Last week Chancellor Rishi Sunak divulged information regarding the health of the UK economy in his Spring Statement update.
As part of his speech, Sunak announced several reforms and measures coming in the near future, with details of the changes we can expect to be revealed in the Autumn Budget.
In light of economic pressures on businesses, along with the current super deduction due to end in April 2023, the Government is looking at potential tax reforms to encourage business investment.
Any changes will be announced in the Autumn Budget 2022 following consultation with businesses, but the main options under consideration are:
• increasing the annual investment allowance permanently, for example, to £500,000
• increasing writing down allowances for main and special rate assets from 18% to 20%, and from 6% to 8%
• introducing a first-year allowance of, for example, a deduction of 40% and 13% in the first year of expenditure, with standard writing down rates applying after that
• introducing an additional first-year allowance of 20% in the first year, on top of standard writing-down allowances on 100% of the initial cost over subsequent years
• introducing full expensing, allowing businesses to write off the costs of qualifying investment in one go
Following a paper published in autumn 2021, the Government has confirmed its plans to reform R&D tax relief.
From April 2023, all cloud computing costs associated with R&D, including storage, will qualify for relief.
The relief has also been focused on work carried out in the UK, although expenditure on overseas R&D activities can still qualify as long as there are:
• material factors such as geography, environment, population, or other conditions that are needed for the research and not present in the UK
• regulatory or other legal requirements that mean activities must take place outside of the UK.
The definition of R&D for the purposes of tax relief will also be expanded, as pure mathematics will be included as a qualifying cost.
In his speech, the Chancellor noted the need for improvements to adult technical skills, as UK employers spend “just half the European average on training their employees”.
The Government said it “recognises that employers have frustrations” with the current apprenticeship levy system, and is looking at how “more flexible apprenticeship training models can be supported”.
It will also consider whether further intervention is needed to encourage employers to offer training, including assessing the current tax system and the apprenticeship levy.
The Finance Act 2022 received royal assent in February, which means a series of changes were already confirmed ahead of the Spring Statement, and are due to take place from April 2022.
These include the 1.25% increase to both NICs and dividends tax in 2022/23, as well as the freezing of personal tax thresholds up until 2025/26.
An extension to Making Tax Digital for VAT also means that, from April 2022, the digital tax scheme will become a requirement for all VAT-registered businesses not already required to operate MTD.
For an overview of the entirety of the Spring Statement 2022 please read our full report.
Talk to our highly skilled team of accountants today to find out how these changes could affect you and your business.
Simply call 01254 589799.