Changes to the R&D tax relief regime, a further extension to the £1 million annual investment allowance (“AIA”) limit, the removal of cross-border group relief, more information on the new residential property developer tax, enhancements to the creative sector tax reliefs and the transition to global tax reform feature in the Autumn Budget. Pages 146-147 of the main Budget document also contains details of other measures badged under “Other business taxes” which includes an announcement on changes to the banking sector corporation tax surcharge.
R&D tax relief changes
Following consultation and as recommended by this Institute, the categories of qualifying expenditure for R&D tax relief purposes are to be expanded to include data and cloud costs.
The Budget documents also confirm that reforms will be implemented “to more effectively capture the benefits of R&D funded by the reliefs through refocusing support towards innovation in the UK, and to target abuse and improve compliance.” The Chancellor’s speech referred to this as focusing R&D tax reliefs on domestic activity taking place in the UK.
These changes will be legislated for in Finance Bill 2022/23 and will take effect from April 2023. Further details of these changes and next steps will be set out as part of the Government’s further tax administration and maintenance announcements later in the autumn.
AIA £1 million limit extended
At the 2021 Spring Budget the Chancellor confirmed that the AIA limit which provides 100 percent relief for expenditure on plant and machinery and integral features would remain at £1 million until 31 December 2021 after which it would fall to £200,000. Last week’s Autumn Budget announced there will be no reduction from 1 January 2022 and that the limit will remain at £1 million until 31 March 2023.
It should be noted that the AIA is available to both companies and unincorporated businesses however the super-deduction and 50 percent first year allowance announced at the 2021 Spring Budget which are available until 31 March 2023 are only available to companies.
Removal of cross-border group relief
Finance Bill 2021/22 will abolish cross-border group relief and other related loss reliefs from 27 October 2021. These reliefs were introduced as a result of the CJEU case Marks and Spencer v Halsey which is heralded as being responsible for the introduction of cross-border group relief in various countries across the EU including the UK which introduced its provisions in Finance Act 2006.
HMRC has published a policy paper setting out more detail on this change. The measure also amends legislation that limits the amount of losses that an EEA resident company trading in the UK through a UK PE can surrender as group relief.
These changes will take effect for company accounting periods beginning on or after 27 October 2021. Transitional arrangements will apply for accounting periods which straddle this date.
Residential property developer tax
More information was provided on the new residential property developers tax (“RPDT”) announced in February 2021 for which draft legislation was published last month. The RPDT applies to profits arising in accounting periods ending on or after 1 April 2022.
It is confirmed that the tax will be charged at 4 percent on profits exceeding an annual allowance of £25 million.
Creative sector tax reliefs enhancements
A number of changes were announced to the various creative sector tax reliefs.
- The museums, galleries and exhibitions tax relief (“MGETR”) which had a sunset clause of 31 March 2022 is now extended a further two years and will now end on 31 March 2024;
- From 27 October 2021, the headline rates of relief for theatre tax relief (“TTR”), orchestra tax relief (“OTR”) and MGETR will temporarily increase from 20 percent (for non-touring productions) and 25 percent (for touring productions) to 45 percent and 50 percent, respectively;
- From 1 April 2023, these rates will be reduced to 30 percent and 35 percent and will return to 20 percent and 25 percent on 1 April 2024. MGETR will expire on 1 April 2024 and no expenditure from this date will be eligible for relief;
- Also from 27 October 2021, OTR rates will temporarily increase from 25 percent to 50 percent, reducing to 35 percent from 1 April 2023 and returning to 25 percent on 1 April 2024;
- From 1 April 2022, “changes will be made to better target MGETR, TTR and OTR and ensure that they continue to be safeguarded from abuse.”; and
- From 1 April 2022, production companies will be able to switch between claiming film tax relief and high-end TV tax relief during production, so that relief is not lost should a company decide to change their distribution method.
Transition to global tax system
The UK has also agreed a route forward to transition away from its Digital Services Tax (“DST”) towards a new global tax system aimed at ensuring multinationals pay their fair share in the countries where they do business.
The deal struck by the UK, US and other European countries outlines a DST-credit system which will bridge the gap between the UK’s DST and the start of the new system – which is due to be implemented in 2023.
On 8 October 2021, OECD-led discussions resulted in 136 countries agreeing a plan for a new system where multinationals pay their fair share of tax in the countries they do business (known as Pillar One), whilst countries operate a minimum 15 percent corporation tax rate (known as Pillar Two).
Corporate re-domiciliation
The Government also intends to make it possible for companies to re-domicile and therefore easier to relocate to the UK and is seeking views via a newly opened consultation on how best to do this. This is designed to allow companies to take advantage of the UK’s infrastructure and skills, while promoting jobs, innovation and investment in the UK.
Online sales tax consultation (“OST”)
The Government will also continue to explore the arguments for and against a UK-wide OST and will publish a consultation shortly. If introduced, the revenue from an OST would be used to reduce business rates for retailers in England. The block grants of the Devolved Administrations would be increased in the usual way.
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