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The chancellor’s breezy Autumn statement 2023 speech was all about attempting to deliver a boost to the economy through a combination of national insurance cuts and business investment incentives. This autumn statement continues the spring budget theme of encouraging growth and investment.
In order to encourage business investment in assets and equipment, the full expensing of capital assets introduced in the 2023 Spring budget will continue on a permanent basis, rather than ceasing in March 26.
This measure began from 1 April 2023. It allows the full value of qualifying main pool plant and machinery to be claimed in the year that it’s purchased through capital allowances. Or 50% can be claimed for special rate expenditure.
This will primarily benefit companies who want to make significant investment in plant and machinery that would exceed the current £1 million annual investment allowance and doesn’t qualify for first year allowances. However, it only applies to capital allowances from limited companies, not to sole traders.
R&D tax relief will look quite different from April 2024 with the current R&D Expenditure Credit (RDEC) scheme merging with the SME scheme in an attempt to simplify R&D credits.
Contracted out R&D can be claimed by the decision making company in the merged scheme. There are also changes to the impact of grants on the ability to make a claim.
Loss making companies within the merged scheme will be taxed at the small profits rate of 19% rather than the main rate of 25%.
R&D intensive loss making SMEs are required to have more than 40% of the total expenditure in the period on R&D in order to access the enhanced 14.5% rate of payable credit on their losses. This is compared to the usual 10% payable credit for non-qualifying companies. For accounting period from 1 April 24 this criteria will be reduced to 30% R&D expenditure. However, this looks to remain as a separate scheme.
The current scheme for audio-visual creative tax relief will switch to an expenditure credits based scheme (similar to R&D RDEC scheme) with credit rates from 34-39% depending on the type of production.
From 1 April 2024 the national living wage will increase to £11.44 per hour from the current rate of £10.42. The age threshold for this rate will decrease from 23 to 21 years old. So not only are the wages increasing but the higher rate will potentially apply to more employees.
The other age threshold rates below 21 years will also increase but there is no change to the thresholds themselves.
There is no change to the current employer Class 1 national insurance rate or threshold.
The main rate of Class 1 national insurance, will be reduced to 10% from the current rate of 12%. This rate applies to employees with salary between £12,570 and £50,270.
However, the 2% reduction will apply from 6 January 24 rather than waiting until the new 2024-25 tax year in April.
The personal allowance and higher rate thresholds for income tax will remain frozen for another two years until April 2028.
The national insurance thresholds and inheritance tax thresholds will also be frozen until April 2028.
The tax free allowance for dividends will still reduce in 2024-25 from the current £1,000 to only £500, as previously announced.
The capital gains annual exempt amount will also still reduce in 2024-25 from £6,000 to £3,000.
State pension will likely be increased by 8.5% in line with the triple lock. This increases the pension by the highest of inflation, average wage increase in the UK or 2.5%. This could bring the annual pension amount for 2024-25 up to a maximum of £11,502.
Currently sole traders and partners should prepare their accounts using the accruals basis in a similar way to company accounts. Income and expenses are accounted for when they are earned or incurred. They can opt to use a cash basis instead, accounting for income and expenses as they are received or paid. The cash basis has been restricted for use by businesses with turnover less than £150k.
From April 2024 things will switch around and the cash basis will become the default. Businesses that want to continue with the accruals basis will have to actively “opt out” of the cash basis in their tax return. Businesses switching from accruals to cash will have to make some accounting adjustments for the first year to make sure nothing gets missed or double counted.
This also hits at the same time as basis period reform. From 2024-25 all sole traders and partnerships must have their accounting period in line with the tax year.
Class 2 national insurance is being abolished (for most) from 6 April 2024.
For 2024-25 onwards anyone with self employed profits over £6,725 will automatically get credit towards State Pension entitlement and other contributory benefits without having Class 2 national insurance to pay.
Those below the small profits threshold of £6,725 will continue to be able make voluntary Class 2 NIC contributions to retain their credit. The voluntary contributions for 2024-25 will be frozen at the 2023-24 rate of £3.45 per week.
Self employed business owners also pay Class 4 NIC. The rate for Class 4 NIC will be reduced to 8% from 6 April 24, from the current rate of 9%. This rate applies to any self employed profits between £12,750 and £50,270.
Some of the anticipated changes to inheritance tax and stamp duty land tax were not included in the Autumn statement but may potentially form part of the Spring 2024 budget.
After all the budget drama of 2022, it was quite nice to have a budget without too many big reveals or surprises. The Spring Budget 2023 was all about encouraging economic growth. In amongst the announcements about investment and employment, there were a few tax related updates which were mostly positive in nature.
There was no reversal of the planned increase in the corporation tax rate from 1 April 23 from 19% to 25% for limited companies with profits over £250,000. This will also affect limited companies with profits over £50,000 and under £250,000 who will pay corporation tax at a marginal rate between 19% and 25%.
Super-deduction capital allowances are coming to an end on 31 March 23. These have been in place for the past 2 years, since 1 April 21. They were designed to encourage investment in equipment post-Covid. The rules allowed limited companies to claim 130% in capital allowances on qualifying main pool plant and machinery.
With the theme of growth, encouraging continued investment in assets and equipment remains important. The super-deductions are being replaced by full expensing for qualifying plant and machinery for the next three years.
This allows the full value of qualifying main pool plant and machinery to be claimed in the year that it’s purchased. It applies to expenditure from 1 April 23 to 31 March 26.
This will primarily benefit companies who want to make significant investment in plant and machinery that would exceed the current £1 million annual investment allowance and doesn’t qualify for first year allowances.
As with the super-deductions, it only applies to capital allowances from limited companies, not to sole traders.
As already announced in 2022, from 1 April 23 the rates of R&D relief that are available for SMEs (Small or Medium Enterprises) will be significantly reduced. The 130% rate will reduce to 86% and the credit for loss making SME’s will reduce from 14.5% to 10%.
The Spring Budget 23 gave a partial reversal for R&D intensive loss-making SMEs. R&D intensive means SME’s where the R&D expenditure is more than 40% of the total expenditure in the period. They will still be able to use the 14.5% rate for their payable credit, rather than the reduced 10%.
However this credit will be based on a calculation which uses the new reduced rate for calculating the enhanced expenditure (so 186% rather than the previous 230%).
The VAT threshold is frozen at the current level of £85,000 to 2026. It will have remained the same for 9 years since 2017. With recent inflation, more businesses are likely to exceed the threshold.
After 9 years without a rise, the pension contributions annual allowance will increase from £40,000 to £60,000 from 2023-24. This means more can be invested annually without incurring addition tax.
The pension lifetime allowance has been abolished. This capped the total value of the pension pot and was set at £1,073,100. From 2023-24 there will be no limit on how large the total pension savings can be.
There were no significant changes to other personal tax rates and allowances . They will mainly remain largely the same in 2023-24 as they were in 2022-23.
The main areas of change are the previously announced decrease in the dividends allowance, decrease in the capital gains annual exempt amount and decrease in the additional rate tax threshold.
Some other key areas that don’t directly affect personal or business tax include:
The new tax year of 2023-24 is approaching rapidly.
With only one month to go now until the new tax year, it’s a good time for a round up of some of the changes in store for 2023-24 tax year for both individuals and companies. With so many updates that were announced, then reversed or altered at the end of last year, it’s been easy to lose track of the final outcomes.
There may be changes which affect the decisions you make in the final tax month of 2022-23. For example, around the timing of dividends, capital gains or company profits.
The personal tax thresholds and rates relate to England, Wales and Northern Ireland.
These changes for 2023-24 tax year could mean more or higher tax, especially for dividends, capital gains and corporation tax. You should potentially consider what’s going to fall in March and what will fall in April. A few days difference in timing could make a significant difference to tax.
Were you one of the many people who claimed homeworking expenses as a result of the coronavirus pandemic lockdowns? If so, you need to know those rules have now changed and reassess whether you can still claim.
The coronavirus pandemic lockdowns changed working almost overnight, with many employees having to adapt quickly to working from home. This was supported by some temporary tax changes that allowed many more people to claim tax relief on their homeworking expenses. But those changes came to an end in April 2022 and we are now back to the previous rules.
Although the rules have reverted back to pre-pandemic, working patterns may not have. Since Covid-19 many people have changed the way that they work. Remote working and hybrid working (at home for part of the week) have becoming increasingly common, so the homeworking situation is not always clear cut. What are the current rules around homeworking expenses and how do they apply to different working patterns?
For the tax year 2019-20 HMRC took a lenient view on homeworking expense claims for employees. If you were working at home, on a regular basis, for all or part of the time, as a result of coronavirus, you could claim tax relief on homeworking costs.
You didn’t have to be working from home for the whole year. However, the homeworking had to be required as a result of coronavirus e.g. because of lockdowns or because the workplace was closed, for at least part of the tax year, rather than by choice.
Even a single day working from home was sufficient to claim for the whole year, providing it was required as a result of coronavirus.
Most people claimed the HMRC flat rate of £6 per week (£312 per year) against their tax, or alternatively could claim additional actual costs. This could be done via the self-assessment tax return or using online microservice launched by HMRC in October 2020.
During the pandemic employees could also claim tax relief on equipment purchases for work. Your employer could reimburse the cost of equipment, without deducting income tax and national insurance. There was also no issue of taxable benefits in kind if you kept the equipment at the end. The purchase just had to meet the following conditions:
The rules were expected to return to normal in 2020-21, however during that year there were still many workplaces impacted by Covid-19. Therefore, HMRC allowed homeworking expense claims and equipment reimbursement to continue for that tax year on the same basis.
For 2021-22 onwards we are back to the original pre-pandemic rules, which are stricter in many areas.
There are two scenarios to consider, which have slightly different rules:
The majority of pandemic homeworking claims made in 2019-20 and 2020-21 were employees claiming tax relief from HMRC for homeworking expenses that hadn’t reimbursed by their employer. Claims were made directly through the self-assessment tax return or through the HMRC microsite.
It’s still possible to claim tax relief for the homeworking expenses that haven’t been reimbursed, but now under much more limited circumstances. The following factors must apply
You cannot have chosen to work from home, it must be necessary as a result of the factors above, rather than a choice.
If you have a voluntary working from home arrangement and aren’t being reimbursed for your homeworking expenses by your employer, it may be hard to claim tax relief from HMRC. You would likely no longer meet the stricter post-pandemic criteria.
If you do meet the criteria to make a direct claim, it can still be done through the self-assessment tax return or HMRC’s microservice. If you aren’t registered for self-assessment and use the microsite, HMRC will generally give you tax relief through a change to your tax code for the current tax year.
Your employer can choose to reimburse some or all of your additional homeworking expenses through payroll. The rules around these payments are much less strict than if you are claiming directly and apply to voluntary homeworking arrangements as well as necessary homeworking.
In order for the payment to exempt from tax you need to:
You can be fully home working or hybrid, working from home part of the week. The homeworking must be frequent and follow a pattern e.g. two days per week (although they don’t have to be the same two days each week).
Informal homeworking does not qualify. This includes working from home occasionally or doing work at home in the evenings or at weekends.
There are two main methods for paying home working expenses, the HMRC flat rate or the actual costs
The simplest method is to use the HMRC flat rate of £6 per week for employee homeworking. This is £26 per calendar month or £312 per year.
Employers can pay this without any further evidence of individual expenses as long as you meet the criteria for homeworking.
If you’re a hybrid workers, only working from home part of the week, you can still be paid the full £6 per week. You don’t have to pro-rata in amount.
Instead of the flat rate, you can be paid for any direct increase in home costs as a result of homeworking. This would be for expenses such as heat and light, insurance, metered water, telephone and broadband. You need to be able to provide evidence of the original cost and the increase.
Any costs that would stay the same whether or not you worked from home, can’t be included e.g. rent, council tax.
Actual costs can be difficult as providing evidence of the increase that can be attributed to homeworking is not always straightforward. The rapidly rising prices can add further complexity to this situation.
An alternative is a scale rate payment that your employer agrees with you based on average costs. This rate can then increase each year in line with inflation.
The rules around equipment expenses have also reverted back to their pre-pandemic form. If you need home office equipment, you can no longer just go out and buy it, then claim the money back. There are now tax consequences depending on who pays for the equipment.
If your employer purchases the equipment and there is no significant private use, then there are no adverse tax consequences for you as the employee. However, if you make use of the equipment personally as well as for work, you may end up with a taxable benefit in kind. You might also have a benefit in kind if your employer lets you keep the equipment during or at the end of your employment.
If you buy the equipment and your employee pays you back, this is treated as additional employment income and is subject to tax and national insurance. This is different to the situation in 2019-20 and 2020-21 where there were no tax consequences.
If you buy the equipment but your employer does not pay you back, then you can claim tax relief on that expense. Claims can be made through the self-assessment or via HMRC’s microservice. However, the rules around what can be claimed are quite strict. The equipment needs to be necessary for the performance of your duties, with strong emphasis on “necessary”. A laptop would be fine, but office furniture is not viewed as necessary. Again, this is different to during the pandemic when it was possible to claim for a much wider range of equipment as long as it was being used primarily for work.
The homeworking expenses and equipment rules are now much stricter than they have been over the last couple of years.
Handy Hint – if you aren’t sure whether you can claim or not, HMRC have an expense claim tool as part of their microservice.
As the dark, damp November days start to draw in, Chancellor Jeremy Hunt’s Autumn Statement seems oddly appropriate with its stark tax forecast. A contrast to the bright and breezy mini-budget tax cutting exercise in September. This budget with spending cuts and higher tax brings us down to earth with a much darker outlook in the face of impending recession.
The current income tax personal allowance of £12,570 will now remain frozen at this level until April 2028 (rather than 2026 as previously planned).
The threshold for the 45% additional rate tax has been reduced from £150,000 to £125,140. This will also be frozen until 2028.
This means as wages increase to keep up with inflation and cost of living over the next 5-6 years, a larger portion of the wages are taxed. At the higher earner end, more will be taxed at 45%.
The annual exempt amount for capital gains will decrease from the current level of £12,300 to only £3,000 by 2024-25.
Lower thresholds will mean that more gains need to be reported, either because tax is due, or because proceeds are more than 4 times the annual exempt amount.
The current level of £2,000 dividends that can be taken without tax will decrease to only £500 by 2024-25.
The tax-free amount for dividends was put in place in April 2016 when the tax rules for dividends changed. It was seen as a compromise measure at the time and there has been much speculation as to how long it would last.
This is on top of the existing dividend tax rate increases that look place in 2022-23, when all rates of dividend tax increased by 1.25%. The combination of these factors will increase the tax burden for company directors who take the majority of their income in dividends or people who rely heavily on investment income.
This is another freeze that will result in larger employer national insurance bills as wages rise.
Small to medium enterprises will get less generous R&D tax relief from April 2023. The deduction rate for the Research and Development (R&D) SME scheme is being cut to 86% and the credit rate to 10% as an attempt to combat abuse and fraud in R&D tax relief. This is a significant reduction from the current deduction rate of 130% and credit rate of 14.5%.
On the other hand, larger companies have a more positive outlook. Research and Development Expenditure Credit (RDEC) rate will increase from 13% to 20%. This is the scheme applicable to larger enterprises.
This budget was a painful but necessary exercise to try and combat the national budget deficit and very few taxes are actively going up. But with reductions or freezes to tax free or exempt amounts, in the face of a recession and cost of living crisis, it’s still a chilly proposition.
If the series of updates and change of chancellor following the September Mini-budget have been enough to make your head spin, then today’s announcement was a real roller coaster. It reversed almost all of the tax cuts set out in the 23 September Mini-budget and Growth Plan 2022. So what’s going on with all the budget reversals and why are we all on this wild budget ride?
The initial Mini-budget swiftly resulted in a drop in the value of the GBP in the financial markets and concerns about how the budget would be funded. The reversals have been made to help re-balance the country’s books and hopefully, as a consequence, to improve market confidence and stability. The reversals are estimated to raise £32bn.
The Mini-budget changes have not yet been legislated through Parliament. So it’s still possible to reverse them at this stage, even if it’s rather unusual. Today’s announcement was bringing forward a number of measures that are part of the Government’s 31 October Medium-Term Fiscal Plan.
The first budget reversal announced on 3 October 22 was to scrap plans to abolish the 45p rate of income tax. The additional rate of income tax at 45% will now remain.
Basic rate income tax was due to be cut to 19% from April 2023. After today’s announcement this will no longer take place. The government still aims to proceed with the cut, but no future date has been given as to when it might happen. For now the basic rate remains at 20%.
Plans to cut dividends tax by 1.25% from April 23 have been reversed. The 1.25% increase which took effect from April 2022 will remain.
The Energy Price Guarantee for households will only be in effect until April 2023. This was originally put in place for two years but will now be limited to 6 months and will be reviewed next April.
On 14 October 22 the freeze on Corporation tax was scrapped. The Mini-budget announced plans to leave Corporation tax at the current 19% rate instead of the increasing to 25% from 1 April 23. This decision was reversed and the planned increase in April 23 will still go ahead.
The Mini-budget planned to simplify IR35 with a move back to workers determining their own employment status. Today’s announcement has reversed this and the 2017 and 2021 IR35 reforms will remain in place. Employment status will still be the responsibility of the business or public authority rather than the worker.
The freeze in alcohol duty rates will not go ahead.
The VAT free shopping scheme for non-UK visitors has been scrapped.
There are a few items that have survived intact from the Mini-budget.
On the individual tax side of things, the planned reversal of the National Insurance increase and scrapping of the Health and Social Care Levy will still take place. The extra 1.25% introduced from April 22 will be removed from 6 November 22.
The changes to the Stamp Duty Threshold also remain. No stamp duty is paid on the first £250,000 of a property’s value and the first £425,000 for first time buyers.
The £1m annual investment allowance has not changed.
Chancellor Kwaski Kwarteng’s growth focused September 2022 Mini-Budget announced some significant changes.
The main aim of the Mini-budget is to boost growth in the UK, supporting the government’s Growth Plan 2022. This growth is being achieved through a balance of tax cuts and incentives for investment, some of which are undoing previous plans or current legislation. Here are some key areas which may affect you or your business.
The reversal of the National Insurance increase was already announced in advance of the budget as well as the scrapping of the new Health and Social Care Levy. This means the extra 1.25% that was introduced in April 22 will be removed from 6 November 2022.
The basic rate of income tax will be reduced from 20% to 19% from April 2023. This change was already planned but originally for April 2024, so it has been brought forwards a year.
At the top end of income tax there are also changes. The additional rate of 45% will be removed from April 2023. Earnings under £50,270 will fall into the basic rate of 19% and above that they will be taxed at the higher rate of 40% for 2023-24. There will be no additional rate.
These changes do not apply to Scotland where the income tax bands are different.
Just as the Heath and Social Care Levy increase in National Insurance has been removed, as will the 1.25% increase in tax on dividends that happened at the same time. From April 2023 the dividends will go back to being taxed at 7.5% and 32.5%.
If you are buying a home then you can benefit immediately from a doubling of the stamp duty threshold from £125,000 to £250,000. This means there is no stamp duty due on the first £250,000 of the property value and this change is effective straight away. This change gets rid of the 2% rate that used to be charged between £125,000 and £250,000 of the property value. Now the whole value up to £250,000 is at 0% and then £250,000 to £925,000 is charged at 5%, the same as previously.
First time buyers now pay no stamp duty up to £425,000 and then 5% up to £625,000. This used to be 0% to only £300,000 and then 5% to £500,000 so they are getting an extra £125,000 with no or reduced stamp duty.
The planned rise in Corporation tax rates to 25%, due in April 2023, has been cancelled and it will remain at the current 19%.
The IR35 rules for off-payroll working that affect many contractors will be simplified. There will be a move back towards workers determining their own employment status (rather than the business or public authority that they are working for). The 2017 and 2021 changes will effectively be undone.
The recent announcements about the Energy Price Guarantee, (caps the unit price for electricity and gas from October 2022) and Energy Bills Support Scheme (£400 support for energy bills) helped to support domestic households in relation to the high energy prices.
The budget outlined further support for businesses in relation through a new six month Energy Bill Relief Scheme. This will provide a discount on energy prices for businesses (and other non domestic energy users).
The government will also make interventions in the energy market to try to bring down the wholesale prices, reduce disruption to the market and generally introduce measures of reform. There will also be increased support available for energy efficiency measures and renewable heating investments.
The annual investment allowance is to remain at the current level of £1m.
The government is aiming to encourage investment in infrastructure by changing the planning system and restrictions in relation to certain types of projects.
Regional investment zones will have reduced taxes or additional tax benefits over the next 10 years to encourage investment and growth in specific geographical areas.
Bounce Back Loan abuse is in the news…the Insolvency Service is to be given new powers to crackdown on Bounce Back Loan abuse by enabling them to investigate directors of companies that have been dissolved.
This effectively closes a legal loophole. At present, the Insolvency Service, on behalf of the Business Secretary, only has the ability to investigate directors of live companies or those entering a form of insolvency.
These new powers have been driven, in part, by concerns that businesses are abusing the dissolution process to fraudulently avoid the repayment of loans under Bounce Back Loan scheme.
The powers at the disposal of the Insolvency Service are:
Another abuse that these powers are set to address is phoenixing. Here, the directors dissolve one company and set up a virtually identical business after the dissolution, often leaving employees, customers, suppliers and HMRC out of pocket.
The intention is for these measures to be retrospective. The Insolvency Service will be investigating companies that have already been dissolved to see if this this was appropriate or to avoid the repayment of Bounce Back Loans.
The Bounce Back Loan Scheme was a vital element of government support during the COVID-19 pandemic. It provided a quick injection of cash for businesses struggling to make ends meet.
However, it was always more of a band aid than a panacea. Businesses fail despite the best-efforts of the directors. In many cases, closing and dissolving the company is the correct course of action.
These powers are looking to target the small element who applied for a Bounce Back Loan with no intention to repay it.
Under the existing rules, directors of three companies have been banned for between eight and nine years where there had been misrepresentation in the application or the misuse of the funds.
You will find our previous article regarding the bounce back loan scheme by clicking here.
The Chancellor, Rishi Sunak, unveiled the 2021 UK Budget in parliament today and there were twelve key takeaways:
Employees will continue to receive 80% of their current salary capped at £2,500 for hours not worked. However, the employer will need to make a 10% contribution in July and a 20% contribution in August and September.
See our blog on this topic here – https://cooperfaure.designmindshost.com/covid-19-business-support-job-retention-scheme-extended-by-a-month-and-more/
The grant will be worth 80% of three months’ average trading profits covering the February to April period. As before, it will be paid as a single amount and will be capped at £7,500 in total. All other eligibility criteria will remain the same as for the third grant, so there remains no support for those who were remunerated by dividends. The grant can be claimed from late April.
There will be a fifth and final grant covering the May to September period. The value of the grant will be determined by a turnover test. Individuals whose turnover has fallen by 30% or more will continue to receive the full grant, 80% of three months’ average trading profits capped at £7,500. Individuals whose turnover has fallen by less than 30% will receive a 30% grant, capped at £2,850. The final grant can be claimed from late July.
See our latest blog on this topic here – https://cooperfaure.designmindshost.com/covid-19-the-government-has-announced-a-welcome-second-grant-under-the-self-employment-income-support-scheme-but-key-groups-to-the-revival-of-the-economy-are-still-left-with-nothing/
The temporary increase in the residential Nil Rate Band to £500,000 in England and Northern Ireland has been extended until 30th June 2021. From 1st July 2021, the Nil Rate Band will reduce to £250,000 until 30th September 2021 before returning to original level of £125,000 on 1st October 2021.
The government will underwrite lenders with a guarantee of 80% on eligible loans between £25,000 and £10 million. The scheme will be open to all businesses, including those who have already received support under the Bounce Back Loan Scheme or CBILS.
See our latest blog on this topic here – https://cooperfaure.designmindshost.com/the-recovery-loan-scheme/
This measure applies to England and offers grants of up to £6,000 per premises for non-essential retail businesses and up to £18,000 per premises for hospitality, accommodation, leisure, personal care and gym businesses.
The temporary reduced rate to 5% VAT for goods and services supplied by the tourism and hospitality sector will continue until 30th September 2021. A 12.5% rate will apply for the subsequent six months until 31st March 2022 with the rate then returning to 20%.
There will be 100% business rates relief from 1st April 2021 to 30th June 2021 followed by 66% business rates relief for the period from 1st July 2021 to 31st March 2022. The relief will be capped at £2 million per business for properties that were required to be closed on 5th January 2021, or £105,000 per business for other eligible properties.
This will be available for both incorporated and unincorporated businesses. Relief for up to £2 million of losses in each of 2020-21 and 2021-22 years can be carried back against profits in the preceding three years to generate a Corporation Tax or Income Tax refund.
See our latest blog on this topic here – https://cooperfaure.designmindshost.com/extended-loss-carry-back-relief-limited-companies/
In a reversal of the previous strategy, Corporation Tax will increase from April 2023 to 25% on profits over £250,000. The rate for small profits of up to £50,000 will remain at 19%. There will be an as yet undefined tapered increase in the rate on profits between £50,001 and £250,000.
Despite there being little evidence of widespread abuse, for accounting periods beginning on or after 1 April 2021, the amount of SME payable R&D tax credit that a business can receive in any one year will be capped at £20,000 plus three times their total PAYE and NICs liability. At the same time, there will be another R&D consultation to cover whether the schemes should be amended to remain internationally competitive and keep the UK at the cutting edge of innovation.
See our latest blog on this topic here – https://cooperfaure.designmindshost.com/research-and-development-tax-relief-testimonial/
Whilst the preceding policy announcements had been widely revealed before the 2021 UK Budget, the Chancellor held one announcement back. From 1st April 2021 until 31st March 2023, companies investing in qualifying new plant and machinery assets will benefit from a 130% first-year capital allowance. This super-deduction will allow companies to cut their tax bill by up to 25p for every £1 they invest.
As ever, the Budget document runs to over one hundred pages covering a lot more than in the speech. For instance, the contactless payment card limit will increase to £100, and cumulative contactless payments up to £300. Banks are expected to implement the new limits during the year.
We will be reviewing the document to unearth other gems for our next newsletter over the weekend.
We will also be looking at how the changes to the Corporation Tax rate will impact the remuneration strategy between salaries and dividends. In April 2016, the personal tax treatment of dividends changed. This closed the gap on the overall tax paid between a salary and a dividend, but it still tilted in favour of a dividend.
At the time, the Corporation tax rate was 20%. From 2023, with the rate 5% higher, the overall tax basket may well tilt in favour of a salary.
Further information is available from gov.uk – https://www.gov.uk/government/topical-events/budget-2021