SPRING BUDGET 2022 – CAPITAL ALLOWANCES AND R&D TAX RELIEF

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WHAT DID THE SPRING BUDGET 2022 INCLUDE? The Chancellor touched on creating a “new culture of enterprise”. Stating that improving productivity is the only way to deliver sustainable economic growth and increase living standards. We follow what steps the government are taking to meet these commitments to growth by looking at some of the important changes to the capital allowances and R&D tax relief schemes. This article covers the following: Back to top CAPITAL ALLOWANCES PLANS FOR THE FUTURE The government intend to make Capital Allowances more generous in the future. Firstly, the Super Deduction will be coming to an end in April 2023. And also Annual Investment Allowances are due to reduce in April 2023. Therefore, it is reassuring to hear that changes to address these reductions in relief are on the way. Against a backdrop of rising corporation tax rates, capital allowances will be a key relief for growing businesses going forward. The budget did not contain concrete details of the changes to come. However, some ideas that are being considered as are follows:
  • A permanent increase of the Annual Investment Allowance (AIA) to £500,000
  • Increasing the WDA rate for expenditure not qualifying for other enhanced reliefs:
    • Main pool expenditure from 18% to 20%; and
    • Special rate expenditure from 6% to 8%.
  • Implementing an initial, larger writing down allowance in the first year at, say
    • Main Pool to 40%; and
    • Special Rate increasing to 13%
    • the remainder to be written down at the normal rates
  • Introducing a first year allowance that would be in addition to writing down allowances (rather than instead of). This could result in total deductions of more than 100% of the original cost of the asset.
  • Allow “qualifying investments” of plant & machinery to be fully expensed.
  • Changes to the Structures & Buildings Allowances, or other new specific reliefs.
Back to top R&D TAX RELIEF REVIEW The government had already announced a review of the R&D reliefs last year. The original review included the objective of ensuring that the UK remains competitive. The R&D tax relief scheme is being reformed to support modern research methods. This is done by expanding qualifying expenditure to now include data and cloud computing costs. Along with refocusing R&D relief on activity carried out in the UK. We were already aware that the following new categories of expenditure will be brought into scope from 2023:
  • Expenditure on licence payments on purchasing datasets which are used directly for R&D. Staff costs incurred in processing datasets will also be eligible for the relief.
  • Cloud computing costs that can be attributed to computation, data processing and software. HMRC will allow businesses to claim relief for the cost of cloud computing services used directly for R&D. For example, costs which can be attributed to computation, data processing, analytics and software.
Back to top R&D CLAIMS FOR DATA STORAGE The Spring Budget 2022 also included enhancements for data storage. From April 2023, business will be able to claim relief on:
  • the storage of vital data and pure maths research.
  • costs related to the storage of vital data, supporting data-heavy research such as genomic sequencing,
  • additional qualifying expenditure as the government recognised the growing volume of R&D being undertaken which is underpinned by pure mathematics.
This reform will support nascent sectors where the UK has a comparative advantage. For example: Artificial Intelligence, quantum computing and robotics. This will also continue to support the manufacturing and design sectors. Legislation will be published in draft in the Summer before being included in a future Finance Bill. This will therefore ensure these measures will come into effect in April 2023. Back to top RDEC AND THE SME SCHEME HMRC have evaluated, compared and contrasted the effectiveness of both the *RDEC and the SME scheme to stimulate productivity. This has helped to understand why the figures are so different and what further changes might be needed. Any changes made need to ensure that the tax reliefs are an attractive offer to companies to invest in R&D. To keep on track of the UK’s R&D relief the government will consider increasing the generosity of *RDEC. The aim being to boost R&D investment in the UK. This would rebalance the schemes and make *RDEC more competitive. In addition to making the *RDEC scheme more attractive, the government will consider what more can be done to tackle the abuse of R&D tax reliefs, particularly in the SME scheme. *Research & Development Expenditure Credit (RDEC) Back to top HOW CAN ONYX HELP Research and Development is a very complex area and there are tax savings to be had. At Onyx we have qualified professionals on hand to help review your expenditure for an R&D expenditure claim. Please visit us at www.onyx.accountants or pop into one of our offices for further advice. Contact us on 0121 753 5522 for Birmingham or 01902 759 800 for Wolverhampton to arrange a free consultation. Back to top

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