12 investment zones will benefit from preferential fiscal tax incentives available over a five-year period as well as planning liberalisation and wider Government support, to boost development and growth.

Summary

Each zone will have access to funding of £80 million over a 5-year period.  The tax incentives will be similar to those previously announced for Freeports, including:

• Business rates: 100% relief from business rates on newly occupied business premises, and some existing businesses where they expand in Investment Zone tax sites. Councils hosting investment zones will benefit from 100% retention of the growth in business rates over an agreed baseline for 25 years
• Capital allowances: 100% first-year allowance for companies’ qualifying expenditure on all new plant and machinery assets for use in tax sites
• Structures and buildings allowances (SBA): enhanced 10% rate of SBA, compared to the standard rate of 3%. This allows businesses to significantly accelerate tax relief for the cost of qualifying non-residential investment, relieving 100% of their cost over 10 years
• Employer National Insurance contributions (NICs): Employer NICs will be zero-rate on earnings up to £25,000 per year for any new employee working in the tax site for at least 60% of their time.  This relief can be applied for 36 months per employee.  Earnings above the £25,000 threshold will be charged at the usual rate above this level
• Stamp Duty Land Tax (SDLT): full SDLT relief for land and buildings acquired for commercial use or development for commercial purposes

The following locations have been proposed for the investment zones in England:

• The proposed East Midlands Mayoral Combined County Authority
• The Greater Manchester Mayoral Combined Authority
• The Liverpool City Region Mayoral Combined Authority
• The proposed Northeast Mayoral Combined Authority
• The South Yorkshire Mayoral Combined Authority
• The Tees Valley Mayoral Combined Authority
• The West Midlands Mayoral Combined Authority and
• The West Yorkshire Mayoral Combined Authority

At least one investment zone is proposed in each of Scotland, Northern Ireland and Wales, with the locations still to be determined.

Shortlisted areas are invited to develop an investment zone proposal, in coalition with local authorities and partners.   

Our comment

Investment zones are not a new concept, and their success is often debatable. Most significant benefits have been observed where the zones build on existing strengths or infrastructure.
The 12 investment zones are a scaling down from the 38 previously announced and present a change in focus.

The proposed zones are likely to be close to existing leading universities and research institutes and are intended to drive growth in five key sectors: Life sciences, Creative industries, Digital technology, Advanced manufacturing and Green industries.

With stability and longevity of commitment being key factors in maximising investment value, the introduction of investment zones should help align public and private investment in such areas. 
The Chancellor referenced Canary Wharf and Liverpool Docks as example success stories. The policy focus on existing institutes and specific sectors may help create centres of excellence, however, questions may remain on their ability to help drive long-term regeneration of other deprived areas; particularly with no zones located south of the Midlands.

When will it apply?

Government expects funding to commence in the tax year 2024/25.

From 1 April 2023, companies will be able to claim 100% and 50% first year allowances for qualifying capital expenditure on new main rate and special rate plant and machinery expenditure, respectively.

Summary

The Spring Finance Bill 2023 will include measures allowing companies to fully expense capital expenditure on new main rate plant and machinery, for a period of three years starting from 1 April 2023. Under this regime, businesses will save 25p on every £1 invested, so a 25% cash tax saving. The 50% first-year allowance for expenditure on new special rate and long-life assets has also been extended.

Both measures will be in place until 31 March 2026, with the intention to make the measures permanent when fiscal conditions allow.

In addition, measures first announced in the Autumn Statement 2022 will be legislated by the Government. This extends the first-year allowance on electric vehicle charge points by two years to 31 March 2025 for corporation tax, and 5 April for income tax. It also extends the £1 million Annual Investment Allowance indefinitely.

Our comment

The introduction of full 100% expensing for capital expenditure on qualifying plant and machinery will be welcomed by companies, particularly given the end of the current super deduction which coincides with the increase in the corporation tax main rate to 25% from 1 April 2023. The intention to make this a permanent feature will also be well received and provide businesses with some certainty in undertaking investment decisions.

It is disappointing the relief is only available to companies within the charge to corporation tax and excludes individuals and partnerships containing individuals.

This is potentially a missed opportunity to better align the capital allowances regime with the Government’s wider strategies, particularly as investment decisions made now will impact the UK’s ability to meet its net zero target by 2050.

Whether or not this type of blanket untargeted relief provides the best return for both the Government and taxpayers is also debatable. The Government had stated that the previously introduced super deduction was costly to operate, and it is difficult to see how the introduction of full expensing will provide much better value for money.

When will it apply?

From 1 April 2023.

A new increased research and development (R&D) tax credit rate for highly innovative loss-making SMEs has been introduced. Previously announced restrictions to overseas expenditure will be delayed a year.

Summary

Major reforms have been announced to both R&D relief schemes previously. Most of these changes will take effect for accounting periods commencing on or after 1 April 2023.

The Chancellor announced today, however, that R&D intensive loss-making SMEs with qualifying R&D expenditure worth 40% or more of total expenditure for an accounting period will qualify for a higher tax credit of 14.5%. This will give qualifying loss-making companies a cash credit worth £27 for every £100 spent and negates the impact of the reduction in rates of relief for companies claiming under the existing SME scheme.

The Government also previously announced restrictions on the inclusion of overseas expenditure, but these measures have been delayed by a year, and will come into effect from 1 April 2024.

Other R&D tax reforms include:

• Categories of qualifying expenditure to include both cloud computing services and data licences
• The definition of R&D has been extended to encompass both pure mathematics and mathematical activities that contribute to R&D projects in other fields of science and technology
• Using new digital forms, companies will be required to both notify HMRC of the intention to make an R&D claim, if they had not made a claim before; and
• From August 2023 companies must provide additional information when making R&D claims, to assist HMRC with compliance checks

The Government is considering responses to the consultation on the form of a single R&D scheme to merge the SME and RDEC regimes, with draft legislation for a merged scheme expected to be released in Summer 2023 for technical consultation.

HMRC is also due to provide more accurate estimates of error and fraud to the Public Accounts Committee by summer 2023, along with a clear action plan to reduce error and fraud. Any further measures to combat this error and fraud will be announced thereafter.

Our comment

We support the Government’s intention to combat error and fraud within the R&D regimes; however, it is our view that reforms announced in the Spring Budget 2023 will be ineffective in targeting fraudulent claims and in addressing the limitations with HMRC’s compliance processes.

While the enhanced relief for R&D intensive loss-making SMEs provides a welcome respite for those that meet the thresholds, it will result in a yet greater compliance burden for HMRC to ensure claimants are accurately meeting the 40% threshold.

We welcome the delay in implementing the restriction on claiming costs on overseas workers. While we support the intention to incentivise UK employment and activities, additional time is required to enable companies to prepare for this significant change and to enable the Government to further consider feedback from industry and advisors on this issue.   

When will it apply?

The new regime for R&D intensive SMEs will come into effect on 1 April 2023.

The previously announced changes on R&D reform will take effect for accounting periods commencing on or after 1 April 2023, except the requirement to provide additional information which will apply to all claims made on or after 1 August 2023. Draft legislation is expected to be published summer 2023 on the merging of RDEC and SME regime with final measures currently planned to be implemented April 2024.

The Budget highlights the ongoing review of the UK business rates system and the Government’s commitment to consult and re-shape policy.  Two new consultations are launched whilst we await publication of responses to two recently closed consultations.

Summary

The Government is launching two new consultations: one on providing ratepayers with more information on their business rates valuations, and the second on measures to combat avoidance and evasion.

The Government has also promised to publish responses to two closed business rates consultations.  Mentioning the non-domestic rating information consultation, which closed in February 2022, the Government reconfirmed its commitment to reform and promised to set out further detail on how reform will be delivered.   A summary of responses to its consultation and impact assessment on digitalising business rates is also awaited.  This considers the implementation of new legislation and an integrated system for ratepayers to interact with central Government.

Our comment

Little detail on business rates was delivered in the Spring Budget, however, it is clear that business rates remain firmly on the agenda for review.

The four business rates consultations referred to in the Budget indicate that the Government is committed to bringing business rates into line with other taxes through digitalisation, the introduction of ratepayer compliance through the provision of information, and the tightening of measures to combat business rates avoidance and evasion.

We await more detail on reforms; every ratepayer will need to be ready to understand the rules quickly when the changes come.

When will it apply?

The consultation on disclosure on business rate valuations closes 7 June 2023.  The second consultation is yet to be published.

The Government has announced a call for evidence on options to reform VAT relief for the installation of energy-saving materials

Summary

The call for evidence will consider an extension of the VAT reliefs for energy-saving materials, to include where they are installed in buildings used for a relevant charitable purpose. Since 2013, the relief has only applied to installations of qualifying materials in residential property. The review will also consider including within the reliefs additional technologies such as battery storage.

Our comment

Any extension to the VAT relief and inclusion of new technologies will be welcomed by homeowners and charities. It is hoped that the review will be ambitious and result in a much broader relief that will help drive energy efficiency and reduce carbon emissions.

When will it apply?

The call for evidence closes on 31 May 2023.

The tax consequences of payments into decommissioning funds made by oil and gas companies to repurpose assets for use in Carbon Capture, Usage and Storage (CCUS) will be legislated for at a future date. This will follow Royal Assent of the Energy Bill

Summary

Some oil and gas assets can be repurposed for use in CCUS projects more efficiently than developing new CCUS projects. Oil and gas companies make payments into decommissioning funds for assets which are within the oil and gas corporate tax ring-fence.

The Government will consult on the tax consequences of payments into decommissioning funds where they relate to the repurposing of ring-fence assets for use in CCUS.

Any changes will take effect in the future, after Royal Assent of the Energy Bill, which is currently at the report stage in the House of Lords.

Our comment

The Budget today was highly focused on green industries and the transition to Net Zero to support growth and energy security.

This measure is coupled with the announcement of £20 billion funding for CCUS projects, with the Government aiming to support 50,000 jobs and capturing 20-30 million tonnes of CO2 per year by 2030.

When will it apply?

Future date, to be determined.

Late payment penalties for plastic packaging tax are being amended so that assessments and late payments of returns are treated in the same way. The penalties for late payments of returns will be 5% for periods beginning on or after 1 April 2023.

Summary

Under the current rules on late payments of returns, the first late payment starts a 12-month penalty period. Subsequent late payments within the penalty period incur penalties of 2% for the first default, 3% for the second default and 4% for the third and subsequent defaults.

The Budget announcement increases the penalties, such that late payments of returns for return periods beginning on or after 1 April 2023 will always incur a 5% penalty.

Our comment

An increase in the penalty for late payment of plastic packaging tax will have a significant impact on many businesses that are still trying to overcome the administrative complexities of preparing and filing plastic packaging tax returns.

HMRC’s tax receipt statistics show that there are significant late payments being made for plastic packaging tax. In theory, HMRC should only receive plastic packaging tax payments in July, October, January and April. The tax receipt statistics show significant receipts for every month from July 2022 onwards.

When will it apply?

From 1 April 2023.

The main rates of Climate Change Levy for gas and solid fuels are to be increased. The gas rate will also be aligned with the electricity rate, and the solid fuels rate will increase proportionally to the gas rate.

Summary

The Climate Change Levy main rates announced in the Budget were:

Our comment

This change in rates is consistent with the Government’s objective to close the gap between the tax rates for gas and electricity to better reflect the carbon emissions associated with their use.

When will it apply?

From 1 April 2023.

Climate Change Agreements (CCAs) have been extended by two years to 31 March 2027 and reopened to new entrants. This will mean businesses in energy-intensive industries with a CCA will pay reduced climate change levy rates for two more years, provided the sector as a whole meets agreed energy efficiency targets.

Summary

CCAs provide energy-intensive businesses with discounts on the climate change levy charged on their energy bills in return for meeting energy efficiency targets. The reduced amounts relative to the main rate are as follows:

CCAs have been closed to new entrants and were due to end on 31 March 2025. In the Budget the Government has reopened the scheme to new entrants and extended it for two years to 31 March 2027.

A consultation on a replacement scheme has also been launched today, closing on 10 May 2023.

Our comment

CCAs are a key element of the Government’s support for energy-intensive businesses. The energy efficiency requirements help reduce emissions and drive progress towards net zero.

The CCAs are available for sectors with high energy use which are subject to international competition and provide valuable cost savings to eligible businesses.

The consultation document outlines some reforms that could be taken forward as part of a future scheme but notes that no decisions have been made on whether a future scheme will be pursued.

Failure to address the risk of international competition could result in energy-intensive businesses becoming uncompetitive and/or relocating to other territories with lower emissions regulation, leading to higher carbon emissions, a phenomenon referred to as carbon leakage.

Affected businesses will be keen to understand the future position beyond 31 March 2027. If CCAs are not continued, alternative measures, such as a carbon border adjustment mechanism, which address the risk of cheaper imports from territories with lower emissions regulation (leading to higher emissions) will be needed.