Spring Budget 2023
On 15 March 2023, building on the difficult tax and spending decisions taken at the Autumn Statement 2022, the Chancellor of the Exchequer Rt Hon Jeremy Hunt MP delivered his Spring Budget 2023 setting his key priorities as being halving inflation, getting debt falling and growing the economy, under the slogan “Employment, Education, Enterprise and Everywhere".
More details are expected when the Finance Bill is published on 23 March, while there may also be further announcements and consultations following the Tax Administration and Maintenance Day in the Spring.
We set out below a summary of the main tax announcements but in the meantime please speak to your usual Statura contact should you wish to discuss the content of this document in more detail or indeed the way in which the Spring Budget might affect your personal circumstances.
Corporation Tax rates
As previously announced, the planned increase in the Corporation Tax rate to 25% for companies with profits in excess of £250,000 will go ahead from 1 April 2023, with the rate increasing incrementally from 19% to 25% for companies with profits of between £50,000 and £250,000. Legislation will be introduced within the Spring Finance Bill 2023.
Capital allowances allow businesses to write-off their costs of qualifying capital investments against their taxable profits over time.
From 1 April 2023, the current super deduction will be replaced with “full expensing relief” for companies for three years to 31 March 2026. Companies incurring qualifying expenditure on the provision of new plant and machinery during this three-year period will be able to claim one of two temporary first-year allowances.
- a 100% first-year allowance for main rate expenditure on plant and machinery – known as “full expensing”; and
- a 50% first-year allowance for special rate expenditure on features integral to buildings, solar panels, thermal insulation and long-life assets.
With effect from 1 April 2023, the £1m threshold been made the permanent level of Annual Investment Allowance (AIA), which allows a 100% deduction for qualifying plant and machinery expenditure up to that limit. Given the full expensing regime only applies to companies, the AIA will still have value for qualifying partnerships, individuals etc.
Research and Development (R&D) tax reliefs
The Chancellor announced a new “enhanced credit” for some R&D-intensive SMEs, aimed at encouraging growth and ensuring the UK is a competitive jurisdiction to attract investment. This will apply from 1 April 2023.
A company is considered R&D intensive where its qualifying R&D expenditure is worth 40% or more of its total expenditure (defined by reference to total expenditure in the company’s accounts, with some adjustments). This initiative will specifically target loss-making R&D-intensive SMEs. Eligible companies will be able to claim a credit rate of 14.5% compared to the 10% rate available to loss-making companies not meeting the R&D intensive criteria.
Furthermore, draft legislation published on 15 March 2023 included new categories of expenditure qualifying for relief (data licenses and cloud computing services), a limit on the relief for subcontracted work and externally provided workers to focus on UK activity and an obligation for all claims to R&D reliefs to be made digitally.
Transfer pricing documentation
As previously announced, the government will introduce legislation in Spring Finance Bill 2023, with supporting regulations, to require businesses operating in the UK, which are part of a large multinational enterprise (global revenues of €750 million or more), to prepare transfer pricing documentation, namely a master file and local file, in accordance with the OECD transfer pricing guidelines. This measure will apply to accounting periods beginning on or after 1 April 2023.
OECD Pillar 2 and multinational / domestic top-up tax
As announced at Autumn Statement 2022, the government will legislate in Spring Finance Bill 2023 to implement the globally agreed G20-OECD Pillar 2 framework in the UK. The government will:
- Introduce a multinational top-up tax which will require large UK headquartered multinational groups to pay a top-up tax where their operations in a foreign jurisdiction have an effective tax rate of less than 15%. The measure would also apply to non-UK headquartered groups with UK members that are partially owned by third parties or where the headquartered jurisdiction does not implement the Pillar 2 framework.
- Introduce a supplementary domestic top-up tax which will require large groups, including those operating exclusively in the UK, to pay a top-up tax where their UK operations have an effective tax rate of less than 15%.
These changes will apply to large groups with over €750 million global revenues and will take effect in relation to accounting periods beginning on or after 31 December 2023.
PERSONAL AND EMPLOYMENT TAXES
Pension allowances and thresholds
The annual allowance, which effectively limits the income tax relief on pension contributions made by an individual in the tax year, will be increased from £40,000 per tax year to £60,000 per tax year.
The lifetime allowance, which limits the total tax-relieved value that can be accumulated into registered pension schemes, currently set at £1.07m is to be abolished from 6 April 2023.
However, the Government does not want individuals to be able to take 25% of their entire pension pot tax-free. Therefore, a pension commencement lump sum upper monetary cap of £268,275 (which is 25% of the current standard lifetime allowance) will continue apply to limit the amount that can be taken tax-free.
Capital Gains Tax
As announced at Autumn Statement 2022, the government will legislate in Spring Finance Bill 2023 to address tax avoidance so that shares and securities in a non-UK company acquired in exchange for securities in a UK close company will be deemed to be located in the UK.
This measure will have effect where an individual has a material interest (at least 5%) in both the UK and the non-UK company and where the share exchanges are carried out on or after 17 November 2022.
Carried interest rules
The government will legislate in Spring Finance Bill 2023 to provide a new (irrevocable) elective accruals basis of taxation for carried interest. UK resident individuals who pay tax on carried interest are sometimes unable to claim double taxation relief from other countries because carried interest is recognised and charged to tax at a different time in the two jurisdictions. This election will allow UK resident investment managers to accelerate their tax liabilities in order to align their timing with the position in other jurisdictions, where they may obtain double taxation relief. This change is to apply retrospectively from 6 April 2022 onwards.
Short Term Business Visitor (STBV) rules
The Chancellor has indicated that additional leeway will be introduced to HMRC's Short Term Business Visitor (STBV) rules. These agreements allow for individuals to remain within their home country's tax system when undertaking business visits to the UK on a short-term basis. Whilst full details have yet to be provided, it is understood the range of permitted business activities, within which it is accepted no UK tax liabilities arise, are to be extended.
The Government will legislate in Finance (No 2) Bill 2023 to consolidate five powers that allow Automatic Exchange of Information (AEOI) regulations to be laid. AEOI regulations enable the automatic exchange of tax information between jurisdictions to support compliance, in line with international agreements. These powers cover the OECD Mandatory Disclosure Rules (MDR), the Common Reporting Standard (CRS), Foreign Account Tax Compliance Act (FATCA), Country by Country Reporting (CbCR) and Reporting Rules for Digital Platforms (DP) regulations.
The Government announced that it is proceeding with its Investment Zones programme and has invited eight areas in England to begin discussions on establishing such Zones. The Finance (No 2) Bill 2023 will include legislation building on the Freeports provisions to allow designation of special tax sites in or connected with Investment Zones and to enable such sites to benefit from the tax incentives.