With the Chancellor placing great emphasis on kickstarting the economy’s recovery and laying the foundations for its future, a number of measures were announced to continue supporting businesses through the COVID-19 pandemic and provide help for them to grow.

We have outlined our updates as below:

Construction and Property Incentives and Business Rates

Headline Corporation Tax rate

Extension of loss carry back provisions

Research & Development Consultations

Enterprise Management Incentives Scheme

Seed Enterprise Investment Scheme/Enterprise Investment Scheme

Future Fund Breakthrough

VAT & Duty

International Tax

Chip and Pin/Contactless Payments

Freeports

Help to Grow

Other changes for business Corporation Tax

Construction and Property Incentives and Business Rates

Described by the Chancellor as "the biggest business tax cut in modern British history", a super deduction was announced, allowing companies to cut their tax bill by up to 25p for every £1 they invest in qualifying plant and machinery. This is a positive move from the Government which will position the UK's Capital Allowances regime as one of the most competitive in the world. Business rates relief for eligible retail, hospitality and leisure properties in England will also continue. Read more in our blog here.

Headline Corporation Tax rate

The Chancellor announced in his Budget, as part of his measures to reduce borrowing, that from April 2023 the headline rate of Corporation Tax will increase to 25% for companies with annual taxable profits in excess of £250k. The 19% rate will remain for companies with “small profits” (annual taxable profits below £50k) whilst those in between will be subject to a tapered rate. This will still leave the UK with the lowest Corporation Tax rate in the G7.

As ever, the devil is in the detail, which includes the re-introduction of the concept of associated companies for the purposes of determining whether the small profits rate applies to a company. Close Investment Holding Companies will not benefit from the 19% rate.

Extension of loss carry back provisions

A temporary extension to the carry back of trading losses for relief against profits of earlier years has been announced. This measure will provide a welcome cash flow benefit to affected businesses by providing additional cash tax relief for trading losses incurred as a result of the pandemic.

Under current law, a company incurring a trading loss in an accounting period can make a claim to offset the loss against total profits of the previous 12 months should any losses remain after a current year claim has been made. A temporary extension will apply to allow companies to carry back losses incurred in accounting periods ending between 1 April 2020 and 31 March 2022 against an additional two years’ worth of profits from the same trade, with losses being carried back against later years first. The amount of trading losses that can be carried back to the preceding year remains unlimited for companies.

After carrying back to the preceding year, a maximum of £2m of unused losses will be available for carry back against profits of the same trade for the earlier two years.

Research & Development Consultations

Support for innovation is at the heart of the Budget, with the Chancellor stating his intention for the UK to be a scientific superpower. As part of that, a wide ranging consultation has been launched to ensure the UK’s research and development (R&D) tax reliefs remain internationally competitive and fit-for-purpose in today’s environment. The consultation really is wide ranging. It will consider the definition of R&D, the scope of what qualifies for relief and whether this remains fit-for-purpose. It will also consider how the relief should be targeted in the future, the merits of consolidating the two existing schemes (known as SME and RDEC) into one combined scheme for all companies, the future scope of eligible expenditure and the process for making claims.

This review is very welcome. We know how important R&D tax relief is in supporting innovation for so many of our clients. However, there are many areas in which the regime could be improved. For example, extending the relief to capital expenditure on specialist R&D equipment or rental payments to hire essential R&D facilities. We also welcome the opportunity to review the role and responsibilities of R&D agents in the claim process.

This is a welcome opportunity to take a ground up look at the claim process and how to improve controls, reduce the risk of abuse and focus relief on those companies undertaking genuine R&D. This will protect companies from being misled and protect the long term viability of this important relief.

Enterprise Management Incentives Scheme

Originally announced in Budget 2020, but then postponed due to COVID-19, the Government has released a call for evidence in relation to the Enterprise Management Incentives (“EMI”) scheme. With wider plans to stimulate the progress of start-up and scale-up entities, couched in the Government’s Build Back Better plan for growth, and through initiatives such as the Future Fund Breakthrough, the chance to implement some reform of the EMI scheme to ensure it is completely fit for purpose and offers maximum advantages to employers, and benefits to employees, presents a huge opportunity. We look forward to responding to the Call for Evidence.

HMRC announced an extension to the exception to working time requirement as required for Enterprise Management Incentive (“EMI”) schemes. This extension ensures that from 19 March 2020 until 5 April 2022, individuals who are furloughed or who have their working hours reduced below the current statutory working time requirement for EMI as a result of COVID-19, will retain access to the scheme’s generous tax advantages.

Those participating in an EMI scheme are required to meet the ‘working time requirement’, where an employee’s time committed to the company must be equal to or exceed the statutory threshold of 25 hours per week or if less, 75% of their total working time.

HMRC have confirmed that the above exception will apply both to existing EMI participants and in circumstances where new EMI share options are being granted.

Seed Enterprise Investment Scheme/Enterprise Investment Scheme

We note that the Government has extended operation of the Social Investment Tax Relief to April 2023. Perhaps surprisingly though, there was no mention of the Seed Enterprise Investment Scheme, Enterprise Investment Scheme or Venture Capital Tax reliefs in the Budget. We would expect that there may be some further announcements on or before “Tax Day” on 23 March 2021. 

Future Fund Breakthrough

The Future Fund has now closed for new entrants, but Future Fund Breakthrough will be launched, with the aim of offering support for equity raises for companies in scale-up phase. We understand that the British Business Bank will take equity in funding rounds of over £20 million, which are led by private investors, to ensure these companies can access the capital they need to grow and develop.

VAT & Duty

The big news on VAT is the extension of the 5% rate for holiday accommodation, attractions and hospitality sectors to 30 September 2021, then for a further six months to 31 March 2022 at the intermediate rate of 12.5%. This will be welcome, but the sector will have been hoping that the reduced rate would become permanent.   

Other VAT announcements are largely administrative – no change to the current registration threshold for at least 3 years, an extension to the enhanced deferred payment scheme for VAT payments delayed from June 2020 (read our earlier blog here) and the trailing of a more flexible penalty and surcharge regime from April 2022 – more details to follow.

Fuel and alcohol duties remain frozen for another year, although there will be some changes coming for Red Diesel users with previously announced changes being amended slightly. Road transport will benefit from a freeze in HGV vehicle excise. 

International Tax

Given the recent changes and disruption to UK companies dealing internationally over the last three months, it is surprising to see little update from an International Tax perspective. This Budget has however enhanced the UK as an attractive country to do business in and with.

As the UK has left the European Union, it has now taken the step to remove the EU directive on Interest and Royalties from UK law. This means that EU companies will no longer be able to benefit from the UK’s favourable withholding tax rates on interest and royalties. The rates of withholding taxes will fall back to the rates outlined in the appropriate double tax treaties or the UK domestic rates. UK companies and UK permanent establishments of EU companies making payments of interest and royalties to EU companies will be impacted by this.

The UK Government has said it will continue to consult on the OECD reporting rules for digital platforms where platforms will have to potentially send UK seller information to both HMRC and the sellers themselves. Interestingly, the Government has mentioned platforms in the following areas: the provision of taxi and private hire services, food delivery services, freelance work and the letting of short-term accommodation.

Other notable points include:

  • The UK Government has said it will continue to consult on OECD mandatory disclosure rules, information sharing with other tax authorities to target opaque offshore structures.
  • There have been several proposed changes to the UK hybrid mismatch rules. If you are a multinational group with either a UK parent or subsidiary companies, you must review these updates to ensure that none of your existing transactions will fall into the wider rules.
  • UK to UK transfer pricing rules remain in place.
  • The rate of diverted profits tax will increase from 25% to 31% from 1 April 2023. The rate of national ring-fenced profits remains at 55%.

Chip and Pin/Contactless Payments

The Chancellor announced that to further support UK consumers and businesses during the COVID-19 response, and following a public consultation by the Financial Conduct Authority, the Government has approved an increase to the legal contactless payment limits previously set by the European Commission. This will allow banks to support single contactless payments up to £100, and cumulative contactless payments up to £300, without the need for customers to input their chip and pin. These new limits will be implemented later this year.

Freeports

The locations of eight English Freeports were announced in the Budget.

In January, the Scottish Government announced plans to introduce a Scottish version called 'Green ports'. Details have not yet been released, but we anticipate that the green port model will adapt the UK Government’s freeport proposals, offering a package of tax and customs reliefs. Operators and beneficiaries will be required to commit to adopting Fair Work First criteria and contribute to Scotland’s transition to net zero.

Help to Grow

Management and digital training support initiatives for small businesses were announced today.  Commencing Autumn 2021 and with funded places, businesses are invited to apply for places, click here for more information.  

Other changes for business Corporation Tax

  • Amendments to legislation to allow for a corporation tax deduction where a business returns “Coronavirus Support Payments” to a public authority. This measure ensures neutrality of tax treatment as the receipt of the support payments are taxable.
  • Minor definition changes and procedural updates to simplify the group loss carry forward rules.