There have been some substantial changes in yesterday’s budget that you should be aware of. You can obviously find these summarized elsewhere on the internet, but we thought it would be helpful to highlight those changes we think are most significant to our clientbase. If you are a client with a SSAS, R&D work or a Video Game Development Studio please pay particular attention to the changes below.
- R&D Changes
From 1 April 2023, R&D Relief for SMEs is being cut significantly. Enhanced Expenditure is now decreasing from 130% to 86% and the rate at which we can surrender losses for tax credits is being cut from 14.5% to 10%.
In practice, this means that a company spending £100,000 on R&D tax relief under the old rules would either save £24,700 of Corporation Tax or be able to trade their enhanced expenditure in for £18,850 of a tax credit issued to them in cash.
Under the new rules, a company spending the same amount will now only be able to trade their enhanced expenditure in for a tax credit of £8,600. Depending on the rate of Corporation Tax they will pay under the new rules they can save between £16,340 to £21,500 of Corporation Tax by utilizing the losses.
Small Mercy for R&D Intensive Companies
Following the Chancellor’s announcement, If a company spends at least 40% of their total expenditure on R&D work in a year they can trade their enhanced expenditure for a tax credit at the old rate of 10% – therefore potentially receiving a tax credit of £12,470 instead of £8,600. Still a huge cut and not very attractive to small businesses.
- Pension Contribution Changes
Clients who currently use a SSAS or SSIP have had the annual allowance raised from £40,000 per year to £60,000 per year; this will be a huge help to clients with significant profits as it gives them increased opportunity to move funds into their pension in order to avoid Corporation Tax on these. Combined with the imminent Corporation Tax rises pensions have become a much more attractive tax planning tool over the last few years.
In addition, there is now no longer any lifetime limit on the amount an individual can have contributed into their pension – this was previously capped at £1.07 million.
- Enhancement to Video Games, Film and TV Tax Relief
From January 2024, the government are going to increase the Creative Industries expenditure credit from 25% to as much as 34%. In addition, the animation and children’s TV sector will get an enhanced rate of 39%.
Under the old rate a company spending £100,000 on development would typically end up with core expenditure of £80,000 which could then be traded in at 25% for a tax credit of £20,000.
Under the new rules, a company spending £100,000 can trade in their core expenditure of £80,000 for a tax credit of £27,200 or £31,200 if they are producing animation or children’s TV work.
There may still be details of this to be announced, but so far it seems like a big boost to the local creative sectors.
- “Full Expensing” regime for Capital Equipment Purchases
The enhanced rate of 130% allowance on any capital equipment bought was a temporary measure introduced over covid that expires on 31 March 2023. The government have not extended this but have offered an alternative to businesses buying substantial amounts of capital equipment. Any business that would otherwise exceed the £1 million Annual Investment Allowance which allows them to claim 100% relief would previously have been forced to claim tax relief on new Plant and Equipment at 18% per year over the asset’s life. Going forward, businesses can now claim 100% relief beyond this £1 million limit as long as the business is buying new plant and machinery. Not of much use to most micro businesses but potentially a big help for manufacturing businesses.
Rumours and Potential Upcoming Policies
There is currently an extremely worrying policy, the Economic Crime and Corporate Transparency Bill, which is being fast-tracked through parliament due to cross party support which would require all small limited companies to publish completely public profit and loss reports. At the moment, only companies earning >10.2 million per year are required to disclose these, but Parliament believes that all companies should be obligated to do so and are pushing this policy under the belief that it will prevent fraud.
This is of course total nonsense, since the fundamental problem with UK company fraud is that it is completely and utterly unenforced in any meaningful way and falls under the purview of Companies House, who do not engage in any active enforcement of their existing policies and are solely interested in a box-tick approach to company register enforcement. I am sure our clients will not be surprised by the government passing theatrical policies which look good to the public, solve no problems and are a logistical nightmare for everyone who now has to comply with the new rules.
If this does go ahead, it will require a major rethink for all clients as it means for many of our clients that they would be essentially forced into making all of their earnings public to both competitors and any other interested member of the general public. At the moment we can only hope some opposition springs up to this expected change.