17 Nov 2022
Autumn Statement: What’s in store for Corporation Tax and Innovation and Investment?
As was ever thus, there is a fine balancing act between protecting public revenues and funding the spending gap and stimulating innovation, investment and growth, which in turn (certain theory goes) should generate profits, wealth and more taxes. The Chancellor delivered limited news in this area but the news that there was is significant.
To kick things off, Jeremy Hunt confirmed that the mainstream UK corporation tax rate will move to 25% from 1 April 2023 on profits above £250,000. One imagines that changes to the calculation of associated companies for the purposes of calculating the applicable CT rate and the liability for quarterly instalments that were proposed previously will also come into force. For most, this will not change things materially but for some companies the number of associated entities will increase and they will enter the quarterly instalments regime earlier than otherwise anticipated.
Research and Development Tax Credits
Following on from HMRC’s significantly increasing level of R&D related enquiry activity the Chancellor announced some significant changes to the existing R&D regime, with yet more R&D related uncertainty for several years – something that we have now learned to live with.
For expenditure on or after 1 April 2023, the Research and Development Expenditure Credit (RDEC) rate will increase from 13% to 20%, the small and medium-sized enterprises (SMEs) additional deduction will decrease from 130% to 86%, and the SME credit rate will decrease from 14.5% to 10%. These rate changes will be legislated for in the Autumn Finance Bill 2022. The Chancellor argued ‘this improves the competitiveness of the RDEC scheme, and is a step towards a simplified, single RDEC-like scheme for all’.
The government will consult on the design of a single scheme, and ahead of forthcoming Budgets work with industry to understand whether further support is necessary for R&D intensive SMEs, without significant change to the overall cost envelope for supporting R&D.
As previously announced at the Autumn Budget in 2021, the R&D tax reliefs will be reformed by expanding qualifying expenditure to include data and cloud costs, refocusing support towards innovation in the UK and targeting abuse and improving compliance. These changes will be legislated for in the Spring Finance Bill in 2023.
Capital Allowances
The Budget was very quiet in terms of capital allowances. Previously, announcements confirmed that the annual investment allowance which provides 100% tax relief on the first £1m of qualifying expenditure, will continue permanently post March 2023. For those businesses spending less than £1m they will still achieve immediate tax relief in year of expenditure. However, for those companies with high capital expenditure, many of which are achieving an unlimited 130% ‘super-deduction’ for expenditure incurred by 31 March 2023, tax relief is being spread over a far longer period from April 2023 onwards.
No further changes were announced following the ideas raised in the capital allowance policy paper published on 9 May 2022. This discussed ideas such as increasing the rate of writing down allowances, which are helpful to those businesses investing heavily, introducing a general first year allowance or introducing permanent expensing. Other than keeping the pre-announced permanence of the 100% allowance at £1m, we saw no further reform announced in the Autumn Statement.
In order to incentivise further electric vehicle charge-points, the 100% first year allowance will be extended by a further two years until April 2025.
Investment Zones
The Autumn Statement announcements included a ‘refocus’ of the previously announced Investment Zones programme. These areas were to be established to drive growth and unlock housing, by providing time limited tax incentives and relaxed planning rules. These will now instead be a limited number of the highest knowledge-intensive growth clusters, focusing on local research strengths. Those areas previously identified, including Gravity (Bridgwater), Newquay Airport and Weymouth will now no longer be taken forward and new ‘clusters’ will be announced over the coming months.
For more analysis, visit our Autumn Statement hub.
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