The Finance Bill 2024 was granted royal assent on 22 February 2024 becoming the Finance Act 2024, with many measures coming into effect from that date. The changes which have now been given legal effect by the Act will not come as a surprise to business owners as all have been previously announced. However, the coming into force of the Act provides an opportunity to set out some of the main changes which are relevant to businesses:
Full expensing for companies: currently, businesses can claim 100% first year allowances on expenditure on new qualifying plant and machinery (including zero emission cars) as well as a 50% first year allowance for new assets which fall within the definition of special rate expenditure (e.g. long-life assets). These first-year allowances were due to expire in April 2026, but as confirmed in the Autumn Budget, these allowances will now be made permanent to encourage capital investment.
Exemption from the electricity generator levy for new investment projects: the electricity generator levy is a relatively new tax which was introduced following the energy crisis to address the extraordinary profits companies were realising whilst households were struggling to pay rising energy bills. The levy of 45% applies to exceptional receipts of companies undertaking electricity generation in the UK including nuclear, renewables and biomass. The change, intended to encourage investment in green energy, provides an exemption from the levy for projects which create new generating stations or increased capacity from existing generation stations where the decision to proceed with the project was made on or after 22 November 2023. The exemption has been widely welcomed but there are criticisms that the government should be going further to encourage renewable projects.
New regime for R&D relief: The Act introduces a merged R&D scheme which will combine the current separate schemes for small and large businesses into one above-the-line credit scheme. The new merged scheme will apply to accounting periods beginning on or after 1 April 2024. The rules broadly follow the existing R&D expenditure credit scheme, so small and medium-sized enterprises (SMEs) are likely to be most effected by the changes. All companies, regardless of size, will have a rate of relief of 20% shown in their pre-tax earnings (most SMEs will be used to claiming the R&D tax credit after tax). The definition of R&D has not changed, but the government is hoping the changes to the scheme will protect genuine R&D-intensive companies and reduce the level of errors and suspected abuse that may be more commonly associated with SME claims. Although this will be a significant change for SMEs, the R&D intensive scheme for SMEs (which applies for accounting periods commencing on or after 1 April 2023) has now been legislated for in FA 2024, and will continue to exist with the threshold for R&D intensity reduced from 40% to 30% for accounting periods beginning on or after 1 April 2024.
Removal of higher rate stamp duty and SDRT for capital raising arrangements: This has been a long-anticipated enactment in relation to the higher rate stamp duty or SDRT charge of 1.5% which applied on the issue of shares to depository receipts and clearing services. Following judgements in various CJEU cases dating back to 2012, it was determined that these charges were in violation of EU law and in contradiction to the free movement of capital. Since these rulings, HMRC have been consistent in their practice not to issue these charges and confirmed that this approach would continue post-Brexit. However, the charge was not removed from the statute books and there was concern that the Retained EU Law (Revocation and Reform) Act 2023 (‘the Revocation Act’) would effectively reinstate the 1.5% charge from 1 January 2024. While it was announced in the Autumn Budget that legislation would be introduced to remove the charge from 1 January 2024, there was nothing legally binding to confirm this removal until FA 2024 received royal assent. The Act, now in force, gives retrospective effect to this measure with an effective date of 1 January 2024. This change will provide much comfort to companies going forward, who had been left somewhat in limbo when the change had been announced but not legislated.
Clarification on VAT legislation post-Brexit: Prior to the Revocation Act, UK VAT law was interpreted in accordance with EU Directives, regulations and CJEU law. From 1 January 2024, the Revocation Act removed the supremacy of EU law including the removal of directly effective rights and EU general principals. In an area largely governed by EU legal rights, there was significant uncertainty about how UK VAT law would be interpreted following these changes. The Finance Act takes steps to carve out VAT from some of the regulations in the Revocation Act and retains general principles of EU law for interpreting VAT law. This goes a significant way to removing the uncertainty of VAT law interpretation and should help preserve continuity in the application of VAT in the UK.
The Finance Bill 2024 was granted royal assent on 22 February 2024 becoming the Finance Act 2024, with many measures coming into effect from that date. The changes which have now been given legal effect by the Act will not come as a surprise to business owners as all have been previously announced. However, the coming into force of the Act provides an opportunity to set out some of the main changes which are relevant to businesses:
Full expensing for companies: currently, businesses can claim 100% first year allowances on expenditure on new qualifying plant and machinery (including zero emission cars) as well as a 50% first year allowance for new assets which fall within the definition of special rate expenditure (e.g. long-life assets). These first-year allowances were due to expire in April 2026, but as confirmed in the Autumn Budget, these allowances will now be made permanent to encourage capital investment.
Exemption from the electricity generator levy for new investment projects: the electricity generator levy is a relatively new tax which was introduced following the energy crisis to address the extraordinary profits companies were realising whilst households were struggling to pay rising energy bills. The levy of 45% applies to exceptional receipts of companies undertaking electricity generation in the UK including nuclear, renewables and biomass. The change, intended to encourage investment in green energy, provides an exemption from the levy for projects which create new generating stations or increased capacity from existing generation stations where the decision to proceed with the project was made on or after 22 November 2023. The exemption has been widely welcomed but there are criticisms that the government should be going further to encourage renewable projects.
New regime for R&D relief: The Act introduces a merged R&D scheme which will combine the current separate schemes for small and large businesses into one above-the-line credit scheme. The new merged scheme will apply to accounting periods beginning on or after 1 April 2024. The rules broadly follow the existing R&D expenditure credit scheme, so small and medium-sized enterprises (SMEs) are likely to be most effected by the changes. All companies, regardless of size, will have a rate of relief of 20% shown in their pre-tax earnings (most SMEs will be used to claiming the R&D tax credit after tax). The definition of R&D has not changed, but the government is hoping the changes to the scheme will protect genuine R&D-intensive companies and reduce the level of errors and suspected abuse that may be more commonly associated with SME claims. Although this will be a significant change for SMEs, the R&D intensive scheme for SMEs (which applies for accounting periods commencing on or after 1 April 2023) has now been legislated for in FA 2024, and will continue to exist with the threshold for R&D intensity reduced from 40% to 30% for accounting periods beginning on or after 1 April 2024.
Removal of higher rate stamp duty and SDRT for capital raising arrangements: This has been a long-anticipated enactment in relation to the higher rate stamp duty or SDRT charge of 1.5% which applied on the issue of shares to depository receipts and clearing services. Following judgements in various CJEU cases dating back to 2012, it was determined that these charges were in violation of EU law and in contradiction to the free movement of capital. Since these rulings, HMRC have been consistent in their practice not to issue these charges and confirmed that this approach would continue post-Brexit. However, the charge was not removed from the statute books and there was concern that the Retained EU Law (Revocation and Reform) Act 2023 (‘the Revocation Act’) would effectively reinstate the 1.5% charge from 1 January 2024. While it was announced in the Autumn Budget that legislation would be introduced to remove the charge from 1 January 2024, there was nothing legally binding to confirm this removal until FA 2024 received royal assent. The Act, now in force, gives retrospective effect to this measure with an effective date of 1 January 2024. This change will provide much comfort to companies going forward, who had been left somewhat in limbo when the change had been announced but not legislated.
Clarification on VAT legislation post-Brexit: Prior to the Revocation Act, UK VAT law was interpreted in accordance with EU Directives, regulations and CJEU law. From 1 January 2024, the Revocation Act removed the supremacy of EU law including the removal of directly effective rights and EU general principals. In an area largely governed by EU legal rights, there was significant uncertainty about how UK VAT law would be interpreted following these changes. The Finance Act takes steps to carve out VAT from some of the regulations in the Revocation Act and retains general principles of EU law for interpreting VAT law. This goes a significant way to removing the uncertainty of VAT law interpretation and should help preserve continuity in the application of VAT in the UK.
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