UK Spring Budget targets investment and growth
15 March 2023, UK Chancellor Jeremy Hunt confirmed in the Spring Budget that the main corporation tax rate will increase from 19% to 25% with effect from 1 April 2023. The rate had been reduced from 30% in 2007 to 19% in 2017, the lowest in the G7 intergovernmental political forum.
Hunt also announced that the super-deduction regime will end 31 March 2023. It will be replaced from 1 April 2023 with ‘full expensing’ – 100% capital allowances for qualifying IT equipment, plant and machinery – for three years to 31 March 2026. The government indicated that it hoped to make this permanent.
Other measures for business, included a new enhanced research and development credit for certain R&D intensive small and medium-sized business rom 1 April 2023, data licences and cloud computing services will be added as new categories for qualifying R&D expenditure, an increased Annual Investment Allowance for small business, and the creation of 12 new ‘Investment Zones’ in England, which will each have access to have access to £80 million funding over five years for skills, infrastructure, tax reliefs and business rates. The locations are still to be decided.
The government confirmed its intention to include legislation in Spring Finance Bill 2023 to implement the globally agreed G20-OECD Pillar 2 framework, which is designed to ensure large multinational enterprises pay a minimum 15% level of tax on the income arising in each jurisdiction where they operate.
There will be an Income Inclusion Rule requiring UK-headquartered multinational groups with annual global revenues exceeding €750 million to pay a top-up tax where their foreign operations have an effective tax rate of less than 15%. The changes will apply for accounting periods beginning on or after 31 December 2023.
There will also be a supplementary domestic top-up tax rule which will require large groups, including those operating exclusively in the UK, to pay a top-up tax where their UK operations have an effective tax rate of less than 15%.
The government is introducing a new elective accruals basis of taxation for carried interest, applicable from 6 April 2022, which will allow UK-resident investment managers to make an election to accelerate their tax liabilities to align their timing with the position in other jurisdictions.
Significant reforms were announced to pensions taxation, with the Annual Allowance that an individual can contribute tax free to their pension fund set to rise from £40,000 to £60,000 per year from April 2023. The government also said it would work to abolish the Lifetime Allowance, which currently stands at £1,073,100, in future Budgets.
Finally, the government said it plans to consult on the introduction of a new criminal offence for promoters of tax avoidance who fail to comply with a legal notice from HMRC to stop promoting a tax avoidance scheme.
It will also consult on ‘expediting’ the disqualification of directors of companies involved in promoting tax avoidance, including those who exercise control or influence over a company, and plans to double the maximum sentences for tax fraud for the most ‘egregious’ forms of tax fraud from seven to 14 years.