UK Spring Budget 2023: Focus on long-term growth
Everything everywhere
The UK Chancellor delivered the 2023 Spring Budget on March 15. Focused on Enterprise, Employment, Education and Everywhere, the measures aim to encourage investment in the UK, increase labor market activity and foster innovation and creativity in the UK.
The anti-recessionary measures are expected to have a positive effect across most industries for large and listed corporates, including US-parented groups having existing UK operations or considering expansion in the European region.
Key measures
- It was confirmed that the Corporate Tax rate will increase from 19% to 25% from April 2023. However, its impact will be mitigated by more generous reliefs and incentives for capital spend, R&D and innovation.
- The £1 million annual investment allowance for capital spend will be permanent from April 1, 2023. A full deduction in the year of expenditure for plant and machinery will be available for the next three years and potentially beyond, making it the joint most generous tax relief for capex in the OECD.
- Data and cloud computing expenditure will now qualify for R&D tax relief. For international groups with UK subsidiaries in the SME R&D tax credit regime which spend 40% of their total expenditure on R&D, the cash benefit will be 27% (18.6% otherwise). From April 1, 2023, larger companies in the R&D Expenditure Credit regime benefit from the uplift to a 20p taxable credit for every £1 spent.
- Initiatives have been designed to help innovators bring cutting-edge AI products to market faster, to provide a clearer IP protection framework for these products and to support research into AI. An Audio-Visual Expenditure Credit and a Video Games Expenditure Credit at credit rates between 34% and 39% of qualifying expenditure will be introduced.
- Larger companies that are part of groups with turnover of €750m or more will be impacted by the new transfer pricing documentation requirements coming into effect for accounting periods starting after April 1, 2023. The UK company will need to retain a master file and local file in accordance with OECD guidelines. HMRC continue to consult on the potential additional requirement to prepare a Summary Audit Trail.
- The new Multinational Top-Up Tax and Domestic Top-Up Tax previously announced regarding the adoption of the OECD’s Pillar 2 were confirmed. The legislation will apply to groups with annual global turnovers of more than €750m in at least two of the previous four accounting periods. The new legislation will apply to accounting periods beginning on or after December 31, 2023. In-scope businesses must urgently fully assess the potential financial impact, capability to collect the data required and whether they can take advantage of the transitional safe harbors.
- The measures to encourage individuals back to work include childcare cost and pensions reforms and are intended to alleviate workforce issues that have impacted the UK economy. The simplification of the administration of Enterprise Management Incentive schemes will be welcome for early-stage inbound companies who have issued share options under this scheme.
- Measures to make it easier and more attractive for individuals to enter the UK for business include an increase in the permitted activities for business visitors coming for up to 6 months and expanding activities allowed under the Paid Engagements criteria. Further guidance will follow in Autumn 2023. PAYE income tax and NIC withholding obligations as a host employer in respect of short-term business visitors’ obligations may still be applicable.
- As previously announced, under the Innovator visa route for individuals entering the UK investment purposes (with effect from April 12, 2023), the requirement for an initial investment fund of £50,000 to be available has now been removed, potentially opening the UK up to a greater number of entrepreneurs with “innovative, viable and scalable” business ideas.
- The Customs imports and exports process will be simplified. Measures will improve the ‘trusted trader’ offer and benefits for being an authorised trader. These are expected to allow for fewer declarations needing to be made, allowing additional time for declarations to be submitted and for the declaration to cover a longer period.
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