Government announcements have impacted R&D tax credits, energy support, corporation taxes, super deduction schemes, annual investment allowances, and SEIS.
As part of Chancellor Jeremy Hunt’s third and final budget statement in the autumn, he sought to calm the upheaval caused by the previous two. With the new leadership, the statement was intended to draw a line and offer stability.
There will be new rules in place from April 2023 that will have a significant impact on how businesses manage their finances. In order to adapt to the changes, companies must first understand what they are and how they will be impacted. As a second step, they must decide what to do.
Energy
We have great news to report: wholesale gas prices have fallen to levels just before Putin’s invasion of Ukraine, almost halving since the current government support scheme was announced. Once again, there are potential savings to be had.
From April 2023, support for business energy bills is being cut, since it was intended to be a temporary measure.
There will be an automatic discount of £19.61/MWh hour for electricity and £6.97/MWh hour for gas. If the wholesale price of electricity exceeds £302/MWh and the wholesale price of gas exceeds £107/MWh, the discount is applied. An energy contract’s discount is calculated as the difference between its wholesale price and the price threshold.
Currently, a new scheme will provide assistance for twelve months from 1 April 2023 to 31 March 2024. Businesses, public sector organizations, and charities that qualify for the Energy Bills Discount Scheme (EBDS) will receive a per-unit discount on their bills.
Now that you have read this, what should you do? To get the best deal for your business, you should first ensure you’re getting the best price. Upload your bill here and we’ll check it for you.
Tax credits for R&D
Businesses have benefited greatly from R&D tax credits: the generous allowance for companies undertaking research has made it easier for innovative firms to come up with new products and services.
As the system changes, some allowances will be cut back and others will be expanded. We often see businesses engaged in R&D without realizing it – and therefore not taking advantage of the breaks – and the rules under which activities qualify for the scheme.
Your plans will need to take into account the following changes from April 2023:
- Licensing fees and datasets will become allowable expenses
- If cloud computing is directly related to research and development, then it will qualify. Data processing, analysis, and computation (though servers and storage remain excluded) are included in this activity.
- Staff time spent engaging in the above activities is also allowable.
- Overseas spending will be restricted: subcontractors can only be considered if they perform their work in the UK. Spending on agency workers and professional organizations follows the same rules
- Increase in Research & Development Expenditure Credit from 13 to 20 percent
- SME enhancements will decrease from 130 percent to 86 percent
- There will be a decrease from 14.5 percent to 10 percent in the SME tax credit rate
It is also mandatory to submit all claims digitally, have them endorsed by a senior officer of the company, and include the details of any agents advising the company to do so.
In addition, you must inform HMRC within six months of your intention to submit a claim.
Is there anything you can do now to make the most of the scheme? The top tips we recommend are:
- Make sure you work with UK subcontractors for your subcontracting spend
- If you intend to claim, notify HMRC as soon as possible
- Record the date and amount of the expenditures accurately
If your company claims research and development tax credits, you should be aware that with the enhancement rate being reduced from 130% to 86% and the tax credit rate (cash refund rate rather than offset against corporation tax) being reduced from 14% to 10%, it’s important to submit your claim this year and cover all those R&D costs.
A number of changes have been made to the Seed Enterprise Investment Scheme (SEIS)
Early-stage investors in UK startups can take advantage of this scheme to get 50% tax relief and CGT exemption on profit from their investments.
As a result, early stage businesses become more attractive to investors and innovation increases.
Changes to this scheme starting on April 1, 2023 are welcome news for everyone. The changes are as follows:
- SEIS will allow companies to raise £250k, up from £150k previously.
- There is a doubled limit on how much an investor can invest now at £200k.
- There will be an increase in the age limit for companies to access SEIS from two to three years.
- Startups will have a new gross asset limit of £350,000.
In the lead up to April, SEIS investments are always busy as investors look to invest before the fiscal year ends. In order to raise funds under this scheme, businesses should get Advanced Assurance approval and ensure they are investor-ready.
Super deduction allowance
The ‘super deduction allowance’, which allowed companies to claim a 130 percent deduction against qualifying expenses, will end in April 2023.
It may be advantageous for companies to bring forward their capital expenditure schedule, which could result in substantial tax savings.
AIA (Annual Investment Allowance)
In the past decade, AIA amounts have changed several times and were temporarily raised to £1 million from January 2019, but were scheduled to return to £200,000 in March 2023.
The government has now set the AIA at its highest-ever permanent level of £1 million from 1 April 2023 to encourage businesses to invest and grow. I am delighted with this news and I am certain that it will benefit businesses who invest in plant and machinery by enabling them to fully deduct qualifying capital expenditures from their taxes.
Changes to tax
Corporation Tax
Companies with profits of over £250,000 will be subject to a 25 percent corporation tax from 1 April 2023. In addition to this increase, the legislation states that small companies with profits up to £50,000 will continue to pay corporation tax at 19 percent, with profits between these two figures being subject to a tapered rate.
Income Tax and dividend allowance
Among the major changes announced in the Autumn Statement was a reduction of the additional-rate income tax threshold, which will drop from £150,000 to £125,140 as of 6 April 2023. Taxpayers who earn more than the new limit will be taxed at 45 percent on any income above that limit, which is estimated to include around 250,000 people.
In addition, the dividend allowance will be reduced from £2,000 to £1,000 on 6 April. In April 2024, it will be reduced to £500.
Capital Gains Tax
A capital gains tax (CGT) applies to profits made when you sell assets, such as second homes or valuable possessions. From April, the tax-free allowance will be slashed to £6,000 from £12,300. A further reduction to £3,000 will take effect from April 2024.
Final thoughts
Dividend payments at certain levels will be less tax efficient from April 2023 because the 25% corporation tax rate will apply, especially with the new high earnings threshold of £125,000, where 45% tax will apply. Any changes to dividend/salary structures should be implemented by April 2023 to ensure that they are tax-efficient.
I hope this is of some help and although it does not constitute financial advice which I’m not qualified for. It should at least ensure you ask your accountant the right questions about some of these topics to make sure he’s on the ball.
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