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Ward Williams Chartered Accountants
09/01/2024
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How the Autumn Statement update tax changes may affect your business
Following the Autumn Statement 2023 announcing tax changes for business owners, employees and employers, updates are being released in stages informing businesses how they will be affected at the beginning of the new tax year in April 2024. Discover below the recent updates on Capital Allowances, Corporate Tax Rates and Research and Development.
Capital Allowances
From 1 April 2023 the government introduced two temporary first year allowances, one for the main rate pool - “full expensing”, and a similar rule for integral features and long-life assets. These were intended to replace the temporary super deduction allowance.
These temporary allowances allowed companies to fully expense qualifying plant and machinery expenditure made between 1 April 2023 and 1 April 2026 and to claim one of following:
- a 100% first-year allowance for main rate expenditure, or
- a 50% first-year allowance for special rate expenditure
Corporation Tax Rates
From 1 April 2023 companies with profits less than £50,000 will continue to pay at the small profit rate (19%) whilst companies with profits exceeding £250,000 will pay at the main rate (25%).
Companies with profits between £50,001 and £250,000 will pay at the main rate and the tax due will be reduced by a marginal relief.
Following the Autumn Statement, the government has confirmed these tax rates remain unchanged.
Research and Development (R&D)
Following the Autumn statement, there are further changes to the R&D scheme, all starting for accounting periods beginning on or after 1 April 2024.
1. New merged R&D expenditure credit (RDEC) scheme
From 1 April 2024, the Small Medium Enterprise scheme (SME) and Research and Development Expenditure Credit (RDEC) will be merged.
Changes will include:
- The credit rate will be set at the current RDEC rate of 20%.
- The notional tax rate applied to loss-makers in the merged scheme will be lowered to 19% from 25%.
- The subsidised R&D restrictions has now been removed.
- This means that where a company’s R&D costs are subsidised, the company does not need to reduce the relief available (subject to the contracting out rules below).
- From 22 November 2023, in most circumstances, payments of R&D tax reliefs will be paid directly to the company that claims for the R&D.
The threshold for a company to be treated as an R&D intensive SME will be reduced to 30% from 40%.
3. Contracting out rule changes
There are some major changes to the rules for subcontracting R&D. Proposed legislation has not yet been finalised but the intentions are outlined below:
- Where a company (company A) subcontracts R&D to a third-party company (the subcontractor) to undertake some of the qualifying R&D work, company A can claim the relevant costs of that contract. The subcontractor will not be able to make a claim unless Company A is a non-UK corporation taxpayer.
- If company A subcontracts R&D to a subcontractor, where the subcontractor initiates R&D work which does not form part of the original contracted work, the subcontractor can claim relief if they meet the requirements.
- The subcontractor could also claim relief if they were contracted to provide a product or service which is not R&D, such as constructing a building or a software, and they undertake R&D to deliver that product or service. An assessment will need to be conducted on a case-by-case basis to determine which party is entitled to make a claim in such arrangements.
- These rules will also apply to R&D intensive SMEs.
