What the Spring Budget 2023 means for large and listed businesses

The Corporate Tax rate has been confirmed to increase from 19% to 25% from April 2023, the impact of which will be mitigated for those qualifying for more generous reliefs and incentives in respect of capital spend, R&D and innovation.

The proposed changes to capital allowances will benefit companies of all sizes. The £1 million annual investment allowance (“AIA”) will be permanent from 1 April 2023 which will mean capital expenditure for most businesses will be relieved in the year it is incurred.  There will also be a 100% first year allowance for main pool capital allowance expenditure and 50% first year allowance for special rate pool expenditure for the next three years and potentially beyond.  It will be important to keep a record of which allowance is claimed as the treatment of disposals will be different for plant or machinery claimed under the AIA compared to the first-year allowance.

Qualifying plant and machinery for the purposes of the uncapped full expensing relief 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.

There are already changes happening to the UK’s R&D tax regime, most notably a closer alignment of the reliefs available to companies under the Small and Medium Enterprise (“SME”) scheme and the RDEC scheme with effect from 1 April 2023. There will also be much welcomed changes to the R&D tax regime to expand the range of qualifying expenditure to include data and cloud computing.  However, this now comes with the requirement for specific claim documentation, declarations and pre-claim notifications.

Larger companies claiming under the Research and Development Expenditure Credit (“RDEC”) regime will benefit from the uplift to a 20p taxable credit for every £1 spent from 1 April 2023

For those international groups with R&D intensive UK subsidiaries falling into the SME R&D tax credit regime, the rate of SME R&D credit will reduce significantly from 1 April 2023, falling from a potential cash back of 33.35% for every £1 spent on qualifying R&D to 18.6%.  However, for those companies which are particularly R&D intensive (i.e. who spend 40% or more of their total expenditure on R&D) then the cash benefit is 27%.

There will be ongoing consultation on whether the two UK R&D tax relief schemes should be merged.  As part of those continuing consultations the planned restriction of R&D tax credits to UK based research is being deferred by a year until 1 April 2024.

Aside from the changes to the R&D tax regime, there were a number of other welcome announcements that were made in the context of encouraging innovation and creativity, as a foundation of a successful economy. These include a number of initiatives designed to help innovators to bring cutting-edge AI products to market faster, to provide a clearer IP protection framework for these types of products and to support research into AI and Reforms to audio-visual tax reliefs

An Audio-Visual Expenditure Credit and a Video Games Expenditure Credit at rates of between 34% and 39% of qualifying expenditure will also be introduced.

Larger companies that are part of groups with turnover of €750m or more will be impacted by the new transfer pricing documentation requirements coming into effect for accounting periods starting after 1 April 2023.  This will require the UK company to retain a master file, local file in accordance with OECD guidelines and prepare a Summary Audit Trail (“SAT”).  Further consultation will be undertaken on the SAT.

The new Multinational Top-Up Tax and Domestic Top-Up Tax previously announced in respect of the adoption of the OECD’s Pillar 2, were confirmed within the detail of the Spring Budget 2023, as expected.  The legislation is intended to ensure a global minimum Corporation Tax rate of 15% and will apply to groups with annual global turnovers of more than €750m in at least two of the previous four accounting periods. 

The new taxes will potentially have a significant impact on in-scope businesses.  The government recognises that the requirements will create a large compliance burden, estimating the one-off cost to business to be in the region of £13.7m with ongoing compliance costs in the region of £8.2m per annum. 

The new legislation will apply to accounting periods beginning on or after 31 December 2023, but in scope businesses need to start preparing now.  Affected businesses will need time to fully assess the potential financial impact, the readiness of their software and systems for collecting the data required and, importantly, whether they are able to take advantage of the transitional safe harbours.  As such, we would advise engaging on this topic as early as possible.

Companies and groups with levels of debt giving rise to net interest expense over £2m in the UK may be impacted by a number of 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 groups are looking to restructure group entities, for example, 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.

The measures to encourage individuals back to work include help with childcare costs and pensions reforms. These may alleviate workforce issues that have been impacting the UK economy as a whole. The simplification of the administration of Enterprise Management Incentive (“EMI”) schemes will be welcome for early-stage SME companies that have issued share options under this scheme. 

While there was no direct mention of migration in the Budget, there are some upcoming changes that play into the Government’s objective to ensure that employers have access to the skills and experience they require. Worthy of note are the proposed changes to make it easier and more attractive for individuals to enter the UK for business, through:

• An increase in the permitted activities for business visitors coming into the UK for up to 6 months; and
• Expanding activities allowed under the Paid Engagements criteria.

These changes are proposed for Autumn 2023 so at the time of writing, no actual guidance is currently available on how this will work.

For those employers that will have employee business visitors to the UK, this means that:

• The increase in permitted activities/paid engagements is likely to result in an increase in business travel. There is a real obligation for employers to be mindful that even if their workers are allowed to travel to the UK under a tourist/business visitor visa, they may still have PAYE income tax and NIC withholding obligations as a host employer in respect of short-term business visitors (STBV) obligations; and
• Consequently, employers need to ensure that they have an Appendix 4 STBV agreement in place with HMRC, and they have robust policies and processes in place (and technology tools), to track STBV and identify PAYE tax and NIC tax withholding trigger points. Plus, they need to obtain certificates of coverage for these employees (where applicable), to avoid an NIC withholding obligation.

Despite the emphasis in the Spring Budget on creating a friendly environment for investment into the UK, there was no mention of a review or re-opening of the Investor visa route for individuals coming to the UK, which closed to new applicants back in 2021. There was also no mention of the upcoming changes to the Innovator visa route which will come into effect on 12 April 2023. Under this route the previously announced eligibility requirement for an initial investment fund of £50,000 to be available will be removed, potentially opening the UK up to a greater number of entrepreneurs with “innovative, viable and scalable” business ideas.

The Spring Budget had very little to say with regards to indirect tax. Although very limited details were provided, the Chancellor did announce measures to simplify the Customs imports and exports process, including improvements to the Simplified Customs Declaration Process and the Modernising Authorisations project, the latter being the project to improve ‘trusted trader’ offer and benefits for being an authorised trader. 

The implementation will mean fewer declarations will need to be made, allowing additional time for declarations to be submitted and for the declaration to cover a longer period.

The purpose of the measures is mainly to assist smaller businesses, by helping to make processes and form-filling less time consuming and burdensome and whilst the measures will undoubtedly assist smaller businesses, larger ones (and their agents) may also find the changes useful.