The government’s first Budget Statement under Rishi Sunak’s premiership contained a host of tax measures and other policies that will affect manufacturers from April 2023 onwards.
Having concluded that now is not the time to deliver a package of tax cuts, Chancellor Jeremy Hunt has already reversed most of the tax measures that had previously been laid out under Liz Truss’ government.
This means an increase in Corporation Tax to 25 per cent for companies with over £250,000 in profits will go ahead next April. However, around 70 per cent of companies will not see an increase in tax due to the Small Profits Rate, which maintains the current 19 per cent Corporation Tax rate for businesses with profits of £50,000 or less. Companies with profits between £50,000-250,000 will receive marginal relief that gradually increases in line with profits.
In other tax measures, the level at which employers start to pay National Insurance Contributions (NICs) for their employees will be frozen at £9,100 until April 2028. The VAT registration threshold will also be maintained at the current £85,000 level until April 2026.
From 1 April 2023, business rate bills in England will be updated to reflect changes in property values since the last revaluation in 2017. Properties facing an increase in their rateable value will therefore see an increase in their business rates. However, a package of targeted support worth £13.6 billion over the next five years will support businesses with their rates by capping increases to between 5-30% depending on the size of the property.
A planned ‘improvement relief’ that will ensure businesses do not see an increase in their rates for 12 months after making qualifying improvements to their property will now be introduced from April 2024 instead of 2023. This means property enhancements made this year will likely now be accounted for in business rates revaluations.
Energy bill support
On the future of the Energy Bill Relief Scheme, the government has confirmed that the overall scale of support to be offered after the initial six-month scheme ends in March 2023 will be “significantly lower” and targeted at the “most affected” businesses only. More details will be published in a review of the scheme by the end of the year.
The Chancellor did announce a new ‘Energy Efficiency Taskforce’, which has been tasked with delivering a 15 per cent reduction in energy consumption from the UK’s buildings and industry by 2030. New funding worth £6 billion will be made available from 2025 to 2028, in addition to the £6.6 billion promised over the course of the current Parliament. Further details on how the funding will be used are expected shortly.
The Annual Investment Allowance (AIA), which provides 100 per cent tax relief to businesses on qualifying plant and machinery investments, will be permanently set at £1 million from April 2023. This makes tax simpler for any business investing between £200,000 and £1 million in capital assets.
From April 2025, electric cars and vans will begin to pay vehicle excise duty (VED) tax in the same way as petrol and diesel vehicles. Nevertheless, company car tax will remain preferable for electric vehicles, increasing gradually up to a maximum of 5 per cent by April 2028 (compared to up to 37 per cent for petrol and diesel vehicles).
The existing First Year Allowance on electric vehicle charging points will also be extended to 31 March 2025.
R&D tax relief
R&D tax relief for SMEs is set to become less generous from April 2023. The tax deduction available to SMEs will decrease from 130 per cent of qualifying costs to 86 per cent. The credit rate, which allows companies to claim a tax credit if it is loss-making, will reduce from 14.5 per cent to 10 per cent.
However, overall government R&D funding will increase over time. In particular, funding for Innovate UK’s Catapult programme, which includes the High Value Manufacturing Catapult, will be increased by more than a third compared to the last 5-year funding cycle.
Following calls from business groups, tariffs on over 100 goods will be removed for two years to help put downward pressure on costs for UK producers. The measure will remove tariffs as high as 18 per cent on goods ranging from aluminium frames used by bicycle manufacturers to ingredients used by food producers.
The government will continue to support a number of high-profile national infrastructure projects including Northern Powerhouse Rail, HS2 to Manchester, 5G rollout and the Sizewell C nuclear power plant.
There will also be further investment in wind and solar energy to support a national commitment to decarbonise the UK power system by 2035, which will boost supply chains in the renewables industry.