Key Takeaways
- £27 billion business tax cut comes into effect on April 1, 2023
- New full expensing policy to boost investment by 3% over the next three years
- Additional tax changes include business rates relief, fuel duty cut extension, and income tax cut for carers
- UK now has the most generous capital allowance regime in the OECD
A New Era of Business Growth
As the new business tax year commences on April 1, 2023, UK businesses are set to benefit from a £27 billion cut to corporation tax, thanks to the Chancellor’s new full expensing policy. This policy is expected to boost investment by 3% in each of the next three years. In addition, several other tax changes are taking effect, including more business rates relief, an extension to the fuel duty cut, and a £450 income tax cut for carers.
A Generous Capital Allowance Regime
The package, which was announced at the Spring Budget, comprises 100% full expensing and a 50% first-year allowance. As a result, the UK now has the most generous capital allowance regime in the OECD, worth £27 billion over the next three years, which equates to an effective £9 billion a year tax cut for companies. The Office for Budget Responsibility (OBR) anticipates that this regime will boost investment by 3% over three years.
Financial Secretary to the Treasury, Victoria Atkins, visited Brompton Bikes in Greenford, London, to see how full expensing would stimulate their growth. Atkins emphasized the government’s determination to make the UK the best place in the world to do business, urging companies of all sizes to take full advantage of the new reforms.
Full Expensing and First-Year Allowance Explained
Full expensing allows companies to deduct 100% of the cost of certain plant and machinery investments from their profits before tax. This measure will be available from April 1, 2023, to March 31, 2026. It offers the same level of generosity as the super-deduction, saving firms up to 25p in every £1 of qualifying investment and is applicable to main rate assets, such as construction, warehousing, and office equipment.
The 50% First-Year Allowance permits companies to deduct 50% of the cost of other plant and machinery, known as special rate assets, from their profits during the year of purchase. This includes long-life assets such as solar panels and lighting systems.
Impact on Brompton Bikes
During her visit to Brompton Bikes, Minister Atkins observed their state-of-the-art Autobraze machine and production line and met 15 trainees on Brompton’s training programme. Brompton Bicycle’s Operations Director, Phill Elston, expressed enthusiasm for the new expensing scheme, noting that it would help the company invest significantly in its production capabilities and accelerate their mission to improve urban travel.
Additional Tax Measures
Other tax measures coming into effect on April 1, 2023, include new domestic and ultra-long Air Passenger Duty bands, which will reduce the cost of flying in economy class while increasing the duty for those who fly the furthest. Further tax measures involve more business rates relief, expansion of creative sector reliefs, and a permanent increase in the Annual Investment Allowance (AIA) to £1 million.
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