15 March 20234 minute read

International update

Key points

The UK’s Spring Budget 2023, delivered on 15 March, does not contain any seismic shifts in the tax landscape. Rather, it looks to more measured methods of growing the UK economy by incentivising business investment and incentivising greater employment levels.

Business investment – “full expensing”

Key among the Budget’s business incentives is the replacement for the “super-deduction”, which is due to end on 31 March 2023. That replacement is “full expensing”, allowing companies to write off the full cost of qualifying plant and machinery expenditure on assets such as machines, computers, tools, vehicles (excluding cars) and office, construction and warehouse equipment in the year of investment.

This change will apply for expenses incurred within a three year period commencing 1 April 2023, although the government has indicated its intention to ultimately make this a permanent change. Companies investing in long-life and other special rate assets will also benefit from a 50% first-year allowance during this period.

R&D reliefs

From 1 April 2023, loss-making SMEs whose R&D spend constitutes at least 40% of their total expenditure will be able to claim a higher payable credit from HMRC of GBP27 for every GBP100 of qualifying R&D expenditure.

In addition, the previously announced restriction on relief in respect of certain overseas expenditure has been pushed back by a year to 1 April 2024, and will now be considered alongside the design of the proposed merged R&D relief regime.

Introduction of investment zones with tax incentives

The UK will introduce 12 new investment zones across the UK. Each zone will have access to a five-year tax offer consisting of enhanced rates of capital allowances, structures and buildings allowances and relief from stamp duty land tax, business rates and employer national insurance contributions (as well as potential grant funding).

Reform of audio-visual tax reliefs

Film, TV and video games tax reliefs will also be reformed, with additional deductions being replaced from 1 April 2024 by expenditure credits (at a rate of 34% for video games, film and high-end TV, and 39% for animation and children’s TV). This change will mean that relief is calculated directly based on qualifying expenditure, rather than being an adjustment to the company’s taxable profits as is the case under the existing regime.

Pillar 2

The government confirmed that it will legislate in the Spring Finance Bill 2023 to implement the globally agreed G20-OECD Pillar 2 framework in the UK. The government will:

  • introduce a multinational top-up tax which will require large UK headquartered multinational groups to pay a top-up tax where their operations in a foreign jurisdiction have an effective tax rate of less than 15%. The measure would also apply to non-UK headquartered groups with UK members that are partially owned by third parties or where the headquartered jurisdiction does not implement the Pillar 2 framework; and
  • introduce a supplementary domestic top-up tax which will require large groups, including those operating exclusively in the UK, to pay a top-up tax where their UK operations have an effective tax rate of less than 15%.

These changes will apply to groups with over EUR750 million global revenues and will take effect in relation to accounting periods beginning on or after 31 December 2023.

Employment incentives

These incentives include both tax and non-tax measures. Tax reforms include an increase in the pensions annual allowance from GBP40,000 to GBP60,000 from 6 April 2023, with the lifetime allowance charge being removed (initially on a temporary basis, but with a view to that removal becoming permanent), with the aim of ensuring that limits to tax-relieved pension savings do not put skilled individuals off from remaining in the labour market.

Sovereign immunity reforms abandoned

The UK government’s 2022 proposals to curtail the existing immunity from UK tax as it applies to sovereign investors (other than with respect to income tax on passive interest income) have been dropped, with no further action to be taken – so that sovereign investors benefitting from immunity will continue to benefit from exemption on all direct UK tax.

One other point to note is that the government is due to bring forward a further set of tax administration and maintenance announcements later in the spring at a tax administration and maintenance day – so additional tax announcements are expected before the end of spring.

Should you have any queries on the Spring Budget, please reach out to your usual UK tax contact or one of the above authors.