There could be no doubting that in today's Budget, the Chancellor's sights were firmly set on economic growth and investment. The consistent themes running through today's key tax announcements were rewarding capital investment by businesses, boosting the workforce and creating further incentives for investment in the products and industries in which the UK aspires to lead the world in the future.
This effort was spearheaded by a few headline-grabbing tax measures, the most eye-catching of which is the move to annual expensing for businesses, allowing them to claim capital allowances for their full expenditure on qualifying assets in the year in which the expenditure is incurred. This change, designed to ease the concerns of business around the increase in corporation tax rates from 19% to 25% in April 2023, and the end of the "super deduction" for qualifying plant and machinery, is a significant upgrade to the existing capital allowances regime and will give the UK one of the most generous reliefs for capital expenditure in any advanced economy. This will come at a cost of £9bn per year, but OBR forecasts suggest that this is a price worth paying to increase investment in the UK by 3% per year. To read more, click here.
The announcement of a bidding process to create twelve "Investment Zones" across the UK looks to be a further (and less generous) iteration of the "freeports" proposal, aimed at generating investment and employment in areas outside London and the South East. Businesses which establish themselves in these areas can expect to benefit from SDLT reliefs, enhanced capital allowances and relief from employer national insurance contributions.
Also leading the headlines will be the increase to the pensions annual allowance and the surprise abolition of the lifetime allowance (the threshold up to which workers can accumulate amounts in their pension fund without incurring additional tax). These changes are aimed at bringing more "experienced workers" (as the Chancellor coyly referred to them) over the age of 50 back into the workforce, with doctors given as a particular example of a group who have been disincentivised to work past that age as a result of the additional tax that they would pay on pension amounts above the lifetime allowance. You can find further details here.
Whilst these changes, and other important non-tax measures such as the extension of free childcare for children under three and investment in energy and green technologies will doubtless be the subject of most of the media discussion, there were also a raft of less visible measures designed to provide more targeted improvements in various areas. What is welcome is that many of these changes are the result of consultation and discussion with businesses and the wider tax community, showing that detailed technical consultation can lead to change and improvement to the law – a small victory for "tax geeks" everywhere.
For SMEs, there was a welcome change to the reliefs for research and development expenditure for certain businesses with intensive R&D activity. From 1 April, where an SME incurs R&D expenditure totalling 40% or more of its total expenditure in an accounting period, it will qualify for a cash tax credit equal to 14.5% of its qualifying R&D expenditure. This effectively reverses changes announced in the 2022 Autumn Statement, and is a response to a wider consultation on R&D reliefs in the early part of this year. More change may follow as a result of this consultation on merging the R&D regimes for large companies and SMEs.
In the real estate sector, some helpful changes were announced to the REIT regime, aimed at removing compliance burden and increasing the attractiveness of REITS to investors. Again, this change has its origins in technical consultations, in this case in relation to the Qualifying Asset Holding Company regime in 2020. The decision (following consultation) to maintain the current tax exemptions for investors with sovereign immunity is also likely to prove particularly welcome to investors in UK real estate.
Active and constructive discussion between the alternative asset management community and HMRC is also evident in the proposed changes to the "genuine diversity of ownership" condition, which is key to the ability of funds to access the qualifying asset holding company (QAHC), REIT and non-resident CGT regimes. This rule has posed a challenge where fund structures contain a number of separate entities, not all of which satisfy the condition, so the proposed revision of the rules to allow all entities which form part of a "multi vehicle arrangement" which meets the condition to qualify is a welcome development. Further changes to the QAHC regime have also been announced today, allowing for the holding of listed securities by QAHCs without prejudicing the availability of QAHC status, but at the cost of losing the exemption for tax on dividends.
In the world of incentives, the call for evidence on the Enterprise Management Incentive (EMI) scheme is unlikely to lead to a major overhaul of the scheme, but has resulted in some short term changes to the administrative requirements in relation to EMI options, which will help to avoid inadvertent errors which can prejudice the beneficial tax treatment of options. Changes to make the CSOP option scheme more generous have also been announced, with a view to helping companies incentivise their employees effectively as they grow larger and can no longer access the EMI regime.
The team at Travers Smith is proud to have contributed to many of the consultation processes that have led to these changes, representing our clients and a wide range of industry bodies. If you would like to know more about any of the Budget announcements and its impact on your business, please do get in touch.