As expected, the Chancellor announced that the ‘full expensing’ capital allowances regime will be made permanent. Initially due to run until 2026, this provides upfront tax relief in the year of expenditure. For the majority of businesses, this gives a cash tax saving of 25% of the qualifying expenditure on plant and machinery. At a time of significant financing costs, this announcement will give businesses greater confidence to plan. It also has the potential to increase rather than just accelerate existing investment plans.
A technical consultation in the new year will consider a potential extension to these rules to include plant and machinery used for leasing, which is currently excluded from full expensing relief.
Notably missing from the full expensing capital allowances regime are incentives to promote innovation and meeting net zero targets. The full expensing relief, for example, provides 100% first-year tax relief for racking in a warehouse, but only a 50% first year allowance for solar panels or energy efficient lighting. The impact of a capital allowances regime specifically aimed at incentivising energy and carbon-reduction measures could be significant.
The Chancellor did provide other measures to significantly boost the clean energy sector to deliver on net zero and energy security objectives. Please see our energy sector insight below for more details.
A cost on many companies’ watch list, plastic packaging tax, will increase from £210.82 to £217.85 per tonne from 1 April 2024. The Government will also publish an evaluation plan by the end of the year to inform the future trajectory of the plastic packaging tax rate and recycled content threshold.
Research & Development (R&D)
In a measure aimed at simplifying the R&D tax reliefs, the Government confirmed the new ‘merged scheme’. This combines the current two regimes, broadly bringing the SME scheme into the R&D Expenditure Credit (RDEC) regime.
The changes will result in some winners. However, many SMEs are expected to see a reduction in their relief. The more favourable regime is retained for R&D-intensive SMEs, and the announced lowering of the R&D intensity threshold from 40% to 30% will allow more companies to benefit.
Under the merged scheme, companies will receive a before-tax credit at 20% of qualifying expenditure. Just announced, the notional tax charge on the credit for loss-making claimants will be reduced to 19%, rather than the main tax rate of 25%. This will increase the cash credit received and partly mitigate the reduced generosity for SMEs.
As the merged scheme applies to accounting periods beginning on or after 1 April 2024, R&D relief claimants should review the changes soon to plan effectively.
Small businesses with rateable values of lower than £51,000 can sigh with relief with the announcement that the small business rates multiplier at 49.9p will remain frozen for the 2024/25 rate year. The Chancellor also announced an extension of the retail hospitality and leisure relief (RHL relief) for another year at 75%, capped to £110,000 per business.
Most rate payers on the standard rate multiplier, currently 51.2p, however, will face an uplift in line with CPI inflation rate of 6.7% (recorded in September 2023). This will be a significant cost increase for many businesses, and we encourage businesses to plan now and consider any potential reliefs.
Other areas to consider
Those seeking to benefit from tax reliefs offered by investment zones and freeports, such as enhanced capital allowances and relief from SDLT, business rates and NIC, will also receive a boost with the tax incentives extended from 5 to 10 years.
Large businesses with worldwide turnover greater than €750 million will have a continued eye on the further legislation implementing Pillar 2. Notably, the Treasury has said it expects Multinational Top-up Tax, Domestic Minimum Tax and Undertaxed Profits Rules to raise approximately £12.7 billion in the UK over the next six years.
Employment status remains an area of focus for HMRC. Where HMRC determine that an employment status assessment is incorrect, the end user is required to make good to HMRC any income tax and Class 1 NIC liabilities that should have been deducted from payments to the contractor. Constructively, following consultation, the Autumn Finance Bill 2023 will contain provisions to permit an offset of taxes paid by the contractor or contractor’s company. There remains a significant level of risk, however, as not all liabilities will be able to be offset and timing differences may arise precluding offset.
As of 1 April 2024, companies claiming creative tax reliefs will be required to complete and submit an online information form.
Finally, the Government have confirmed it will legislate to extend the ‘sunset clause’ for Venture Capital Trusts (VCT) and Enterprise Investment Schemes (EIS) from April 2025 to April 2035. The extension provides both businesses and VCT and EIS fund managers clarity that the schemes remain a valued part of the financial ecosystem.
In our view, further updates to venture capital schemes could provide a very rapid boost to the financing of small, UK-growth companies. The annual amount that can be subscribed to VCT share issues and benefit from income tax credits, for example, has been stuck at £200,000 since 2004/05 and is well overdue an increase after 20 years.
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication.
Tax legislation is that prevailing at the time, is subject to change without notice and depends on individual circumstances. You should always seek appropriate tax advice before making decisions. HMRC Tax Year 2023/24.