News

A number of tax changes have been announced that will affect companies from April 2023.  Below, we discuss what these changes are and which companies they are likely to have an impact on.

Rates & Associated companies

From 1 April 2023, the Corporation Tax rate changed to 25% for a company with profits over the upper limit of £250,000.  Any companies with profits under the lower limit of £50,000 will still pay Corporation Tax at 19%.  Companies with profits between £50,000 and £250,000 will pay tax at the rate of 25%, reduced by a marginal relief.  This provides a gradual increase in the effective Corporation Tax rate.

The limits are reduced if a company has one or more ‘associated companies’, with the upper and lower limits being divided by the number of total associated companies.  A company is defined as being an ‘associated company’ of another company, if one of the two has control of the other, or both are under control of the same person/(s).  For example, if Company A (with profits of £250,000) and Company B (with profits of £40,000) were both under the control of John Smith, Company A (upper limit profits) and Company B (lower limit profits), would be considered as ‘associated companies’ and therefore have their upper and lower limits divided between the two companies.

In addition, where the companies accounting period straddles the 1 April 2023, it is split into two periods.

Research & Development (R&D)

Any R&D qualifying expenditure incurred before 1 April 2023 attracted a 130% relief.  However, this has now been reduced to 86%.  Although this sounds like a large decrease with the Corporation Tax rate increasing to 25%, the overall benefit to the company is similar.

Where companies subcontract R&D work, from April 2024 they will only be able to claim R&D relief where the work is completed within the UK, with workers paid through a UK payroll.

New R&D claims will need to be notified to HMRC on a digital form, prior to submission of the report itself, which will need to be approved by a senior officer of the company.

More information will be available on how this will work from 1 August 2023.

The Governments consultation on merging the small and medium-sized enterprise (SME) and Research and Development expenditure credit (RDEC) scheme has now closed and responses are currently being reviewed, with the Government keeping open the option of implementing a merged scheme from April 2024.

Super deduction

In 2021, the government introduced the 130% super deduction to encourage companies to make additional investments during the pandemic.  As planned, it has been removed from 31 March 2023.

Super deduction has been replaced with the new ‘full deduction’.  This is only available for companies which are purchasing brand new plant and machinery.  Cars and plant and machinery used for leasing are not eligible.

The Annual Investment Allowance (AIA) will now stay at £1m and is available on both new and second hand purchased plant and machinery.

Unlike AIA’s the new full deduction is uncapped and is likely to be only claimed where annual capital spend on plant and machinery exceeds £1m.

If you have any questions regarding these changes and how they may impact your business, please contact Hannah Reay on 01228 711888.