Budget: Other tax measures for business

Includes an extended window for Freeport and Investment Zone tax reliefs and increases in VAT registration threshold and landfill tax rates

Other announcements of interest

As well as the key measures discussed elsewhere in this edition of Tax Matters Digest, there were a number of other notable announcements in the Spring Budget that will have an impact on taxpayers. These are covered briefly in this article and include an extended window for Freeport and Investment Zone tax reliefs; an announcement that the Government intends to remove the ‘leasing exclusion’ from full expensing relief on plant and machinery expenditure “as soon as it is affordable”; and increases in the VAT registration threshold, the rates of air passenger duty and landfill tax.

Investment Zone and Freeports tax reliefs extended

In the Autumn Statement 2023, the Government announced the intention to extend the window for Freeport tax reliefs from five years to ten years. The Spring Budget confirmed that this change will mean that the window to claim Freeport tax reliefs for English Freeport tax sites will be extended to 30 September 2031 and for Scottish Green and Welsh Freeport tax sites the window will be extended to 30 September 2034. The Government has also committed to providing further information on the new East Midlands and Tees Valley Investment Zones, as well as details on Welsh and Scottish Investment Zones and the Enhanced Investment Zone for Northern Ireland. It has also confirmed that the extension of the Investment Zone programme to ten years from five years (also announced in the Autumn Statement 2023) will apply to the Scottish and Welsh Investment Zones. These moves will be welcomed by businesses hoping to make use of these reliefs, particularly given the time it has taken for the tax sites to be defined.

Potential removal of 'leasing exclusion' from claiming full expensing

Since 2021, the UK has aimed to increase capital investment through the use of first-year allowances (FYA), such as super-deduction or full expensing relief. These FYAs are available to businesses acquiring assets but are not available to lessors. Introducing these tax reliefs did not increase the level of UK capital expenditure as hoped. Therefore, the Government has been consulting on how the rules might be extended to allow lessors to claim full expensing relief in certain cases. It has now been announced that draft legislation is to be published in the next few weeks and that a decision would then be made to introduce the new rules when fiscally expedient.

By giving full expensing relief to lessors, it is expected that UK businesses will be able to obtain cheaper finance for those assets and borrow at a higher loan to value. Giving full expensing to lessors would be a welcome move both for the lessors in question and for lessees who are able to share in the benefits of full expensing through improved finance terms. 

Research and Development (R&D) – new expert advisory panel

It was announced that HMRC will establish an expert advisory panel to support the administration of the R&D tax reliefs. No further details have been released at the time of writing.

Pillar Two – Undertaxed Profits Rule

There were no announcements in respect of the Multinational or Domestic Top-up Tax rules (known as Pillar Two) which the UK previously enacted. Last year, the Government published draft legislation in respect of the Undertaxed Profits Rule (UTPR), one of the key interlocking mechanisms to ensure that in-scope multinational enterprises are subject to at least 15 percent effective taxes on a global basis. The UTPR is expected to be effective for periods commencing on or after 31 December 2024. That legislation has not yet been enacted and, together with provisions to effect the previously announced repeal of the Offshore Receipts in respect of Intangibles (ORIP) regime, may be included in the next Finance Bill.

VAT registration threshold

The Government announced an increase in the VAT registration threshold from £85,000 to £90,000. There will also be an increase in the deregistration threshold from £83,000 to £88,000. These threshold changes will be effective from 1 April 2024.

The threshold has been at £85,000 since 1 April 2017 and it was previously announced in the Autumn Statement in 2022 that this freeze would be extended for an additional two years until 2026.

Acquisitions of residential property by public bodies and providers of social housing

With effect from 6 March 2024, public bodies acquiring a residential dwelling in England or Northern Ireland for more than £500,000 will be exempt from the 15 percent flat rate of Stamp Duty Land Tax (SDLT). This aligns the SDLT rules with the annual tax on enveloped dwellings (ATED) rules as public bodies are exempt from ATED. Also, with effect from this date, the exemption from SDLT for registered providers has been updated in various ways, including adding recycled subsidy to the list of public subsidies that can make a transaction exempt from SDLT and adding local authorities to the definition of a relevant housing provider. These amendments to the legislation are essentially clarificatory, as in practice HMRC had interpreted the existing legislation in this way. The relief from ATED for registered providers has also been updated to align it with the SDLT relief. These measures together have been taken to address unintended SDLT and ATED costs for local authorities and providers of social housing, albeit in practice HMRC have already implemented the changes for providers of social housing on a concessionary basis.

Landfill tax

The UK landfill tax rates are currently £102.10 for most wastes and £3.25 per tonne for specifically defined materials such as some types of ash, subsoils, demolition rubble, glass and certain mechanically produced waste ‘fines’ (the waste produced by any waste treatment process that involves an element of mechanical treatment which can include a wide variety of different materials). These rates will rise to £103.70 and £3.30 respectively on 1 April 2024. Next year's rises will be less modest, however, with the Chancellor announcing that the standard rate of landfill tax will rise to £126.15 and the lower rate to £4.05 on 1 April 2025. 

This rate increase will be welcomed by some parts of the waste sector and may encourage the diversion of waste from landfill to Energy from Waste plants. For local authorities or others with no other disposal routes, this rise in excess of 21.5 percent will mean very much increased costs.

In addition, the continued significant difference between the lower and higher rates of tax will continue to pose problems, particularly where subjective waste categorisation judgements determine tax rates.

Bringing trades in Carbon Credits within the scope of the Terminal Markets Order (TMO)

The Spring Finance Bill will include legislation that underpins the TMO for VAT. This will allow trades in carbon credits to be brought within the scope of the TMO at a future date. The TMO contains the rules for determining the VAT liability of trades in commodities traded on specified markets. This is part of the Government’s broader commitment to update the TMO legislation, which was announced at Tax Administration and Maintenance Day 2023.  There was a joint HMRC and Treasury consultation undertaken in 2023 in relation to the reform of the TMO and the outcome of the consultation is expected in due course.

Vaping Products Duty

HM Treasury and HMRC launched a consultation on 6 March 2024 into a proposed duty on vaping products. The consultation, which closes on 29 May 2024, sets out the Government’s intended approach to the new duty which will come into force in October 2026. The duty will be paid on the e-liquid content of vapes and the rates proposed are:

  • £1 for 10ml nicotine-free e-liquid;
  • £2 for 10 ml of e-liquid containing between 0.1mg and 10.9mg of nicotine; and
  • £3 for 10ml of e-liquid containing 11mg or more of nicotine.

The duty will generally be payable on the manufacture in the UK or importation into the UK of vaping products, and will be passed on to consumers within the product retail price.

We understand that consideration was given to taxing vaping devices but, given that the UK Government, the Scottish Government and the Welsh Government all intend to ban the sale and supply of disposable vapes, the decision was taken to base the duty on the e-liquid only. There are many environmental concerns about vape devices, most notably centring on disposable devices which are arriving in huge numbers at waste management sites across the UK, creating waste classification concerns as well as waste treatment problems. The environmental issues are said, in the consultation document, to be why both nicotine and non-nicotine products will bear the new duty.

Air Passenger Duty rates (APD) 2025-2026

The Government will legislate in a future Finance Bill to increase APD rates for 2025 to 2026. The reduced rates for economy passengers will increase in line with forecast RPI, rounded to the nearest pound. This means that economy, domestic and short haul rates will remain frozen. The standard and higher rates will also increase by forecast RPI and will also be further adjusted to account for recent high inflation. The new rates will apply from 1 April 2025. APD rates are set out in Annex A of the Government’s Overview of Tax Legislation and Rates.

Raising standards in the tax advice market consultation

The Government has published a consultation document – ‘Raising Standards in the Tax Advice Market – strengthening the regulatory framework and improving registration’. This is the latest in a series of consultations on this topic which began with an initial call for evidence in March 2020. The current consultation document proposes improvements to the process by which tax practitioners are registered with HMRC to enable them to interact with and access all HMRC services on behalf of clients, including HMRC checking certain bona fides of the tax practitioner. This is described as an ‘enabling step’ for one of three further proposed options to strengthen regulation: mandatory membership of a professional body for all tax practitioners (HMRC estimate that roughly one third of all tax practitioners are not affiliated with a professional body); a hybrid approach (where unaffiliated tax practitioners are supervised by HMRC); and independent external regulation of all tax practitioners by either a new Government body or by extending the scope of an existing regulator.

Although the Government prefers the mandatory membership approach and sees a new/extended external regulator as a ‘fallback option’, all options remain open depending on the outcome of the consultation and further review work with the professional bodies. The consultation document notes that whichever option the Government chooses, a transitional period of at least three years is likely to be required. The consultation will run for 12 weeks with a deadline of 29 May 2024.