The Government will introduce a new ISA, focussed on encouraging investments in UK companies. The Government has also confirmed that it will bring forward legislation to allow fractional share investments through ISA platforms.

Summary

The new UK ISA product will provide an additional annual £5,000 allowance over and above the current £20,000 allowance, to be used for investments in UK companies. The Government released a consultation inviting views on the design and implementation of the new UK ISA with responses required by 6 June 2024.

The Government will provide further details of this new product at a later date. The Government also previously announced, at the 2023 Autumn Statement, that it intended to legislate to allow fractional share investments in ISAs. The Chancellor has now announced that the Government intends to bring forward legislation by the end of summer 2024 regarding this.

Fractional share investments are allowed by some ISA platforms and mean that investors are able to invest in companies without needing to own a whole number of shares. This can benefit investors, particularly where the price of a company share is high. There has been some uncertainty around whether or not a fractional share is a ‘share’, which is an allowable investment under existing ISA legislation, or a form of derivative contract, which is not. The new legislation seeks to address this issue.

Our comment

The new UK ISA encourages investment into UK companies. Investors will, however, welcome the fact that there will been no changes to rules for existing ISA products, so individuals retain the opportunity to diversify their investments on a global basis, should they wish to.

The clarity around fractional shares is also good news for investors, as it will allow them continued flexibility with their investment strategy.

HMRC is to establish an expert advisory panel to support the administration of the research and development (R&D) tax reliefs. The panel will provide insight into the R&D occurring across key sectors such as technology and life sciences, and will assist HMRC with updating R&D guidance.

It was also confirmed that the new merged R&D tax scheme will take effect for accounting periods starting on or after 1 April 2024. 

Summary

HMRC’s expert advisory panel will seek to deliver industry expertise, and contribute to HMRC’s guidance in order to administer R&D tax relief support efficiently. HMRC believes this will improve the functioning of compliance for R&D tax reliefs.

It has been confirmed that the new merged R&D tax relief scheme, which has been through several consultations in recent years, will be introduced for claims made for accounting periods beginning on or after 1 April 2024. From this point, for the majority of claimants, the current R&D expenditure credit (RDEC) and R&D SME schemes will combine into a merged  scheme that will offer relief at the current RDEC rate of 20%.

Our comment

Although many were hoping that the introduction of the new merged R&D tax relief scheme would be delayed, to allow companies more time to prepare, at least there is now certainty that the new rules will come into effect for accounting periods starting on or after 1 April 2024.

Key changes that take effect from this point include:

• An above the line (taxable) credit of 20% will be the main mechanism for providing tax relief to large and small companies. This results in a net tax benefit of up to 16.2% for profitable or loss making companies on qualifying expenditure.
• Restrictions will be introduced on claiming relief for most overseas R&D expenditure.
• New rules on whether or not the “customer” or “contractor” can claim for contracted out activities.
• The R&D intensity threshold for a loss-making SME to be classified as an ‘R&D intensive SME’ will reduce from 40% to 30%. The intensity threshold is the percentage of total group expenditure within an accounting period that is qualifying R&D expenditure.

Given the challenge HMRC faces in assessing the technological or scientific judgements required to identify qualifying R&D projects, we hope that establishing a panel of appropriately experienced advisors to assist will improve the compliance process for claimants. It is, however, critical that the correct profile of individuals or bodies is assigned to the panel. To apply the R&D rules appropriately the panel should comprise individuals with real world applied industry experience in the relevant fields of science and technology, preferably with experience or at least training in applying the R&D guidelines to projects.

The headline rates of national insurance have been cut by a further 2% following the initial reductions in January and April 2024. The main income tax rates and bands will remain unchanged for a further year.

Summary

The Chancellor has announced that the main rates of national insurance contributions (NIC) suffered by employees and the self-employed will reduce to 8% and 6%, respectively, with the higher rates remaining at 2%. These changes will take effect from 6 April 2024. The employer’s contribution rate remains at 13.8%.

The income tax rates and allowances for the 2024/25 tax year remain unchanged and the tax-free personal allowance remains at £12,570. Perhaps the most notable income tax change is the reduction in the dividend allowance - dropping from £1,000 to £500, as previously announced in Autumn 2022.

Our comment

The cut to NIC will be welcomed by employees and the self-employed. The Government will hope that the savings stimulate consumer spending and promote job creation. Retirees, investors and landlords will not benefit from the reduction to NIC, however, and are likely to see their tax liabilities increased due to the income tax rates and allowances being frozen for another year.

Draft legislation is to be published for the potential extension of full expensing and 50% first-year allowances to include plant and machinery used for leasing. Capital allowances will no longer be available on furnished holiday lettings (FHL) following the removal of the FHL regime from April 2025.

Summary

Full expensing

Currently, full expensing and 50% first year allowances are only available to companies in respect of plant and machinery assets that are not used for leasing, except for background plant and machinery in a building that is leased.

The Spring Budget announces measures to extend these reliefs to include leased plant and machinery assets. The Government, however, made it clear the extension will only take effect when economically viable and after technical consultation on the draft legislation, which will be published shortly.

Furnished holiday lettings

From 6 April 2025, the FHL tax regime will be abolished, meaning all favourable tax treatments including the availability of capital allowances will be removed.

Our comment

The FE announcement is good news particularly for construction and other plant hire businesses, who were previously excluded from claiming the super-deduction and FE.

HM Treasury and HMRC had previously announced a technical consultation into this point and has acted at relative pace; buoyed by the success of FE that has helped push forecast UK investment this year up to 10.6% of GDP. The Chancellor, however, commented that these changes will come into effect ‘as soon as it is affordable’, with no detail of when that might be.

The removal of the FHL tax regime is driven primarily by the view that the number of holiday homes around the country is limiting houses available to local residents. It will mean that capital allowances will no longer be available on these properties, bringing the tax treatment of short term lets in line with the current tax treatment for longer term leased residential property. This is expected to increase taxable rental income generated by the properties.

It is currently unclear whether the balance of the capital allowances pools and FHL losses carried forward post 6 April 2025 will be lost or still available to offset future taxable profits. The legislation around the removal of FHL regime will be released shortly, which should provide clarity.

We recommend that FHL owners revisit their capital allowances position in order to optimise potential capital allowances claims before 6 April 2025.

The most significant VAT announcement was an increase in the registration threshold to £90,000. The de-registration threshold has also increased to £88,000.

Summary

VAT registration threshold

For the first time in seven years, the VAT registration threshold has been increased by £5,000, from £85,000 to £90,000.  Similarly, the deregistration threshold has increased from £83,000 to £88,000.  The changes will come into effect from 1 April 2024.

Other VAT announcements

Trading in carbon credits will be brought within the scope of the terminal markets order and will take effect from the date the Spring Finance Bill 2024 receives Royal Assent.

Also with effect from the date of Royal Assent, new legislation will be introduced in respect of the DIY housebuilders scheme.  The changes will grant additional powers to HMRC to request further evidential documents to support submitted claims.

The Government will publish a consultation on the potential implications of the High Court’s ruling in ‘Uber Britannia vs Sefton MBC’, a case that could have far-reaching implications for the private car hire sector. The consultation will be published in April 2024.

Our comment

The registration threshold has been frozen since 2017. Prior to this, the threshold was normally increased each year in line with inflation, and more recently there have been calls from some business organisations to raise it to £100,000.

The Chancellor estimated that the changes will positively impact tens of thousands of small businesses that operate below the increased threshold. Certainly, the changes will be welcomed by small businesses who are able to increase their turnover up to £90,000 without having to register for VAT.

The Chancellor has affirmed the UK’s commitment to the common reporting standard (CRS) 2.0 and the cryptoasset reporting framework (CARF) by launching a consultation in advance of draft regulations expected later this year. This consultation also floats the prospect of domestic CRS reporting.

Summary

The Government is launching a consultation to seek views on the implementation of the CARF and the amendments to the CRS. The consultation runs until 29 May 2024 and the intention is that these regimes will go live on 1 January 2026, with first reporting by 31 May 2027.

Included in the consultation is a proposal to introduce domestic CARF and CRS reporting by making the UK a reportable jurisdiction.

Our comment

The UK, along with several other jurisdictions, declared its intention to adopt CARF and the CRS amendments in November 2023, and this consultation was expected as a preliminary step in advance of the publication of draft regulations later in the year. Requests from the industry for at least 18 months of lead time ahead of systems changes appear to have been taken on board.

Less expected, however, is the proposal to extend CARF and CRS reporting to domestic tax residents by making the UK a reportable jurisdiction. The intention is that this would supersede Bank and Building Society Interest and Other Interest reporting. There are potential benefits here, such as streamlining reporting requirements. This would also represent a dramatic increase in reporting volumes, particularly for UK-focused financial institutions. We expect that such financial institutions will be keen to provide input on this proposal.

Finally, HMRC is proposing to introduce mandatory registration for UK financial institutions, regardless of whether reporting is required. This would align UK requirements with other CRS jurisdictions.