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  • Shader Saidi

Business tax

The second chapter of the Chancellor’s Tax Plan looks in turn at People, Capital and Ideas. Most of it is a bit woolly at this stage.

On People, a concerted effort will be made to improve skill levels and training. The effectiveness of the apprenticeship levy will be reviewed.

On Capital, the lack of investment by businesses will be addressed:

‘We’re going to cut and reform taxes on business investment. We want to build on the momentum of the super-deduction to drive business investment.

The challenge now is to find the most effective way to cut taxes on investment while ensuring value for the taxpayer. We will engage with businesses and confirm plans at the Budget later this year.’

On Ideas, the clear focus is on research and development reliefs (R&D). Glyn Fullelove, our in-house expert, observed that:

‘In relation to R&D Tax reliefs, the Chancellor has “re-announced” measures that were originally announced in November to expand the definition of R&D to data costs and cloud computing costs.

Having said that a broader range of cloud computing costs will now be allowed. In addition, and newly announced today, costs incurred on “pure maths” will also be included under R&D. Restrictions announced in November which limited allowable costs on sub-contracted R&D and costs on external workers to work carried on in the UK/workers on a UK payroll will be relaxed where the work has to take place outside the UK for reasons such as geography (we don’t have many active volcanoes in the UK for example) or regulation. These modified expansions/restrictions take place from April 2023.

A wider reform looks on the cards, but the indications are that it will be mainly focused on improving the attractiveness of the RDEC (the “large company scheme”, giving an above the line taxable credit at 13%). This scheme is currently worth 10.53% of R&D spend, but the increase in CT rates to 25% in April 2023 would reduce that to 9.75%. As forecast in my article in last week’s “Tax Weekly” this alone made some change likely.

Further details to be given in the Autumn; an increase in the credit from 13% to just over 14% would be needed to stand still next April, but it looks like the Chancellor will want to go further than that.’

Also of note is the increase in employment allowance from £4,000 to £5,000 from April 2022.

The Chancellor reminded us of the business rates discount for smaller businesses in the retail, hospitality and leisure industries coming in from April.

The Government has published a Business Support Factsheet.

So, in conclusion, there was more here than we expected. I guess it’s good to know that the Chancellor has a tax plan but also interesting to note that it doesn’t appear to include a number of areas thought to be likely candidates for reform, including business asset disposal relief and tax relief for pension contributions. That doesn’t mean they’re not going to happen – the team here at Croner-i will keep you informed.

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