Autumn Budget 2021 – What does it mean for UK Tax Incentives?

On 27 October 2021, the Chancellor unveiled a reasonably quiet budget for UK Tax Incentives, compared to some of the significant changes that were announced in March of this year.

However, there have been a couple of noteworthy announcements that will have an impact on UK Tax Incentives:

Capital Allowances

The Annual Investment Allowance of £1million was due to revert back to pre-2019 levels of £200,000 from 1 January 2022 – but this will now remain unchanged until 31 March 2023.

This will help companies accelerate their tax relief on Special Rate pool expenditure, and will allow those unable to access the Super Deduction (such as Sole Traders and Partnership businesses) to accelerate the tax relief on their qualifying capital additions.

Research and Development Tax Relief

Following the R&D consultation earlier in the year, a number of reforms are due to be made to the UK R&D tax relief system. The most notable changes announced by the Chancellor in the Autumn Budget were:

  • The scope of qualifying R&D expenditure will be expanded to include cloud computing and data costs, with the aim of offering further support to companies using modern research methods.
  • UK R&D tax reliefs will be refocused to ensure that relief is being given for innovation that takes place in the UK. Whereas £47.5 billion of R&D tax relief expenditure was claimed in 2019, it was estimated by the ONS that only £25.9 billion of privately financed R&D had taken place in the UK. It is understood that some of this gap can be explained by UK companies making a claim for innovation that actually takes place overseas.
  • The government has also announced that it intends to improve overall compliance within R&D tax relief and reduce the level of incorrect claims. Such incorrect claims perhaps explain another element of the gap referred to above.
  • These changes will be legislated for in Finance Bill 2022-23 and take effect from April 2023.

Further guidance on this R&D reform is to be published later in the Autumn and we will provide further analysis on this once it is available.

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