Businesses will be able to take advantage of a £9billion tax break announced by Jeremy Hunt in a bid to boost British competitiveness.
The Chancellor has unveiled a package allowing companies to offset 100% of UK investments against their tax bills.
The measure, known as ‘full spend’, was introduced to replace the ‘super-deduction’ – a tax relief measure allowing companies to deduct 130% of what they spend on equipment for the business of their taxable profits. It will expire at the end of this month.
The new tax relief will start in early April and will cost almost £8billion this year, £10.7billion in 2024 and £8.7billion in 2025, giving an average annual cost of around £9billion. pound sterling.
This means it will offset around half of the controversial 19-25% corporation tax rise from April which is expected to bring in around £18billion a year.
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Matthew Fell, acting chief executive of the Confederation of British Industry, said: “Total capital expenditure will keep the UK at the top to attract investment and put us on the vital path to a more productive economy. .”
The Chancellor also announced an “enhanced” tax credit for small and medium-sized businesses if they spend 40% or more of their total expenditure on research and development (R&D). They will be able to claim credits worth £27 for every £100 spent.
The Treasury estimated the policy would cost £40m in the first year, rising to £285m the following year and £455m the following year.
Mr Hunt also announced tax relief measures for creative industries, including theatres, orchestras and museums, as well as companies that develop audio-visual equipment.
The measures were introduced after several business leaders pleaded with the Chancellor to replace the super-deduction and offset the impact of the corporate tax hike.
The Chancellor also unveiled 12 new Investment Zones across the UK, which will provide tax breaks and other benefits to businesses.
Jon Richardson, head of tax policy at accounting giant PwC, said the budget provided ‘much needed support for UK competitiveness’ and businesses would be ‘relieved’ the Chancellor had decided to ease. the blow of the rise in corporate tax and the end of the super-deduction.
“Combined with increased R&D incentives, this puts the UK in a competitive position against other G20 economies – albeit below the most business-friendly tax environment,” Mr Richardson said. .
The Chancellor has unveiled a package allowing companies to offset 100% of UK investments against their tax bills
But some have argued that changes to business investment and tax rules have not gone far enough. Kitty Ussher, chief economist at the Institute of Trustees, said the full spending scheme was “very welcome”, but she urged the chancellor to make the measure permanent beyond its 2026 expiry date.
The comment came as the Office for Budget Responsibility predicted that while the full spending allowance would lead to a ‘sharp increase’ in business investment next year and into 2025 as companies advance their spending to take advantage of the measure, it would “fall back” afterwards. expires in 2026.
Ms Ussher also said the Chancellor’s decision to target only R&D tax credits was “disappointing” and “could lead to less innovation in the wider economy”.
Others were more critical of the budget, with the Federation of Small Businesses (FSB) saying the announcements would ‘leave many feeling aggrieved’.
FSB National Chairman Martin McTague said: “The enhanced R&D tax credit is an important step towards promoting innovation.
“However, the large proportion of businesses that fall outside the 40% intensity threshold will feel mystified by the change in policy since last fall…
“While there are some positive words in today’s budget, the government’s lack of support for small businesses in critical areas is glaring.”
Meanwhile, Yael Selfin, chief economist at auditing giant KPMG, said the full spending scheme’s focus on machinery was “too narrow” and its temporary nature meant it only served to “advance investments but not increase the overall long-term trend”. ‘
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