Spring Statement 2022 - Businesses

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Whilst the support for Business was less apparent during Rishi Sunak’s Spring Statement, the focus was on consultation over the summer with a view to cutting taxes and encouraging investment for business in the Autumn. The key areas he signposted would be reviewed are as follows:

Consultation on Capital Allowances

As the two primary incentives for tax relief on capital expenditures either expire or reduce in scope during 2023 the Chancellor is considering how to encourage capital investment by businesses beyond that date.  In his Tax Plan he has set out illustrations of the types of changes that could be considered including:

• Increase the permanent level of the Annual Investment Allowance, potentially to £500,000.
• Increase Writing Down Allowances for main and special rate assets from their current levels of 18% and 6% to 20% and 8%, which would support businesses investing above the Annual Investment Allowance ceiling.
• Introduce a First Year Allowance for main and special rate assets where firms can deduct, for example, 40% and 13% in the first year, with the remaining balance of expenditure obtaining relief in subsequent years at standard Writing Down Allowances rate.
• Introduce an Additional First Year Allowance, to bring the overall amount that can be claimed to greater than 100% of the initial cost.  This envisages an additional capital allowance of 20% in the first year, on top of standard Writing Down Allowances on 100% of the initial cost across the first and subsequent years.
• Introduce full expensing, to allow businesses to write off the costs of qualifying investment in one go when incurred.  This would simplify the capital allowances regime but it is noted that this would likely cost significantly more than the above options.

It is anticipated that the Government will review these options and seek to consult with businesses over the summer in order to announce changes in the Autumn Budget in time to apply by April 2023.

Research and Development

Research and Development (“R&D”) tax relief has been a long standing part of the UK tax system, providing a valuable relief to companies undertaking qualifying R&D projects.

In 2021 the Chancellor put companies on notice that the government was looking at how the R&D tax relief system operated, and in particular whether it was providing value for money for taxpayers.  The expectation has always been that by providing a generous tax relief linked to R&D expenditure, there would be a corresponding level of investment by the claimant companies.  However, this investment has not materialised, with investment by UK businesses lagging behind other OECD countries.

The Chancellor has therefore announced that he is looking at making some changes to the current relief, principally:

1. He had previously announced that R&D relief would be refocussed for R&D activities that take place solely in the UK.  He has softened on this and, in instances where R&D cannot be undertaken in the UK due to the inability to replicate conditions encountered overseas in the UK, or a requirement to undertake regulatory activities in other jurisdictions, he has indicated that the costs incurred can form part of an R&D tax relief claim;
2. All cloud computing costs associated with R&D can form part of the tax relief claim;
3. The definition of R&D will be expanded to include the application of pure mathematics to qualifying R&D projects;
4. The relief available to companies claiming under the RDEC scheme will be reviewed to see if this can be made more attractive to companies.  The hope is that this will encourage more international organisations to invest in R&D within the UK.

The government has committed to legislating for the above to come into force from April 2023. 

Finally, the government has long been aware that R&D tax reliefs have been subject to abuse, particularly from companies claiming under the SME scheme.  HMRC have already put a team in place to focus on identifying and dealing with these abuses, and the government has announced that it is continuing to evaluate what further measures can be introduced to tackle this abuse.  A further announcement in respect of this is expected at the 2022 Budget in the Autumn. 

Employee Share Schemes

The Government had launched a review into one of the most commonly used and indeed most tax advantageous employee share schemes, the Enterprise Management Incentive (EMI) scheme. In his Tax Plan the Chancellor has now confirmed that the current EMI scheme remains effective in its current form which is good news for SME business looking at efficient Management Incentivisation plans.  The scope of the review will now be expanded to consider the alternative tax advantaged share scheme, the Company Share Option Plan (CSOP), the hope is that this review will look to bridge the existing gap between the benefits afforded under an EMI scheme compared to the CSOP.