BUDGET 2021
James Geary Client Director and Head of Corporate Tax
Business Taxation Annual Investment Allowance – extension of temporary £1 million limit The Annual Investment Allowance (AIA) was set to return to its “permanent” level of £200,000 from 1 January 2022, having been temporarily extended to £1million, the budget announced that the increased limit will continue until the end of March 2023. The “super-deduction” of 130% for most new and unused plant and machinery, including commercial vehicles, which means that for most everyday equipment purchases, this extension will mean very little. However it is good news for businesses going through a substantial building refit or refurbishment which may involve significant spend on “special rate” expenditure – largely meaning “integral features” such as heating, air conditioning, water systems, electrics and similar. Under the super-deduction rules this expenditure obtains a 50% allowance in year 1, but the extension of the AIA increased limit means for many smaller commercial buildings, 100% allowances will be available for up to £1 million of such costs. Remember that the timing of your spend on plant and equipment could have a dramatic effect on the timing of your tax liabilities.
Research & Development (R&D) tax relief reform R&D tax reliefs will be reformed to support modern research methods so qualifying expenditure will include data and cloud costs. To more effectively capture the benefits of R&D funded by the reliefs support will be refocused towards innovation in the UK, and to target abuse and improve compliance. These changes will be legislated for in the Finance Bill 2022-23 and take effect from April 2023. Further details of these changes and next steps for the review will be set out in due course.
It will be interesting to see what they mean by refocusing support towards innovation in the UK, particularly as the recently published R&D claim statistics show the costs of overseas labour increasing dramatically as a percentage of costs claimed for the reliefs.
Business Rates Relief Further relief from Business Rates for the retail, hospitality and leisure sector was announced, meaning that over 90% of businesses in the sector will receive at least 50% off their expected bills in the 2022-23 year. In a further reform, where businesses make improvement to premises that support net zero targets (such as renewable energy investments), they will not face higher rates bills on the enhanced value until 12 months after the improvements. Further changes have been promised for 2023 giving more reliefs to support the decarbonisation of buildings.
Corporate re-domiciliation A consultation has been launched on a “re-domiciliation” process which would allow non-UK resident companies to relocate their tax residence to the UK under a much simpler process, without the need to carry out complex corporate restructures. This would bring the UK into line with some 50 other countries who have re-domiciliation regimes. This is very early days at the moment but could become of more interest where a business is active in the UK but due to overseas residence, is not able to benefit from UK tax breaks, for example.
Tax Administration Discovery assessments A change to the law is being made to clarify the use of discovery assessments by HMRC to recover tax in three areas – High Income Child Benefit Charge (HICBC), Gift Aid, and pension scheme tax charges – where the individual tax payer receives income through PAYE, i.e. not in a self assessment. Discovery assessments are usually used to enable HMRC to look back up to four tax years and amend a tax assessment where they “discover”
A change to the law is being made to clarify the use of discovery assessments by HMRC to recover tax in three areas – High Income Child Benefit Charge, Gift Aid, and pension scheme tax charges – where the individual tax payer receives income through PAYE
something that was not declared, and to assess it to tax. A recent case involving HICBC was decided against HMRC, where the Upper Tribunal found that the assessments raised were not legally valid. While HMRC are appealing the decision to the higher courts, they are changing the law in the meantime to clarify the rules to put beyond doubt. This is not a particularly shocking or unfair measure, as the case had shown that there was a risk that those who do not declare their liability could escape it, which of course would be unfair on those who did declare and paid it. So making everyone in receipt of any of the three additional incomes liable for the payment of the tax. The above is a brief overview on how the measures on the whole may have a significant impact on your finances and your business, the impact of some are still to be determined.
To discuss your situation in more detail contact your advisor on 01242 776000, or email Tax@randallpayne.co.uk and we would be happy to chat this through with you.
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