Spring Budget 2024: Ryan’s Follow-Up Thoughts
Following on from our wishlist for the Spring Budget and yesterday’s announcements, we asked our tax experts what they think of the statement – and what it means for businesses across the UK.
Nigel Holmes, Director, Research and Development
In a pleasant change, there was no major upheaval of the R&D tax relief system in yesterday’s budget. The only reference to any change was as follows:
"HMRC will establish an expert advisory panel to support the administration of the R&D tax reliefs. The panel will provide insights into the cutting-edge R&D occurring across key sectors such as tech and life sciences, and work with HMRC to review relevant guidance, ensuring it remains up to date and provides clarity to claimants."
Hopefully, this will be good news if done correctly and help the team carrying out the enquiry work at HMRC to identify genuine claims as, at present, many are being wrongly declined.
The only other impact is the reduction to employees’ national insurance contributions (NICs). While the 2% reduction to employees’ NIC is undoubtedly welcome, it is important to consider the potential impact on the R&D tax relief PAYE cap. This cap, crucial for determining tax credits accessible to loss-making companies, is calculated by combining £20,000 with three times a company’s PAYE and NIC.
The issue is that as the NIC decreases, so does the PAYE cap, which could potentially reduce tax relief opportunities for loss-making R&D claimants in certain scenarios.
Dean Needham, Manager, Capital Allowances Tax Analysis
Full Expensing Extended to Leased Items
The government’s intention to extend Full Expensing to leased items is certainly a welcome addition. While a specific implementation date has not been confirmed, the upcoming release of draft legislation is a promising sign. If enacted, this initiative can provide significant tax relief to businesses struggling with leased equipment costs, driving investment in essential assets.
Abolished Furnished Holiday Lettings Tax Regime
The Chancellor’s decision to abolish the Furnished Holiday Lettings (FHL) tax regime starting April 2025 is a significant setback for the sector.
This decision will remove the opportunity for businesses to claim capital allowances and certain capital gains tax reliefs on FHLs, which is likely to have a severe impact on investment within the industry.
The rise in operational costs could lead to some operators being displaced from the market. For instance, in a typical FHL property valued at £500,000, the potential loss of up to £100,000 in qualifying plant eligible for tax relief underscores the severity of this change.
The removal of these reliefs effectively translates into a tax increase for affected businesses, which poses challenges across different tax brackets and company sizes.
Ben Knock, Managing Director and Vice President, VAT Compliance
The Chancellor’s decision to increase the VAT registration threshold from £85,000 to £90,000 is certainly good news for small businesses.
While some were hoping for a greater VAT reduction – especially considering that prices have risen 22% since the last one – the decision shows the government’s commitment to easing the financial pressures on businesses. This is the first increase in seven years and promises a lower tax load and a reduction in the daily challenges faced by those who struggle with paperwork and limited resources
Jon Williams, Senior Director, Grants
This budget was a mixed bag for UK innovators, particularly those seeking insights into grant funding. There was clarification of the core focus of some previously announced initiatives, especially in the advanced manufacturing arena and in specific Investment Zones, which will help businesses in these sectors better anticipate and prepare for future funding opportunities. At the same time, the accessibility and timing of many of the schemes remain uncertain, making it more challenging to anticipate their potential relevancy.
However, overall, the outlook for innovation funding remains positive with welcome developments in complementary areas such as R&D tax relief for R&D-intensive businesses and equity funding from the Long-Term Investment for Technology and Science (LIFTS) programme.