The Spring Budget on 15 March did not have any surprises and as the 2022/23 tax year is coming to the end, asset managers should consider if any actions should be taken before April 2023.
Increase in Corporation Tax Rate
The corporation main tax rate is due to increase from 19% to 25% on 1 April 2023. Asset managers with UK corporate structures holding investment assets which have been accumulating unrealised gains should consider realising these before the higher rate kicks in. If corporate’s accounting year end is not 31 March, managers should consider changing it to 31 March to fully benefit from realising assets at 19% tax rate.
If the business expecting to have substantial expenditure (for example, moving offices) it may be sensible to delay it until the next fiscal period. Nevertheless, this should be considered in light of super deductions at 130% being available until 31 March 2023 and new 100% Full Expensing on qualifying plant and machinery and 50% First Year Allowance for other plant and machinery starting from 1 April 2023. Asset managers incurring expenditure on plant and machinery should carefully consider the timing of their acquisitions to optimise their cashflow.
Businesses that have not made deferred tax provisions at the 25% rate of corporation tax will need to restate their deferred tax disclosure.
Businesses qualifying for R&D relief under the small and medium-sized enterprises (SME) should consider accelerating R&D expenditure whilst additional deduction is still at 130% (due to go down to 86% from 1 April 2023). From a practical perspective this could be achieved through accelerating bonuses for R&D staff to March 2023, or vesting deferred bonuses early.
Conversely, for large businesses it is better to defer R&D related expenses as the Research and Development Expenditure Credit rate will increase from 13% to 20% from 1 April 2023.
From 1 April 2023 R&D expenditure categories will be extended to cloud computing, costs of datasets and pure mathematics.
HMRC increased interest on late tax payments to 6.5% in February this year (repayment interest is now 3%). UK corporates should be mindful of quarterly instalment payment regime for large and very large companies, and assess on regular basis if they fall within the thresholds.
Individuals should consider utilising their capital gains tax allowance at £12,300 this fiscal period before it will decrease to £6,000 from April 2023 and to £3,000 from April 2024. If there are any investments standing at a loss, selling these now will allow individuals to use that loss against any gains that are taxable – either in 2022/23 or in later years, if appropriately disclosed in the personal tax return.
Also, dividend allowance is due to decrease from 6 April 2023 from £2,000 to £1,000 per year, and further down to £500 from April 2024. Shareholders in the UK corporates should be mindful that extracting profits from their business as dividends may not be the most tax efficient. Please see the effective tax rate graph comparing LLP vs Ltd in this article.
As the additional band tax rate decreases from £150,000 per year to £125,140 from 6 April 2023, individuals should consider their contributions to pension and try to lower their taxable income going into the 2023/24 tax year.
The removal in the pensions life time allowance may now make this an attractive option again for individuals who previously were near to or forecast to breach the limit. Thought should be given as to whether the current year and any unutilised allowances from the previous three years should be used before 5 April 2023 deadline.
Finally do not forget ISAs allowances (£20,000 per year) to be used before 5 April 2023. With interest rates increasing (note: additional rate taxpayers do not get a personal savings allowance) and dividend allowance decreasing ISAs present an advantageous vehicle through which to hold cash or investments.