Following the devastation caused by the Covid pandemic and the more recent cost-of-living crisis, the government introduced a number of measures in an attempt to boost the economy and help businesses affected by the lockdowns to thrive once more.
These included the extension of the Annual Investment Allowance (AIA) threshold of £1 million until 31st March 2023, together with the introduction of the 130% Super-Deduction First-Year Allowance (FYA) on Main Rate Pool expenditure and the 50% FYA on Special Rate Pool expenditure, which also runs until 31st March 2023.
Other changes have included increasing the National Insurance Primary Threshold and Lower Profits Limit in line with the level of Personal Allowance, and the reduction in the Basic Rate of Income Tax to 19% from April 2024.
The government has recognised, however, that once the AIA returns to its original level of £200k and the Super-Deduction FYA is withdrawn, the UK will have one of the least generous Capital Allowances regimes when compared to other OECD countries.
In fact, as a result, the government granted a period of consultation with relevant stakeholders and interested parties to put forward proposals for improving this form of tax relief (a topic covered in our August CA Tax Talk).
It would appear that at least one of these proposals from the consultation was taken on board with the declaration in the mini-Budget, that the AIA will permanently remain at the £1 million threshold going forward. This will, no doubt, be a huge boost for new start-up businesses and SMEs experiencing significant initial outlays and short-term cash flow difficulties.
The proposed reduction in the Basic Rate of Income tax from 20% to 19% has also been brought forward a year, now coming into force in April 2023. This means any sole traders or partnerships will realise immediate savings in Income Tax going forward.
The Additional Rate of Income Tax at 45% was to be scrapped from April 2023, which would have reduced the impact of a Capital Allowances assessment; however, given the well-documented public & political backlash, the Chancellor has now withdrawn this proposal, and the Additional Rate will remain for anyone who earns above £150k.
It has also been confirmed that there will be no changes to Personal Allowance, which will remain at £12,570 until 2025/26. The government has also reversed its decision to increase National Insurance by 1.25%.
For companies, the proposed return to a Small Profits Rate and Main Rate of Corporation Tax (CT) from April 2023 has also been scrapped. Instead, CT will remain at the flat rate of 19%.
There is now an intention to introduce Investment Zones across the UK designed to benefit from tax incentives, amongst other things, with thirty-eight local authorities so far expressing an interest in establishing a Zone in their area.
These tax incentives include:
The specific zones are yet to be decided, but once they are, we will make a further announcement accordingly.
The incentives introduced by The Chancellor regarding Capital Allowances are a welcome statement for UK businesses, and it is hoped these will continue in future Budgets as the country attempts to recover from the global pandemic and cost-of-living crisis.
Many other proposals and suggestions were put forward from significant respected parties as part of the consultation period, including increasing the rate of WDA back to their original figures. It is anticipated these, amongst others, will be considered again in future announcements