A budget designed around boosting economic growth, Chancellor Jeremy Hunt delivered his ‘boring’, yet relatively optimistic, statement to the House of Commons on the 15 March 2023.
The Chancellor of the Exchequer has created a plan that should supposedly solve and deliver on three key priorities: halving inflation, growing the economy, and seeing debt fall.
With a focus on enterprise, employment, education, and everywhere, many measures were announced to deliver on the Government’s plans, including welcome changes to R&D tax reliefs, stimulating business investment in plant and machinery with capital allowances, simplifying the process to grant options under an EMI scheme, reforms to childcare funding, grant funding for suicide prevention, 12 new low-tax investment zones, and investment into HMRCs’ debt management capability.
This article primarily focuses on the impact that the tax related changes (namely capital allowances, R&D tax relief, and EMI scheme changes) will have on individuals and businesses.
Capital allowances | Full expensing
Previously, the super-deduction regime allowed companies to claim a 130% capital allowance on qualifying main rate plant and machinery investments and a 50% first-year allowance for qualifying special rate assets.
With the time-frame for claiming super-deduction running from the 1 April 2021 to 31 March 2023, Chancellor Jeremy Hunt announced that with super-deduction soon ending, to continue encouraging business investment companies can claim 100% capital allowance on qualifying expenditure on new main rate plant and machinery from the 1 April to 31 March 2026.
Below, Tax Director Steven Butcher outlines super-deduction and the role this plays to companies up until 31 March 2023. He also provides an overview of full expensing and what this means to companies moving forward.
Whilst the introduction of super-deduction temporarily made the UK tax system more supportive of capital investment in plant and machinery, its coming to an end has tasked the Government with finding a more permanent solution.
Permanency is a crucial factor for the success of a reform. Although short-term measures may offer temporary investment incentives, they can also create long-term complications and miss the chance to establish business certainty. A lasting reform would be expected to make a significant and sustainable impact on employment, salaries, and the overall economic growth in the long run. The eventual goal for a capital allowance regime is to become permanent.
Nonetheless, the Office for Budget Responsibility (OBR) forecasts that full expensing, effective from 1 April 2023 to 31 March 2026, will increase business investment by 3%, an outcome which would be worthy of its precursor.
EMI scheme changes
The Spring Finance Bill 2023 is to include legislation to simplify the process of granting tax advantaged Enterprise Management Incentive (“EMI”) share options granted from (or unexercised as at) 6 April 2023. The requirement for a company to set out details of share restrictions within the option agreement and the requirement for a company to declare an employee has signed a working time declaration will be removed. This does not remove the working time requirement itself.
From 6 April 2024, the Government has said it will also extend the deadline for notifying an EMI option from 92 days following grant to the 6 July following the end of the tax year. This will be legislated separately. These are welcome changes aimed at supporting small and medium sized companies in recruiting and retain staff though use of this valuable tax advantaged share incentive.
Will the budget achieve what it was set out for?
Within the announcement, the Chancellor expressed his determination to reverse the prolonged period of somewhat inactive economic growth that has lasted for more than a decade. The latest projections from the OBR show a relatively better economic outlook compared to the earlier November 2022 forecast, although the forecasts for future years still indicate restrained growth. This means that the decline in the economy during the first half of the current year is expected to be less severe and shorter, as GDP is expected to decline by only 0.5% instead of the previously predicted 2%. The OBR also expects the Chancellor’s two fiscal rules to be met.
Jeremy Hunt’s ‘Budget for Growth,’ despite its optimistic title, is being introduced at a time when planned increases in Corporation Tax (CT) are set to take effect on April 1 2023, with the primary CT rate increasing to 25%. It is yet to be seen if the measures announced today will indeed promote growth and propel the UK towards higher rankings in the G7 with respect to business investment.
If you have any questions regarding how the 2023’s Spring Budget announcements will impact your business you can contact Steve, Gemma or Parry using the form below.
We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.
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