For the financial services sector, this Budget provided a continued focus on growth initiatives and encouragement to investment in the UK.
A Budget for the ‘Age of Optimism’
The Budget did not announce further substantive tax rises. This is in line with the Government’s message in the run up to the Autumn Budget that it wants tax rates to decrease by the end of the current Parliament, and a result of public finances being better than expected.
The Government’s focus on investment sees another temporary extension of the Annual Investment Allowance (AIA) for qualifying assets of £1 million from December 2021 to March 2023, and an increase in the scope of R&D from April 2023, to include data costs and cloud computing. The interaction between the future increase to the corporation tax rate and investment reliefs available will likely mean many businesses considering the timing of their investments. The increase in funding to Innovate UK to £1bn and the Global Britain Investment Fund to £1.4bn will we hope further encourage investment into the sector, particularly for growing FinTech and InsurTech businesses.
Promotion of the UK as a leading financial services centre
The Government has cut the bank surcharge from 8% to 3%, effective from 1 April 2023. This results in a combined tax rate of 28%, rather than the original proposed rate of 33%, taking into account the increase in the main corporation tax rate to 25%. Additionally, a fourfold increase in the annual bank surcharge allowance from £25 million to £100 million aims to reduce the impact of increased tax rates in the sector. These announcements are intended to allow the UK’s biggest banks to maintain their competitiveness and could also result in many challenger banks falling out of the regime.
As part of HMRC’s commitment to mitigate the tax cashflow impacts of accountancy changes, HMRC has announced an enabling power that will allow the Government to introduce regulations in response to new accounting standards.
IFRS 17 will impact the recognition of an insurer’s profits and losses. these proposals will spread transitional adjustments for tax purposes.
Further announcements for the insurance sector come by way of a clarification of the criteria to determine the location of risk for Insurance Premium Tax (IPT), ensuring that risk located outside of the UK remains exempt from UK IPT.
A new tax regime for qualifying asset holding companies (QAHC) has been announced, as part of the ongoing review of the UK funds regime announced in the Spring 2021 Budget. For QAHC investors (individuals, institutional and other entities) the new QAHC regime introduces a raft of new measures, from exempting gains and profits to allowing certain amounts to be treated as non-UK source income for qualifying remittance basis users. The new regime should increase the attractiveness for businesses setting up in the UK. There will also be various provisions to guard against abuse or avoidance
For traders and those in partnership, there is also a delay in the implementation of the previously-announced basis period reform proposals and a consultation on the reformation of the VAT treatment of fund management fees.
While a number of measures for multinational business have been announced, many of these are clarifications to already enacted legislation. Groups operating internationally may nevertheless want to undertake a review of their group structure and activities in light of these provisions.
In line with the continued effort to promote the attractiveness of the UK as a place to do business, a consultation into the re-domiciliation regime has been announced with the intention of allowing companies to redomicile to the UK, while still maintaining their legal corporate identity. This aligns the UK with other countries, such as Australia, Canada and the some states in the US. International groups considering restructuring may find this announcement useful, though we will have to wait and see what the outcome of the consultation is before businesses can benefit from any additional flexibility.
Other announcements impacting financial services groups operating internationally include:
- further clarification to the anti-hybrid rules to ensure that entities that are transparent for tax purposes in their tax jurisdiction will be treated in the same way as partnerships under the current rules;
- the repeal of the cross-border group relief rules and amendments to rules applying to losses of EEA resident companies trading in the UK through permanent establishments
- a package of measures to reform the UK’s tonnage tax regime.
Welcome clarifications to complex tax rules came in the form of an amendment to the Diverted Profits Tax rules to allow a Mutual Agreement Procedure (MAP) potentially to be implemented, and that the proposed legislation covering uncertain tax treatments will initially include only two triggers for notification to HMRC, but the Government is actively considering a new third one.
This article was previously published on Smith & Williamson prior to the launch of Evelyn Partners.