Budget Impact – Businesses
28 Oct 2021
Extension of the AIA temporary limit
The Annual Investment Allowance (AIA) is a capital allowance that allows unincorporated businesses and companies to claim a deduction of 100% of the qualifying expenditure up to the amount of the annual limit. The AIA limit was temporarily increased from its permanent level of £200,000 to £1 million on 1 January 2019. Following an extension of one year, it was due to return to its permanent level of £200,000 from 1 January 2022.
However, the Chancellor has announced a further extension of the temporary limit, and the AIA will remain at £1 million until 31 March 2023. This removes the pressure to undertake capital expenditure by 31 December 2021 to benefit from higher limit.
Super-deductions
Companies can also benefit from a super-deduction of 130% of the amount of any expenditure that would otherwise qualify for main rate writing down allowances at 18% where the expenditure is incurred between 1 April 2021 and 31 March 2023. This is a better option for companies than the AIA.
Companies can also benefit from a 50% first-year allowance for expenditure within the same window that would otherwise qualify for a special rate writing down allowance of 6%. The AIA will trump the first-year allowance, but once the AIA limit has been used, it could be worthwhile claiming a first-year allowance.
We can help you plan your capital expenditure to optimise your capital allowances claims.
Business rates
Changes were announced in respect of business rates.
The business rates multipliers are frozen for a second year until 31 March 2023. The small business multiplier is set at 49.9p and the standard multiplier at 51.2p. Different rates apply in London and in Wales. The freezing of the multipliers will mean that your business rates will not increase in 2022/23.
Eligible retail, hospitality and leisure properties will benefit from a 50% relief in their business rates for 2022/23, subject to a cap of £110,000 per business.
A relief is also being introduced for improvements to business properties which will delay the start date of higher business rates triggered by the improvements for 12 months. The Government is to consult on how to implement the relief, which will take effect from 2023 and will be reviewed in 2028. If you are planning improvements to your business premises, this may benefit you.
From 1 April 2023 until 31 March 2035, a targeted business rates exemption will apply for eligible plant and machinery used in onsite renewable energy generation and storage, and a 100% relief will be available for eligible heat networks. This is to support the decarbonisation of non-domestic buildings.
From 2023, business rate revaluations will take place every three years rather than every five years.
Transitional relief for small and medium-sized businesses is extended for one year, which will restrict bill increases to 15% for small properties (i.e., those with a rateable value of up to £20,000 or up to £28,000 in Greater London), and to 25% for medium properties (i.e., those with a rateable value of up to £100,000).
Recovery loan scheme
The recovery loan scheme, which was due to end on 31 December 2021, has been extended by six months and will now run until 30 June 2022. If you need funding to help you recover from the impact of the pandemic, speak to us to see if this will be the right type of funding for you.
Freeport sites announced
Freeport tax sites benefit from a range of tax incentives to encourage businesses to operate from a Freeport Tax Site. The first tax sites will be in sited in Humber, Teesside, and Thames. If you are planning to start a new business or relocate to any of these sites, we can explain the tax advantages that may be available to you.
Making Tax Digital
The next key date in the Making Tax Digital (MTD) calendar is 1 April 2022. VAT registered businesses with turnover below the VAT registration threshold of £85,000, who have not joined MTD for VAT voluntarily, will be required to join from the start of their first VAT accounting period which begins on or after 1 April 2022. If you fall into this category, we can help you get ready for this change which will involve maintaining suitable digital records and submit digital VAT returns in an appropriate format.
As previously announced, the start date for MTD for Income Tax Self-Assessment (ITSA) has been put back by one year. It will now apply to sole traders and landlords with income of more than £10,000 from 6 April 2024. This will involve the submission of quarterly digital reports, and an end of period statements and final declarations.
However, MTD for ITSA will not apply to general partnerships (i.e., those without corporate partners) until 6 April 2025. A later, as yet unspecified start date applies to other partnerships (i.e., those with corporate partners or LLPs). It is therefore possible to push MTD ITSA further into the future by entering into a qualifying partnership arrangement.
We can help you understand what MTD for ITSA means for you, and when you will need to comply.
Basis period reform
To pave the way for the introduction of MTD for ITSA, the basis period rules are to be reformed for self-employed traders.
Currently, the profits that are assessed for a tax year are those for the accounting period ending in that tax year. For example, if you prepare accounts to 31 December, the profits for the year to 31 December 2021 are assessed in 2021/22.
However, this is all to change and the profits that will be assessed in the tax year will be those for the tax year (i.e., profits from 6 April to 5 April or, where preferred, 1 April to 31 March). As with MTD for ITSA, these reforms have been delayed by one year. A tax year basis period will apply from 6 April 2024, with 2023/24 being a transitional year.
If you do not currently prepare accounts to 31 March (or 5 April), you may want to consider changing your accounting reference date. We can explain how the rules will work, and how the transitional year changes will affect you.
We Can Help
To understand more regarding how the Budget may affect your business, please contact us to arrange an appropriate time to discuss your circumstances. Call us on 01753 888211 or email info@nhllp.com.