Budget Red BoxChancellor Jeremy Hunt’s Spring Statement has delivered on two fronts – more tax incentives for business investment and a potential solution to current skills shortages, with a new programme of ‘returnerships’ designed to get over-50s back to work.

Capital allowances

The Chancellor announced a new policy of ‘full capital expensing’ for the next three years, with a commitment to continue the policy when it is possible to do so. This means all companies investing in IT, plant or machinery will be able to offset 100% of their expenditure against tax payable on their profits for the next three years.

Richard Godmon, tax partner at accountancy firm, Menzies LLP, said, “The removal of the super-deduction would have left a significant hole and could have ended up discouraging business investment. The Chancellor has recognised this, and plugged the gap with a new policy, which is effective from the start of April for a period of three years. This is on top of AIA at £1m, which will support unincorporated businesses, including larger partnerships and LLPs, who will be disappointed not to be eligible for full expensing.”

R&D tax relief for smaller businesses

The Chancellor announced additional tax relief for R&D-intensive SMEs, from April 2023. A higher rate of relief for loss-making R&D-intensive SMEs who spend at least 40% of their total expenditure on R&D will qualify for the new rate.

In addition, there will be a delay to restrictions on overseas expenditure in R&D tax reliefs, with the previously announced restriction on some overseas expenditure now coming into effect from 1 April 2024 instead of 1 April 2023.

Anthony Lalsing, innovation and R&D tax partner at accountancy firm, Menzies LLP, said, “After the last two budgets failed to deliver on the Government’s statement that they want to strengthen the UK’s position as a global science and technology power. There was finally some good news in the Spring Statement with additional R&D tax relief for R&D intensive SMEs as well as overseas R&D costs continuing to qualify for at least another year. While this did not mark a full return to the generosity of previous R&D tax credits, it at least provides some comfort for SMEs looking to fund valuable ongoing R&D projects.”

Back-to-work incentives

The Chancellor announced new ‘returnerships’ providing flexible skills training for the over-50s, which takes account of previous experience. This new programme will run alongside existing skills boot camps and sector-based work academies.

Richard Godmon, said, “Flexible skills training for the over-50s is intended to help tackle the productivity gap by getting people with the right skills or experience back to work. As well as helping to address skills gaps, It will also help to boost the tax take further of course – a win-win for the economy for the Government in its bid to lower the budget deficit.”

Life sciences and creative businesses

The Chancellor is backing his vision to turn the UK into a new silicon valley and is launching a new AI Sandbox to encourage more research activity using AI systems in addition to a new £1m prize, called The Manchester Prize, which will be awarded each year for ground-breaking AI research.

Richard Godmon, said, “It is good to see the Chancellor recognising the importance of the technology sector and focussing on innovation in his speech. There appears to be a clear desire to provide an eco-system to develop world-leading technology. It is important that this desire is backed up with a clear and consistent tax incentivisation structure to encourage such businesses to grow and develop in the UK.”

Lifetime pension allowance abolished

The Chancellor has gone much further than expected by abolishing the lifetime allowance for pension payments altogether.

Craig Hughes, private client tax partner at Menzies LLP, said, “This is a much-needed solution to a broken system that discouraged people from continuing to work in their later years because they were unable to pay as much as they would like into their retirement pots. This disincentive for high earners to keep working for longer has been addressed, and people are now free to save as much as they like for their retirement, whenever they like.”

Note this blog was first published on the Menzies LLP site here and is reproduced with permission. A more detailed report will be available soon on the Menzies site.

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