qualifying expenditure for research and development (R&D) tax relief, allowing businesses to claim relief on a broader range of R&D activities. The R&D Expenditure Credit (RDEC) scheme for larger businesses sees tax credits increase from 13% to 20% of qualifying R&D investment, although the SME scheme has seen its relief rates reduced. However as widely reported, and as the Chartered Institute of Taxation warned, the current HMRC response to the abuse in claims being made resulting in rejection or stone-walling of genuine claims risks many companies not following through to benefit from these enhancements.
Aligned to this the new ‘additional information’ form requirement to claim R&D have just been put back by a week, so now commence from 8 August.
More Incentives to Invest in Start-Ups Through the SEIS
The Seed Enterprise Investment Scheme (SEIS) is designed to stimulate investment in early-stage companies. The Finance (No. 2) Act 2023 raises the maximum amount start-ups can raise through the SEIS from £150,000 to £250,000. It also extends the qualifying period from two years to three years after launch. And the amount individual investors can put into SEIS companies has doubled from £100,000 to £200,000, with 50% relief on income tax.
Changes to Pension Allowances
Another headline from the Spring Budget was the abolition of the Lifetime Allowance (LTA) on pensions, which has now been confirmed. The LTA placed a limit on the total amount an individual could put into pension savings while gaining tax relief. Any savings over and above this limit becomes subject to an additional tax charge. The LTA charge will be scrapped from April 2024.
At the same time, the annual allowance (AA), or the maximum tax-relieved savings an individual can put into pension schemes in any single tax year, has been increased from £40,000 to £60,000 (gross). There have also been increases to the money purchase AA and tapered AA for higher earners, with the value of both increasing to £10,000.
