Mini-Budget: Top implications for businesses

As of 17/10/22, Chancellor Jeremy Hunt has announced new budget plans.  To view our latest budget information, click here.

The new Chancellor, Kwasi Kwarteng, today delivered his first Mini-Budget Statement. We outline the top implications for businesses below.

Corporation Tax reversal 

With the previous Chancellor’s headline grabbing proposed increase to Corporation Tax rates from April 2023 for companies with taxable profits greater than £250,000, it will have been comforting for larger businesses to see that decision being reversed in this Mini-Budget, with the UK maintaining the current 19% rate for the foreseeable future. 

It is hoped this reversal will encourage more spending and inward investment into the economy, resulting in increased overall tax take as the country looks to recover from the effects of the COVID-19 pandemic and the ongoing cost of living crisis fuelled by international events. 

Although not explicitly confirmed, it is expected that the complex rules around marginal rates and associated company rules will be scrapped, providing a sigh of relief for businesses and their advisers from the additional burden and compliance cost arising from the measure.  

It is also worth noting that where the Diverted Profits Tax applies this will be at a rate of 25% (previously legislated to increase to 31%), so that it continues to deter businesses diverting taxable profits out of the UK. 

Capital expenditure 

Where businesses invest in qualifying capital assets, capital allowances are available to provide tax relief on the expenditure incurred. 

With encouraging investment in the UK economy being the key message from the Chancellor, it was unsurprising to see that the 100% tax relief of up to £1m per annum for expenditure on plant and machinery and integral features under the Annual Investment Allowance (AIA) is to be made permanent. This had previously been proposed to be cut to £200,000 from April 2023. With the AIA limit having changed over recent years, with temporary increases to stimulate investment, it is nice to finally see some stability in respect of this valuable tax relief. 

However, far more interesting is the application of the current Super Deduction Tax Relief. Introduced by previous Chancellor Rishi Sunak in April 2021, it provides tax relief of 130% on unlimited qualifying spend, meaning companies receive 25p of tax relief for every £1 of eligible expenditure. The Super Deduction is due to end in March 2023, and it had been expected that the proposed increase in the tax rate to 25% would provide the same level of tax relief going forward. 

As part of the detail provided after the Chancellor’s announcement, it has been confirmed that there will be some amendments around the technical provisions for the Super Deduction as a result of the Corporation Tax rate remaining at 19%, to ensure that the relief continues to operate as intended.  

However, without seeing the proposed changes, there appears to be a real incentive for businesses to accelerate any capital expenditure in the next 6 months to maximise the tax relief on capital expenditure. 

IR35 

Changes made to IR35 in recent years are to be reversed, meaning that responsibility for determining whether the IR35 provisions apply will revert to the worker rather than the engager.  Whilst this may provide short-term benefits in terms of the supply chain, this may cause unintended changes in behaviour which may, in due course, be challenged by further anti-avoidance provisions.   

Unlocking pension funds 

Pension funds will have greater flexibility to invest in high growth businesses and UK assets. It is hoped this will deliver greater returns for savers and, importantly, open new investment routes for high potential businesses. This is likely to benefit UK technology and life sciences businesses.

Investment zones  

Up to 40 locations across the UK, including some along the South Coast and the Thames Estuary, are earmarked as new investment zones, where lower taxes and planning restrictions will be available for businesses.  

 Whilst the detail is to be announced, they will undoubtedly be welcomed by businesses in those zones or who are able to relocate. There may well be considerable opposition from local authorities and residents in those zones, and potential opposition from local authorities immediately outside those zones who will feel the impact without the benefit.  

As always, details on some of these measures will follow.

If you would like to discuss any of the topics outlined in this article following the Mini-Budget, please get in touch.