The Chancellor has affirmed the UK’s commitment to the common reporting standard (CRS) 2.0 and the cryptoasset reporting framework (CARF) by launching a consultation in advance of draft regulations expected later this year. This consultation also floats the prospect of domestic CRS reporting.

Summary

The Government is launching a consultation to seek views on the implementation of the CARF and the amendments to the CRS. The consultation runs until 29 May 2024 and the intention is that these regimes will go live on 1 January 2026, with first reporting by 31 May 2027.

Included in the consultation is a proposal to introduce domestic CARF and CRS reporting by making the UK a reportable jurisdiction.

Our comment

The UK, along with several other jurisdictions, declared its intention to adopt CARF and the CRS amendments in November 2023, and this consultation was expected as a preliminary step in advance of the publication of draft regulations later in the year. Requests from the industry for at least 18 months of lead time ahead of systems changes appear to have been taken on board.

Less expected, however, is the proposal to extend CARF and CRS reporting to domestic tax residents by making the UK a reportable jurisdiction. The intention is that this would supersede Bank and Building Society Interest and Other Interest reporting. There are potential benefits here, such as streamlining reporting requirements. This would also represent a dramatic increase in reporting volumes, particularly for UK-focused financial institutions. We expect that such financial institutions will be keen to provide input on this proposal.

Finally, HMRC is proposing to introduce mandatory registration for UK financial institutions, regardless of whether reporting is required. This would align UK requirements with other CRS jurisdictions.

Draft legislation is to be published for the potential extension of full expensing and 50% first-year allowances to include plant and machinery used for leasing. Capital allowances will no longer be available on furnished holiday lettings (FHL) following the removal of the FHL regime from April 2025.

Summary

Full expensing

Currently, full expensing and 50% first year allowances are only available to companies in respect of plant and machinery assets that are not used for leasing, except for background plant and machinery in a building that is leased.

The Spring Budget announces measures to extend these reliefs to include leased plant and machinery assets. The Government, however, made it clear the extension will only take effect when economically viable and after technical consultation on the draft legislation, which will be published shortly.

Furnished holiday lettings

From 6 April 2025, the FHL tax regime will be abolished, meaning all favourable tax treatments including the availability of capital allowances will be removed.

Our comment

The FE announcement is good news particularly for construction and other plant hire businesses, who were previously excluded from claiming the super-deduction and FE.

HM Treasury and HMRC had previously announced a technical consultation into this point and has acted at relative pace; buoyed by the success of FE that has helped push forecast UK investment this year up to 10.6% of GDP. The Chancellor, however, commented that these changes will come into effect ‘as soon as it is affordable’, with no detail of when that might be.

The removal of the FHL tax regime is driven primarily by the view that the number of holiday homes around the country is limiting houses available to local residents. It will mean that capital allowances will no longer be available on these properties, bringing the tax treatment of short term lets in line with the current tax treatment for longer term leased residential property. This is expected to increase taxable rental income generated by the properties.

It is currently unclear whether the balance of the capital allowances pools and FHL losses carried forward post 6 April 2025 will be lost or still available to offset future taxable profits. The legislation around the removal of FHL regime will be released shortly, which should provide clarity.

We recommend that FHL owners revisit their capital allowances position in order to optimise potential capital allowances claims before 6 April 2025.

The Chancellor made a number of announcements that benefit industries in the creative sector.  These include the introduction of the independent film tax credit (IFTC), increased audio-visual expenditure credits (AVEC) for visual effects and retaining tax relief for qualifying theatres, orchestras, museums and galleries at their current rates.

Summary

Tax relief for qualifying theatres, orchestras, museums and galleries

During the pandemic, creative companies suffered significantly, prompting the Government to expand support measures by raising the tax credit rates. This was a temporary measure with the rates expected to be tapered before reverting to pre-pandemic rates in 2026.

The higher tax credit rates will now be permanent from 1 April 2025. For theatre tax relief and museums and galleries exhibition tax relief the rates will be 40% and 45% for non-touring and touring productions respectively. Orchestra tax relief will be set at 45%.

The sunset clause for museums and galleries exhibition tax relief has also been removed, making those tax reliefs permanent.

Independent film tax credit

Qualifying films with projected core expenditure of £15 million or less will be able to benefit from the new IFTC. This is an enhanced AVEC, available where a film meets a new test administered by the British Film Institute (BFI). The test is expected to require that the films have UK key talent, such as a UK writer or director, or be certified as an official UK co-production,

Claims for the IFTC may be made from 1 April 2025 in respect of expenditure incurred from 1 April 2024, provided that principal photography has also commenced on or after this date.

The credit rate will be 53% of qualifying expenditure, which is capped at a maximum of 80% of a film’s total core expenditure. The largest taxable credit a film can receive will be £6.36m.

Audio-visual expenditure credit

As announced at Autumn Statement 2023, the Government is reforming film and high-end TV tax reliefs by replacing the previous reliefs with the AVEC.

The new AVEC is available at a basic rate of 34% for films that do not qualify for the new UK IFTC and relief is capped based on 80% of core production costs. It is available for accounting periods ending on or after 1 January 2024.

Under the AVEC, visual effects costs will receive a tax credit at a higher rate of 39%. The 80% cap on qualifying expenditure will also be removed for visual effects costs. This measure recognises that the 80% cap has historically incentivised producers to move more portable aspects of production, such as visual effects, overseas. The removal of the cap and additional rate of credit aims to reverse this trend and will take effect from 1 April 2025.

A consultation will be published shortly on the types of visual effects expenditure that will be within scope of the enhanced tax relief.

Our comment

These changes provide much-needed stability amidst uncertain funding and rising costs.

Various unions have already publicly praised these announcements relating to theatres, orchestras, museums and galleries, citing their potential to create more jobs, produce more engaging shows and exhibitions, and boost investment to aid in the post-pandemic recovery efforts.

The IFTC directs support to up-and-coming filmmakers on a tight budget and, combined with the introduction of the uplifted AVEC rate for visual effects, adds further weight to the Government’s support of the UK’s creative industries.

The Spring Budget contained no broad measures to provide relief for those facing business rate increases in April 2024. A targeted relief was announced to further boost the creative sector, with eligible film studios in England set to receive 40% business rates relief.

The biggest announcement is the extension to the empty property rates reset period of 6 weeks to 3 months from 1 April 2024. The Government will also be consulting on adopting a general anti-avoidance rule for business rates in England.

Summary

There was a dissatisfactory silence on business rates increases in the Spring Budget, with no response to the call to reduce the rise in rates that are set to rise in line with September 2023’s CPI rate of 6.7%. This will deliver a non-domestic standard rate multiplier of 56.4p on 1 April 2024. This rise will affect businesses with a ratable value over £51,000.

The commitment to encourage the creative industries was a positive measure, with eligible film studios being granted 40% relief on their business rate assessments until 2034.

In the previous Spring Budget, a consultation was announced to explore measures to combat avoidance of business rates. The responses to this consultation were published on the day of the 2024 Budget. The resulting policy outcome was a measure designed to discourage ‘box shifting’, where properties are repeatedly occupied for short periods in order to optimise empty property relief. The empty property relief ‘reset period’ will be extended from six weeks to thirteen weeks, effective from 1 April 2024.

Our comment

The inaction by the Chancellor to address the business rates burden will be unwelcome news for many businesses who will collectively shoulder the burden of the increase exceeding £1.5 billion. The lack of action will inevitability impact business decisions around growth and investment. The extension of the empty rates reset period will be devastating for those with vacant space in their commercial real estate portfolios.

HMRC is to establish an expert advisory panel to support the administration of the research and development (R&D) tax reliefs. The panel will provide insight into the R&D occurring across key sectors such as technology and life sciences, and will assist HMRC with updating R&D guidance.

It was also confirmed that the new merged R&D tax scheme will take effect for accounting periods starting on or after 1 April 2024. 

Summary

HMRC’s expert advisory panel will seek to deliver industry expertise, and contribute to HMRC’s guidance in order to administer R&D tax relief support efficiently. HMRC believes this will improve the functioning of compliance for R&D tax reliefs.

It has been confirmed that the new merged R&D tax relief scheme, which has been through several consultations in recent years, will be introduced for claims made for accounting periods beginning on or after 1 April 2024. From this point, for the majority of claimants, the current R&D expenditure credit (RDEC) and R&D SME schemes will combine into a merged  scheme that will offer relief at the current RDEC rate of 20%.

Our comment

Although many were hoping that the introduction of the new merged R&D tax relief scheme would be delayed, to allow companies more time to prepare, at least there is now certainty that the new rules will come into effect for accounting periods starting on or after 1 April 2024.

Key changes that take effect from this point include:

• An above the line (taxable) credit of 20% will be the main mechanism for providing tax relief to large and small companies. This results in a net tax benefit of up to 16.2% for profitable or loss making companies on qualifying expenditure.
• Restrictions will be introduced on claiming relief for most overseas R&D expenditure.
• New rules on whether or not the “customer” or “contractor” can claim for contracted out activities.
• The R&D intensity threshold for a loss-making SME to be classified as an ‘R&D intensive SME’ will reduce from 40% to 30%. The intensity threshold is the percentage of total group expenditure within an accounting period that is qualifying R&D expenditure.

Given the challenge HMRC faces in assessing the technological or scientific judgements required to identify qualifying R&D projects, we hope that establishing a panel of appropriately experienced advisors to assist will improve the compliance process for claimants. It is, however, critical that the correct profile of individuals or bodies is assigned to the panel. To apply the R&D rules appropriately the panel should comprise individuals with real world applied industry experience in the relevant fields of science and technology, preferably with experience or at least training in applying the R&D guidelines to projects.