What the Spring Budget 2023 means for the consumer sector

There was much in the Chancellor’s Budget to encourage individuals back into the workplace, be that retirees wanting to return to work, those with disabilities or childcare responsibilities, and potential apprentices. These measures should ultimately benefit the Consumer sector, both as a large source of employment and as a means to boost disposable income available for consumer spending by supporting households with rising costs of living.

There has, however, been widespread criticism that the Apprenticeship Levy needs much more radical reform to be truly impactful, particularly by widening the skills courses it can be spent on and giving more focus to areas of genuine need. Sector representatives made a plea to the Chancellor for this in advance of the Budget and many may feel disappointed they were not listened to.

In addition, the Consumer sector has been leading the charge in calling for a radical revamp of the business rates system and the Budget announcement offered little in terms of additional information from that previously announced in the Autumn Statement. Early indications from the Business Rates technical consultation are, however, that the sought-after major overhaul of the regime has not emerged, which may disappoint many in the Consumer sector.

There were a number of tax announcements which are of particular relevance to the Consumer sector.

Expense relief for plant and machinery

Uncapped full expensing relief for qualifying plant and machinery, which includes qualifying store re-fit expenditure and office and warehousing assets. Whilst this is a timing difference that may be of limited benefit to companies with high levels of brought forward losses who would otherwise elect to disclaim allowances, it should take the edge off the pain for profitable, capital-intensive businesses in the next few years by bringing forward the tax deduction.

Changes to R&D regimes

Consumer businesses investing in technology with qualifying expenditure that falls under the Research and Development Expenditure Credit (“RDEC”) regime will benefit from the uplift in relief to a 20p taxable credit for every £1 spent from 1 April 2023. The consultation on whether this scheme should be merged with the more generous SME R&D scheme is ongoing and as a result, the planned restriction of R&D tax credits changes to some overseas expenditure has been deferred until 1 April 2024

Increased burden on large consumer companies and groups

As previously announced, large companies that are part of groups with turnover of €750m or more will be required to comply with new transfer pricing documentation rules for accounting periods starting after 1 April 2023. UK companies will need to retain a master file, local file in accordance with OECD guidelines and prepare a Summary Audit Trail (“SAT”), the latter being subject to further consultation.

Adding to the compliance burden, such companies will also have to prepare for the implementation of the Pillar 2 framework, which seeks to ensure a global minimum CT rate of 15%. In the UK this will apply for accounting periods starting after 31 December 2023 to both multinational groups and wholly domestic groups with consolidated turnover exceeding €750m. Detailed legislation will be contained in Finance Bill 2023, and we expect these rules to result in a significant data-gathering exercise for all groups caught by the rules and as many Consumer groups have operations in multiple territories, often with retail outlets in low tax rate territories where there is high disposable income, we would advise engaging on this topic as early as possible.

Other highlights: Corporate Interest Restriction (“CIR”) and indirect tax

Consumer entities with levels of debt giving rise to net interest expense over £2m in the UK may be impacted by changes to the Corporate Interest Restriction (“CIR”) rules being introduced in the Spring Finance Bill 2023. These changes, which have varying operative dates, may be particularly relevant where Consumer groups are looking to restructure group entities as part of a cost reduction exercise to streamline operations. The intended result of the changes is to remove unfair outcomes and reduce some of administrative burdens of complying with these rules, but as always, the devil will be in the detail.

Very few indirect tax changes were announced, although supermarkets will find the duty paid on alcohol increasing and, in relation to beer, at a faster rate than the same beer sold in pubs. As such, consumers could expect the price of beer sold in supermarkets to go up, potentially making it more attractive to make a trip to the local pub.

Generally, whilst this was a Budget largely focussed on the Energy and Life Sciences sectors, the many anti-recessionary measures aimed at boosting the economy and stemming the negative impacts of the cost of living crisis will inevitably have some positive effects on the Consumer sector as a result.