Business Tax Update – February 2022

Feb 7, 2022 | Blog

Below you’ll find our latest business tax update…

130% super-deduction for investing in new plant continues

Many businesses may have been too short of cash to take advantage of the new super-deduction for investing in new plant in 2021 but may be more confident about investing in 2022.

This tax break, which started on 1 April 2021 continues until 31 March 2023, allows companies to deduct 130% of the cost of new plant and machinery from their profits where that plant would normally be included in the general capital allowances pool.

If a company buys a new commercial vehicle costing £50,000 that means they can deduct £65,000 from trading profit saving £12,350 in corporation tax. Note that there would be a clawback charge on the disposal of the asset, which could be as much as 130% of the proceeds.

There is currently no financial limit on the amount that the company spends on new equipment qualifying for 130% tax relief.

£1 million annual investment allowance still available

Second-hand plant and machinery does not qualify for the 130% super-deduction but would still qualify for the 100% Annual Investment Allowance (AIA).

The amount of expenditure qualifying for 100% tax relief was originally scheduled to revert to just £200,000 from 1 January 2021 but will now continue at £1 million until 31 March 2023.

Although the 130% super-deduction only applies to limited companies the AIA is available to sole traders and partnerships as well.

Remember that there is currently a further 100% first-year allowance for the cost of buying a new zero-emission car for the business.

Previously 100% relief was available where the CO2 emissions of the car were no more than 50g per kilometre. However, that threshold changed in April 2021.

New VAT penalty regime delayed to January 2023

A new, and arguably fairer, system for determining penalties for late returns and late payment of VAT was due to be introduced from April 2022. However, it has been recently announced that the start has been delayed until January 2023. The same system will also apply to returns under MTD for income tax and those penalties will now start in April 2024.

Under the new regime taxpayers will accumulate points for late submissions, and only after reaching a certain threshold will an automatic penalty be imposed. The threshold will depend on how regularly the taxpayer is required to submit a return.

Passing on your business to the next generation

If you do not wish to sell your business but are looking to reduce your involvement, you may be considering passing on your business to the next generation, or maybe your management team.

Where you are passing on the business or some of your shareholding, there are generous tax reliefs that facilitate the transfer of ownership without tax charges arising. These tax reliefs are currently available on the transfer of a trading business although it may also be possible to pass on an interest in an investment business with careful planning. We can of course discuss your plans with you to ensure that you are able to take advantage of all available tax reliefs.

Company buy back of shares as an alternative exit

Another potential exit for shareholders would be for the company to buy back its shares. This would normally be taxed on the shareholder as a dividend unless certain conditions are satisfied resulting in the payment being taxed as a capital gain.

Clearly, CGT treatment is preferable as the rate could be just 10% compared to up to 38.1% on dividends.

Consequently, HMRC needs to be satisfied that the share buy-back benefits the company’s trade, and a large cash payment may be difficult to justify if that depletes cash flow. With careful planning, it may be possible to stage the buy back over a number of years, but it is recommended that you get advance clearance from HMRC to confirm capital treatment.

Will there be a mini-budget on 23 March?

Whilst most of us were wrapping our Christmas presents on 23 December 2021, the Chancellor of the Exchequer, Rishi Sunak, commissioned the Office for Budget Responsibility (OBR) to produce an economic and fiscal forecast for Wednesday 23 March 2022.

The main Budget is scheduled for Autumn each year, but it is anticipated that the Chancellor will take the opportunity to make a number of tax announcements.

Many are hoping that the Chancellor will zero rate VAT on domestic power to ease the burden of households struggling to pay their energy bills. Now that the UK has left the EU, we are free to set our own VAT rates and the Prime Minister made this one of his key Brexit promises!

If you have any questions relating to the above business tax-related topics, don’t hesitate to get in touch. You can contact us here.

 

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