In his mini-Budget, the former Chancellor Kwasi Kwarteng announced plans for Tax-Free Investment Zones across England.

The Government says these new economic zones will drive growth by lowering taxes and freeing up planning to encourage development and business investment.

What are the benefits?

These zones will offer a number of advantages to the businesses that choose to operate in them, including:

• Companies within the zones will receive 100 per cent relief on business rates for newly occupied premises. The same will apply to existing businesses if they expand within the zone.
• Full Stamp Duty Land Tax (SDLT) relief will apply for land and property bought for commercial use or development or new residential developments.
• Employer National Insurance contributions will be rated at zero for new employees earning up to £50,270 per year.
• There will be a 100 per cent first-year enhanced capital allowance relief for plant and machinery to incentivise investment.

Partnership with local authorities

The scheme will involve agreeing with 38 Upper Tier Local Authorities and Mayoral Combined Authorities in England to develop dozens of Investment Zones.

They will be delivered in partnership with devolved administrations and local partners in Scotland, Wales and Northern Ireland.

The Government says it will set out further detail on Investment Zones in due course. However, a full list of local authorities working with the Government can be found here.

Link: Tax-Free Investment Zones

When the former Chancellor Kwasi Kwarteng announced his changes to the basic rate of Income Tax you may have wondered what it meant for you.

From 6 April next year, the basic rate of Income Tax will be reduced by one percentage point – from 20 per cent to 19 per cent.

This cut to Income Tax was first announced by Rishi Sunak but has now been brought forward a year in the new Government’s changes to taxation.

This change affects:

• Non-savings, non-dividend income for taxpayers in England, Wales and Northern Ireland
• The savings basic rate which applies to savings income for taxpayers across the UK
• The default basic rate which applies to non-savings and non-dividend income of any taxpayer that is not subject to either the main rates or the Scottish rates of Income Tax.

Link: Income Tax factsheet

The IR35 and off-payroll working rules, which affect how contractors operating through a personal service company (PSC) are classed and taxed, will be repealed in April 2023.

Under the most recent reforms, IR35 in the private sector limited the way that contractors and freelancers could work in medium and large companies as employees through an intermediary PSC, which would typically be their own private companies.

When was the legislation introduced?

The off-payroll working rules came into effect for contractors working in the public sector in April 2000.

The rules were introduced by HM Revenue & Customs (HMRC) to try to prevent disguised employment and to determine whether a non-payroll worker should be classed and treated as a contractor or employee.

It was designed to ensure that an individual who works like an employee, but through their own limited company, pays broadly the same Income Tax and National Insurance contributions (NIC) as an employee on the payroll.

In 2017, HMRC transferred responsibility for assessing whether someone was acting as an employee in the public sector from the individual contractor to the organisation that engaged their services.

Similar rules were then applied to the private sector in April 2021 to medium and large businesses.

The impact of IR35

This rule change resulted in many businesses reducing their use of contractors or applying blanket determinations to all contractors to ensure they were compliant.

As a result, two things happened, the number of contractors shrunk and many of the remaining contractors increased their fees to account for the changes in taxation and National Insurance where they were deemed to be inside IR35.

What the repealing of IR35 means for contractors

The repeal of these rules means that the contractor will, from April next year, be responsible for determining their status and ensuring that they pay the correct amount of tax and NIC for the services provided.

Link: Growth Plan 2022

R&D tax reliefs have supported hundreds of thousands of businesses to invest in innovation by cutting the amount of tax that they pay.

However, from 1 April next year, there will be several changes to the rules surrounding R&D, which could affect how much relief you can claim.

Expand eligible expenditure to data sets, cloud computing and pure mathematics

Businesses will be able to include the costs of purchasing data for R&D projects or using cloud computing services.

This will allow businesses that pay licence fees to rent cloud computer storage space or pay for data costs in the pursuit of R&D to build this expenditure into their claims.

These areas will now come under the R&D qualifying expenditure umbrella and R&D for tax purposes will now also include pure mathematics.

Many businesses will benefit from this change, particularly in the fields of technology and media, which could help to mitigate losses from the restrictions on overseas R&D costs.

Restrictions on overseas claims

R&D reliefs will be focused on the UK from 1 April 2023. This means that subcontracted R&D work and the cost of externally provided workers (EPWs) will be limited to work undertaken in the UK.

The Government has indicated that it does not want to introduce a rule that discriminates against businesses that cannot practically carry out research in the UK.

A list of exemptions is being worked on which will be tied to environmental, geographical, legal or regulatory reasons that would prevent R&D from taking place in the UK.

There may also be an exemption for certain specialist skills, such as consulting world-leading experts in a particular field.

At present, the draft legislation does not change the ability to claim for expenditure incurred by an overseas branch of a UK company.

Cracking down on abuse

HMRC has voiced concern over certain R&D claims and has allocated an additional 100 inspectors to deliver greater scrutiny.

It has also introduced tougher rules, which include:

• Claims must be made digitally
• Categories of qualifying expenditure incurred should be disclosed and brief details of the R&D activities provided
• A senior company officer must endorse the claims
• Claims must include details of any agent who has advised the company on it
• Companies must inform HMRC in advance of their intention to make a claim within six months of the end of the accounting period to which the claim relates.

On this final point, the ICAEW has raised concerns that in some circumstances it might prevent businesses from making a valid claim.

This is because it shortens the timeframe in which companies need to determine whether they have a valid claim.

However, in an exception to this rule, if a company has made an R&D claim in one of the preceding three periods it will not need to pre-notify.

Link: Research and Development Tax Relief reform

From 11 October, the interest rates on late tax payments rise again in line with the Bank of England’s (BoE) latest base rate increase.

The BoE increased the base rate by 0.5 per cent to 2.25 per cent in September, as a result of inflation.

Due to this, the late payment and repayment interest rates applied to tax debts will rise to:

• Late payment interest rate — 4.75 per cent
• Repayment interest rate — 1.25 per cent

HMRC interest rates are set in legislation and linked directly to the base rate, so the latest rise has been automatically triggered by these changes.

The late payment rate last increased to 4.25 per cent on 23 August – the highest rate since January 2009.

This interest is due on late tax bills for:

• Income Tax
• National Insurance Contributions
• Capital Gains Tax
• Stamp Duty Land Tax

The file and pay rate for Corporation Tax increases to 4.75 per cent with effect from 11 October.

Meanwhile, the interest charged on underpaid quarterly instalment payments increase to 3.25 per cent and the interest paid on overpaid quarterly instalment payments and on early payments of Corporation Tax not due by instalments rose to two per cent from 3 October 2022.

You should be aware that any further increases in the BoE base rate could further drive-up these rates and increase the cost of tax debts.

Link: HMRC interest rates for late and early payments

Sterling’s fall to close to parity with the dollar means that the cost of investing in UK businesses is lower than ever, especially for businesses and individuals based in the US or otherwise primarily trading in dollars.

Simply put, their dollars are now worth more pounds, meaning they get more bang for their (literal) buck.

For UK businesses and their owners seeking investors or buyers, this is potentially good news, because it means they may have the opportunity to seek a higher price than they would previously have been able to command.

It could also open the door to a new group of prospective buyers who might not previously have considered international investments or purchases.

Marketing your business for sale or seeking investment is not a straightforward undertaking and needs to be approached strategically.

That means you need to be clear in advance on what you want to achieve, what you feasibly can achieve and the steps you can take to obtain the best deal.

The precise timing of marketing your business and securing a deal for sale or investment is more of a tactical consideration that needs to fit within this broader framework.

It is neither feasible nor desirable to seek an immediate sale to or investment from dollar-based businesses or individuals.

However, with the pound currently at historically low levels and few experts expecting any significant upward swing in the short to medium term, now may be a good time to start the strategic process that needs to underpin the sale of your business.