Last week, Chancellor of the Exchequer, Jeremy Hunt, revealed his Spring Budget to MPs in the House of Commons, laying out the government’s plans for economic growth. In this week’s Tax Tuesday, we provide an insight to the upcoming changes to business taxes as announced in the Budget.
Capital allowance updates
Hunt introduced the plans for Full Expensing, which will be a 100% First Year Allowance (FYA). FYAs are capital allowance tax incentives that allow corporations to deduct the cost of qualifying expenses from their tax bill in the first year of purchasing the equipment. This enables UK companies to invest in new technology and offset costs against their taxable profits. The new 100% FYA allows companies to deduct the cost of qualifying plant and machinery from their profits straight away without an expenditure limit. This will be effective for purchases that take place on or after 1st April 2023, but before 1st April 2026. Similarly, a 50% FYA for other plant and machinery, including long life assets and integral features (special rate assets) will operate along similar lines. Both Full Expensing and 50% FYA are unavailable for unincorporated businesses.
Plant and machinery includes, but isn’t limited to:
- machines such as computers, printers, lathes and planers
- office equipment such as desks and chairs
- vehicles such as vans, lorries and tractors (but not cars)
- warehousing equipment such as forklift trucks, pallet trucks, shelving and stackers
- tools such as ladders and drills
- construction equipment such as excavators, compactors and bulldozers
- some fixtures such as kitchen and bathroom fittings and fire alarm systems in non-residential property.
The Government has also extended the 100% FYA for electrical vehicle charge points to 31st March 2025 for corporation tax purposes and to 5th April for income tax purposes, which may incentivise businesses to begin moving away from petrol and diesel vehicles.
The announcement of Full Expensing is a welcomed incentive, as the capital allowance Super Deduction is set to end on 31st March 2023. This was a 130% FYA on the purchase of qualifying plant and machinery, originally introduced to help businesses offset the damage of the COVID-19 pandemic, whilst also stabilising the economy.
Are there any other upcoming changes to business taxes?
Yes, there are – back in November, Jeremy Hunt announced an increase to corporation tax from April 2023. On 1st April 2023, corporation tax will increase from 19% to 25% for companies with profits over £250,000. The current rate of 19% will become a small profits rate for companies with profits of £50,000 or less. As well as this, a marginal rate of corporation tax will be payable by companies with profits between £50,001 and £250,000. This will provide a gradual increase in the effective corporation tax rate between 19% and 25%
On top of this, the Annual Investment Allowance (AIA) temporary limit of £1 million was set to reduce to £200,000 from April 2023. However, the government decided to make the £1 million limit permanent, meaning that both incorporated and unincorporated businesses can receive a 100% write off on up to £1 million on certain types of plant and machinery per 12-month period.
For further updates from the Spring Budget, you can download our Spring Budget Summary Report here.