Next week, 15 March, the Chancellor will deliver his first Spring Budget. It will provide an opportunity to cushion companies from the effects of the Corporation Tax (CT) increase to 25% and the withdrawal of the 130% Super-Deduction; both timed for the 1 April 2023.
Although any large-scale tax cuts may be off the table, the Chancellor may still be willing to provide companies with incentives to invest.
The Super-Deduction was introduced to encourage companies to invest in qualifying equipment before the 1 April 2023 increase in CT rates to 25%.
So, what incentives could we expect?
- The Chancellor could extend the 130% relief, thus offering corporate businesses an effective 32.5% tax relief (25% x 1.3). This would be a useful fiscal carrot to encourage capital investment from April 2023.
- He could extend the relief to cover rented, leased or second-hand goods.
- He could extend the relief to include non-corporate business owners and the self-employed.
Alternatively, he could simply increase the permanent Annual Investment Allowance above the present £1m.
The business community needs incentives to invest. Otherwise, there is a danger that firms may simply defer investment, waiting for better times, which, of course, would further reduce our competitive ability to match productivity advances by countries who are less concerned with this “wait and see” approach.