Spring Budget - Corporate Tax
Although 2022 was peppered with “Fiscal Events”, Wednesday’s Budget was the first since October 2021. As expected, the Chancellor Jeremy Hunt has chosen not to make many dramatic announcements at this stage, perhaps keeping his powder dry for next year and a pre-election give away. However, there are still incentives for growth in a number of areas.
Investment incentives – capital allowances and Investment Zones
For corporation taxpayers, the double pain of the corporation tax rate rise and the end of the super deduction has been tempered by the Chancellor’s announcement of 100% capital allowances on new capital expenditure. This will be welcomed by companies particularly in the real estate sector as it will apply to many (new) fixtures in buildings. The Chancellor clearly hopes that the new first year allowance will incentivise business investment. As the allowance is due to be in place until 31 March 2026, companies have three years to benefit. Whether the allowance will remain in place after that date is less clear. Jeremy Hunt’s speech suggested that the government intends to make it permanent “as soon as we can responsibly do so”.
Unincorporated businesses will not benefit from the new first year allowances. However, the temporary limit of £1 million for Annual Investment Allowances will become permanent from 1 April 2023. This allows businesses to take a 100% deduction for expenditure on qualifying plant and machinery up to a cap of £1 million.
Real Estate investors and businesses looking for new premises should consider the new Investment Zones that are planned. There would be enhanced capital allowances, relief for stamp duty land tax and relief from National Insurance Contributions available in the same way there currently is for Freeport Sites.
REITs and QAHCs
Changes to the Real Estate Investment Trust (REIT) and Qualifying Asset Holding Company (QAHC) rules will open opportunities for more entities to fall within these regimes. For example:
- To benefit from the REIT or QAHC regimes, the company must currently meet the “General Diversity of Ownership” condition. Going forward, an entity may qualify where it meets the tests when looked at as part of a multi-entity arrangement. Under the current rules, the test must be met on a single entity basis.
- REITs will no longer be required to hold three properties; a single property worth over £20 million will be sufficient.
Small and medium-sized companies could benefit from the extension of Research and Development Relief but will need to ensure that they meet the new compliance requirements.
The other corporation tax changes announced will mostly interest large, multi-national businesses. Details of the domestic “top-up” tax to ensure that profits are taxed at a minimum of 15% in line with the OECD Pillar 2 were announced, together with compliance changes for transfer pricing and various changes to the corporate interest restriction.
Employment and Investment Incentives
The eye-catching abolition of the Pension Lifetime Allowance will interest employees and, the Chancellor hopes, others re-entering the workforce. However, this was not the only employment incentive included in the Budget announcements. As announced in the Fiscal Statement on 23 September 2022 (and highlighted by our previous update here), the scope of Company Share Option Plan (“CSOP”) and the Seed Enterprise Investment Scheme (“SEIS”) will become more generous. In addition, changes will be made to Enterprise Management Schemes to simplify the grant of options. Please see Elliot Michaelson’s article for more details here.
UK resident individuals who are taxed on carried interest in the UK and abroad may benefit from the ability to elect to bring forward their UK capital gains tax liability on carried interest. Although bringing forward tax does not at first sight seem attractive, it will allow the affected individuals to claim double tax relief. At present, those individuals may not be eligible for full double tax relief because the carried interest is recognised and taxed at different times in the UK and abroad, and this measure is a welcome one for those affected.