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Spring budget 2023

The Chancellor unveiled his Spring Budget on 15 March 2023.

There were a number of innovative announcements included for business – as follows:

  • More business rates relief: This includes the freezing of the multiplier and the introduction of 75% relief for retail, hospitality and leisure businesses.

  • Extending creative sector reliefs: theatres, orchestra and museums and galleries will benefit from a further 2 years of tax relief rates of 45%/50%.

  • The Annual Investment Allowance (AIA): an existing measure which also supports business investment, has been increased permanently to £1 million.

  • Research and Development Expenditure Credit and the R&D SME scheme: increased permanent rate of relief for the most R&D intensive loss-making SMEs.

  • Seed Enterprise Investment Scheme (SEIS): expanded in scope to help more UK start-ups raise higher levels of finance.

Capital allowances

Capital allowances let businesses write-off the cost of certain capital spending against taxable profits, thus cutting their overall tax bill. There were two main new measures announced.

Full expensing (FE) lets taxpayers deduct 100% of the cost of certain plant and machinery from their profits before tax. It is effective from 1 April 2023 to 31 March 2026. FE applies to spending on most asset purchases, such as forklift trucks, tools, construction equipment, office equipment, works vehicles, office equipment, and some fixtures (e.g. kitchen fittings, fire alarm systems). FE allows companies to deduct 100% of the cost from their profits straight away rather than more slowly over the life of the asset. FE results in a 25p tax saving for every £1 invested.

50% first-year allowance (FYA) lets taxpayers deduct 50% of the cost of other plant and machinery, known as special rate assets, from their profits during the year of purchase. This includes long life assets such as solar panels and thermal insulation on buildings. The 50% FYA was introduced alongside the super-deduction and was due to end on 31 March 2023 but is now being extended by three years to 31 March 2026. For each year following the first year, 6% of the remaining cost will be written off via Writing Down Allowances (WDAs). 50% FYA allows for faster relief than under the default WDAs-only regime, which is worth 6% each year, including year one.

Research & Development

The Chancellor announced a new R&D scheme for SMEs in the UK - coming in from 1 April 2023. The scheme is targeted specifically at loss making R&D intensive SMEs. A company is considered R&D intensive where its qualifying R&D expenditure is worth 40% or more of its total expenditure. Eligible loss-making companies will be able to claim £27 from HMRC for every £100 of R&D investment, instead of £18.60 for non R&D intensive loss makers. The measure is intended to assist small companies working in the pharmaceutical and life sciences industry, computer programming, consultancy, and related activities, manufacturing firms, and some professional, scientific, and technical activities firms. This follows the permanent increase from 13% to 20% for the R&D Expenditure Credit rate announced at Autumn Statement 2022.

Simpler Small Business Tax System

The Chancellor announced a series of admin changes to the simplify the tax system to make it easier for small businesses to interact with.

The simplification package includes:

  • Changes to the Enterprise Management Incentives (EMI) scheme from April 2023 to simplify the process to grant options and reduce the administrative burden on participating companies. This includes, from 6 April 2023, removing requirements to signs a working time declaration and setting out details of share restrictions in option agreements.

  • Delivery of IT systems to enable tax agents to payroll benefits in kind on behalf of their clients – allowing agents to better support their clients and reducing burdens on employers.

  • Consulting on the Help to Save scheme.

  • Measures to simplify the customs import and export processes, including improvements to the Simplified Customs Declaration Process, and the Modernising Authorisations project.

This Budget package marks the first stage of a continuous programme of work on tax simplification it was announced.

Authored by: Cambridge Team


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