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Spring Budget 2023: Unveiling the UK’s Economic Roadmap

Spring Budget 2023: Unveiling the UK’s Economic Roadmap

Spring Budget 2023: Unveiling the UK’s Economic Roadmap

Spring Budget 2023

The Chancellor’s Spring Budget, presented on Wednesday, 15 March, was a bold leap towards growth. 

Packed with initiatives such as a transformative approach to childcare, a significant tax reduction of £27 billion for businesses, and multiple cost-of-living relief measures, the budget aims to fuel economic growth and deliver prosperity for the people of the United Kingdom.

Business Tax

Corporation tax

The Chancellor has confirmed a rise in the primary corporation tax rate from 19% to 25%, effective 1 April 2023.

Capital Allowances

The super-deduction regime concludes on 31 March 2023, with a replacement ‘full expensing’ – 100% capital allowances for qualifying plant and machinery – launching on 1 April 2023. This regime will run for three years, until 31 March 2026.

The Government aspires to make this permanent. They will also debut 50% first-year allowances for ‘special rate’ plant and machinery, including long-life assets, applicable only for corporation tax purposes and unavailable for businesses taxed on income unless they fall below the Annual Investment Allowance threshold of £1m per annum. Furthermore, they’ve extended the 100% first-year allowance for qualifying electric vehicle charge-point equipment expenditures until 31.03.2025 for corporation tax and 05.04.2025 for income tax.

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Research & Development

Effective 1 April 2023, the Government introduces a higher relief rate for loss-making, R&D-intensive SMEs. SMEs with qualifying R&D expenditure constituting at least 40% of total spending can receive an adequate credit of 27p for every £1 of qualifying R&D expenditure.

The Government continues to evaluate responses to the consultation on merging the RDEC and SME schemes and remains undecided. They plan to publish draft legislation on a potentially combined R&D relief scheme for technical consultation in the Summer. The previously announced restriction on including some overseas expenditure in R&D tax relief claims is deferred for a year until 1 April 2024, allowing the Government time to evaluate this in conjunction with a potential merged R&D relief scheme.

The Government will establish two new categories of qualifying R&D expenditure: data licences and cloud computing services. They also announced that all R&D claims filed from 1 August 2023 must use the latest digital forms, irrespective of the accounting period.

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Investment Zones

The Government unveiled 12 Investment Zones across the United Kingdom to drive economic growth and “level up” the country. The approved locations are the West Midlands, Greater Manchester, the Northeast, South Yorkshire, West Yorkshire, East Midlands, Teesside, and Liverpool. 

Each English Investment Zone will allocate £80 million over five years. This funding includes a comprehensive tax package, applicable for five years, which is equivalent to the benefits provided by Freeports. Additionally, grant funding will be provided to address and overcome local productivity challenges within the respective zones. The Government has opened discussions with local partners in eight areas in England on establishing Investment Zones. It will work with devolved authorities to introduce Investment Zones in Wales, Scotland and Northern Ireland.

Transfer pricing documentation

After consultations, we have confirmed that large multinational businesses operating in the UK must maintain a master file and a local file in a prescribed and standardized format, following the transfer pricing guidelines outlined by the OECD. 

In addition to this, HMRC is currently consulting on the implementation of a summary audit trail. This would involve a brief questionnaire documenting the key steps taken while preparing the local file.

Creative industry reliefs

From 1 April 2024, the additional deduction tax reliefs for films, TV and video games will be reformed. New Audio-Visual Expenditure Credits will apply to film and high-end TV (34% credit) and animation and children’s TV (39% credit). The high-end TV expenditure threshold remains at £1 million per hour. The new Video Games Expenditure Credit will have a 34% credit rate, applying to expenditure on goods and services consumed or used in the United Kingdom.

The current video games tax relief will expire in April 2027 for games still in development by 1 April 2025. Starting from 1 April 2023, we will extend the temporary higher rates of Theatre Tax Relief (TTR), Orchestra Tax Relief (OTR), and Museums and Galleries Exhibitions Tax Relief (MGETR) for two years. The headline rates for TTR and MGETR will remain at 45% (for non-touring productions) and 50% (for touring productions), while the OTR rate will stay at 50%. These rates will gradually decrease afterwards. The eligibility criteria for these reliefs will be based on expenses incurred on goods and services used or consumed in the UK, aligning with audio-visual substitutes and ensuring compliance.

Elective accruals basis for carried interest rules

UK investment managers can prepay taxes to align with other jurisdictions, facilitating double taxation relief.

Personal Tax

Income tax rates and thresholds

The previously announced personal income tax and National Insurance Contribution thresholds or rates have seen no changes.

Pension tax relief

As a measure to reduce economic inactivity, significant pension taxation reforms have been announced:

  • Starting April 2023, individuals can contribute up to £60,000 tax-free to their pension fund annually, up from the previous limit of £40,000.
  • In future budgets, the Government plans to abolish the Lifetime Allowance, currently pegged at £1,073,100.
  • From April 2023, the annual tax-free pension fund contribution limit will increase from £40,000 to £60,000.
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Indirect Taxes & Duties, Fuel duty, Alcohol Duty Rates and Reform, Spring Budget 2023, Transfer pricing documentation, Spring Budget 2023: Unveiling the UK's Economic Roadmap, tax fraud, Chancellor’s Spring Budget

Indirect Taxes & Duties

Fuel duty

The government has stated it will keep fuel duty frozen and extend the 5p reduction for another year.

Alcohol Duty Rates and Reform

Alcohol duty rates will rise in line with RPI inflation. 

The Draught Relief will increase from 5% to 9.2% for beer and cider products, while wine, spirits-based, and other fermented draught products will experience growth from 20% to 23%. 

These changes will come into effect from 1 August 2023.

Additional Measures

Energy price support

The Energy Price Guarantee for households will continue until June 2023, capping average energy bills at £2,500 per year. The Energy Bills Relief Scheme for businesses will transition into the Energy Bills Discount Scheme until 31 March 2024. Until 31 March 2024, the Energy Bills Relief Scheme for businesses and non-domestic users will be renamed as the Energy Bills Discount Scheme.

Charity Relief Restrictions

Starting 15 March 2023, only UK charities will receive charitable relief. EU and EEA charities and Community Amateur Sports Clubs will not qualify. There’s a transitional period until April 2024. This is for EU and EEA charities previously approved by HMRC for relief.

Tonnage Tax

From June 2023, the government allows an election window. This lets shipping companies, once part of the Tonnage Tax regime, return to the UK.

Sovereign Immunity from Direct Taxation

No changes will be made to the current exemption from direct taxation for sovereign investors, which will continue.

Tax Fraud

The government will increase the maximum sentences for severe tax fraud cases from 7 to 14 years.

Promoters of Tax Avoidance Schemes

The government intends to initiate a consultation process regarding introducing a new criminal offence. The offence targets tax avoidance promoters who ignore HMRC’s notice to stop promoting such schemes. Furthermore, a consultation will be conducted to expedite the disqualification process for directors promoting tax avoidance. This includes individuals who have control or influence over the company’s operations.

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Source:  |  Keywords: Chancellor’s Spring Budget, tax fraud, Indirect Taxes & Duties, Personal Tax, Business Tax, Spring Budget 2023.

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