Spring Budget 2023 Summary

The Chancellor of the Exchequer, Jeremy Hunt, delivered the Spring Budget statement to the House of Commons today. In a speech lasting more than an hour, the Chancellor revealed a strategy that aims to give life to the UK economy through a thousand measures rather than any sweeping ‘big bang’ measures.

The corporation tax rate increase (main rate up to 25% from 1 April 2023) remains, as do the rate changes in the R&D Expenditure Credit (up to 20% from 1 April 2023) and R&D Tax Credit (down to 86% from 130%), but there were a few key points of note for companies interested in tax incentives:

R&D Tax Reliefs

• The government acknowledged the consultations on the 2022 proposed measures and the merger of the R&D Tax Credit and R&D Expenditure Credit regimes have now closed but that they do intend to move forward with a merger of the regimes. This merger will most likely occur in 2024 by abolishing the SME R&D Tax Credit regime, with draft legislation due by the summer.
• The proposed nexus rules for subcontractors and externally provided workers which would have limited the ability to claim for certain overseas expenditure will now be delayed by at least one year until 1 April 2024.
• There will be an increased payable tax credit available for “R&D intensive” companies. Broadly, loss-making SMEs that spend at least 40% of their budget on qualifying R&D will be able to surrender the loss for an enhanced payable credit at 14.5% rather than the new, lower rate of 10% for other companies.

Capital Allowances

• The Chancellor has confirmed that the super-deduction (i.e. the 130% first year allowance) will be “replaced” by a 100% first year allowance which will run up to 31 March 2026. The super-deduction was ending from 31 March 2023. This first-year allowance is only available to entities that are subject to corporation tax (i.e. companies and partnerships with corporate partners).
• The 50% first year allowance for special rate pool expenditure will be kept in place up until 31 March 2026. This allowance commenced in 2021 alongside the super-deduction and was due to cease on 31 March 2023.
• Twelve new “Investment Zones” across the UK will be set-up which should include tax breaks including enhanced capital allowances for businesses operating in those areas.

Next Steps

A few interesting but very specific announcements made in the 2023 Spring Budget, rather than any significant headline measures for businesses. Companies should be aware of the upcoming rate changes (i.e. corporation tax rate, super-deduction and R&D) which will be occurring at 1 April 2023 but the measures mentioned above are only proposed at this stage, so the detailed legislation will need to be considered in the coming months.

If you have any questions about any of the recent or proposed changes, please contact us today. As specialist R&D tax credit consultants we are always kept up to date with the latest changes in legislation.