Finance (No. 2) Act 2023

Part 1 — Income tax, corporation tax and capital gains tax

Income tax charge, rates etc

Income tax charge for tax year 2023-24

1

Income tax is charged for the tax year 2023-24.

Main rates of income tax for tax year 2023-24

2

For the tax year 2023-24 the main rates of income tax are as follows—

• (a) the basic rate is 20%,

• (b) the higher rate is 40%, and

• (c) the additional rate is 45%.

Default and savings rates of income tax for tax year 2023-24

3

• (1) For the tax year 2023-24 the default rates of income tax are as follows—

• (a) the default basic rate is 20%,

• (b) the default higher rate is 40%, and

• (c) the default additional rate is 45%.

• (2) For the tax year 2023-24 the savings rates of income tax are as follows—

• (a) the savings basic rate is 20%,

• (b) the savings higher rate is 40%, and

• (c) the savings additional rate is 45%.

Freezing starting rate limit for savings for tax year 2023-24

4

• (1) For the tax year 2023-24 the amount specified in section 12(3) of ITA 2007 (the starting rate limit for savings) is “£5,000”.

• (2) Accordingly, section 21 of that Act (indexation) does not apply in relation to the starting rate limit for savings for that tax year.

Corporation tax charge and rates

Charge and main rate for financial year 2024

5

• (1) Corporation tax is charged for the financial year 2024.

• (2) The main rate of corporation tax for that year is 25%.

Standard small profits rate and fraction for financial year 2024

6

• (1) For the purposes of Part 3A of CTA 2010, for the financial year 2024—

• (a) the standard small profits rate is 19%, and

• (b) the standard marginal relief fraction is 3/200ths.

Capital allowances

Temporary full expensing etc for expenditure on plant or machinery

7

• (1) Part 2 of CAA 2001 (plant and machinery allowances) is amended as follows.

• (2) Section 39 (first-year allowances available for certain types of qualifying expenditure only) has effect as if after the entry relating to section 45O there were inserted—

section 45S	expenditure on plant or machinery in other cases

.

• (3) Chapter 4 has effect as if after section 45R there were inserted—

(45S) Expenditure is first-year qualifying expenditure if— (a) it is incurred on or after 1 April 2023 ..., (b) it is incurred by a company within the charge to corporation tax, (c) it is expenditure on plant or machinery which is unused and not second-hand, and (d) it is not excluded by section 45T (exclusion of expenditure under disqualifying arrangements) or 46 (general exclusions). (45T) (1) Expenditure is not first-year qualifying expenditure under section 45S if the expenditure is incurred directly or indirectly in consequence of, or otherwise in connection with, disqualifying arrangements. (2) Arrangements are “disqualifying arrangements” for the purposes of this section if— (a) the main purpose, or one of the main purposes, of the arrangements is to secure a tax advantage connected with expenditure being first-year qualifying expenditure under section 45S (including securing the advantage by avoiding a balancing charge under section 59A or 59B or reducing the amount or timing of such a charge), and (b) it is reasonable, taking account of all the relevant circumstances— (i) to conclude that the arrangements are, or include steps that are, contrived, abnormal or lacking a genuine commercial purpose, or (ii) to regard the arrangements as circumventing the intended limits of relief under this Act or otherwise exploiting shortcomings in this Act. (3) In this section “arrangements” include any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable).

• (4) Section 46 (general exclusions) has effect as if—

• (a) in subsection (1), after the entry relating to section 45O there were inserted—

section 45S	expenditure on plant or machinery in other cases

, and

• (b) after subsection (4) there were inserted—

(4A) General exclusion 6 does not prevent expenditure being first-year qualifying expenditure under section 45S if the plant or machinery is provided for leasing under an excluded lease of background plant or machinery for a building.

• (5) Section 52 (first-year allowances) has effect as if in subsection (3), in the table, at the end there were inserted—

Expenditure qualifying under section 45S (expenditure on plant or machinery in other cases) which is not special rate expenditure	100%
Expenditure qualifying under section 45S (expenditure on plant or machinery in other cases) which is special rate expenditure	50%

.

• (6) Chapter 5 has effect as if after section 59 there were inserted—

(59A) (1) This section applies if a first-year allowance has been made to a company in respect of first-year qualifying expenditure under section 45S which is not special rate expenditure. (2) If the company is required to bring a disposal value into account for an accounting period by reference to the plant or machinery on which the expenditure is incurred, the company is liable to a balancing charge for that period (whether or not it is also liable to any other balancing charge for that period). (3) The amount of the balancing charge is the relevant proportion of the disposal value; and the relevant proportion is determined by dividing— (a) the amount of the expenditure that was the subject of the allowance, by (b) the total amount of expenditure that has been the subject of that or any other first-year allowance or has been allocated to a pool for that or any other accounting period. (4) In relation to the accounting period for which the disposal value is brought into account, TDR (see section 55(1)(b)) for the pool to which the expenditure that was the subject of the allowance was allocated is to be reduced by the amount of the balancing charge. (59B) (1) This section applies if a first-year allowance has been made to a company in respect of first-year qualifying expenditure under section 45S which is special rate expenditure. (2) If the company is required to bring a disposal value into account for an accounting period by reference to the plant or machinery on which the expenditure is incurred, the company is liable to a balancing charge for that period (whether or not it is also liable to any other balancing charge for that period). (3) The amount of the balancing charge is the relevant proportion of the disposal value; and the relevant proportion is determined by— (a) dividing the amount of the expenditure that was the subject of the allowance by two, and (b) dividing the result of that division by the total amount of expenditure that has been the subject of that or any other first-year allowance or has been allocated to a pool for that or any other accounting period. (4) In relation to the accounting period for which the disposal value is brought into account, TDR (see section 55(1)(b)) for the pool to which the expenditure that was the subject of the allowance was allocated is to be reduced by the amount of the balancing charge. (59C) (1) This section applies if arrangements are entered into the main purpose, or one of the main purposes, of which is— (a) to secure that a balancing charge under section 59A or 59Bis not chargeable on a company, or (b) to secure a reduction in the amount, or a change in the timing, of a balancing charge under section 59A or 59B which is chargeable on a company. (2) Sections 59A and 59B are to have effect as if the arrangements had not been entered into. (3) In this section “arrangements” include any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable).

Annual investment allowance to remain at £1M beyond temporary period

8

• (1) The amount of £1,000,000 which is specified in section 51A(5) of CAA 2001 as the maximum allowance in relation to expenditure incurred in the period beginning with 1 January 2019 and ending with 31 March 2023 is to be the amount of the maximum allowance in relation to expenditure incurred on or after 1 April 2023 (as well as in relation to expenditure incurred in that period).

• (2) Accordingly—

• (a) in section 51A of CAA 2001, for the amount specified in subsection (5) as the maximum allowance (which in the absence of this section would be £200,000 in relation to expenditure incurred on or after 1 April 2023) substitute “£1,000,000”, and

• (b) the temporary AIA transitional provisions cease to have effect in relation to chargeable periods beginning before 1 April 2023 and ending on or after that date.

• (3) For this purpose “the temporary AIA transitional provisions” means—

• (a) paragraphs 2 and 3 of Schedule 13 to FA 2019, and

• (b) section 32 of FA 2019, section 15 of FA 2021 and section 12 of FA 2022 so far as relating to those paragraphs.

First-year allowance for expenditure on electric vehicle charge points

9

In section 45EA of CAA 2001 (expenditure on plant or machinery for electric vehicle charging point), in subsection (3) (the relevant period), in paragraphs (a) and (b), for “2023” substitute “2025”.

Other reliefs relating to businesses

Relief for research and development

10

Schedule 1 makes provision in relation to the corporation tax relief contained in Chapter 6A of Part 3 of CTA 2009 (trade profits: R&D expenditure credits) and Part 13 of CTA 2009 (additional relief for expenditure on research and development)—

• (a) conferring relief in respect of expenditure on data and cloud computing services,

• (b) about the administration and management of claims for relief,

• (c) about the circumstances in which an enterprise counts as a small or medium-sized enterprise and in which accounts are to be treated as prepared on a going concern basis, and

• (d) limiting relief for expenditure incurred on payments to expenditure incurred on payments made before the making of a claim for the relief.

Treatment of profits from patents etc: small profits rate of corporation tax

11

• (1) In section 357A of CTA 2010 (election for special treatment of profits from patents etc), in subsection (3)—

• (a) in the formula, in both places it occurs, for “MR” substitute “AR”;

• (b) for the definition of “MR” substitute—

• “AR” means, in relation to a company— in a case where corporation tax is charged at the standard small profits rate on the company’s taxable total profits of the accounting period mentioned in subsection (1) which are not ring fence profits, that rate, or in any other case, the main rate of corporation tax.

• (2) The amendments made by subsection (1) have effect in relation to accounting periods beginning on or after 1 April 2023.

Energy (oil and gas) profits levy: de-carbonisation allowance

12

• (1) The Energy (Oil and Gas) Profits Levy Act 2022 is amended as follows.

• (2) In section 2 (additional expenditure treated as incurred for purposes of section 1), for subsection (3) substitute—

(3) For the purposes of section 1 the company is to be treated as if, in addition to the investment expenditure (“the IE”) incurred by it in the accounting period, it had incurred in that period— (a) expenditure of an amount equal to 80% of the amount of the IE, in a case where the expenditure is capital expenditure on the de-carbonisation of its upstream petroleum production, and (b) expenditure of an amount equal to 29% of the amount of the IE, in any other case.

• (3) In that section, after subsection (4) insert—

(4A) For the purposes of this section, where a company incurs expenditure part of which is capital expenditure on the de-carbonisation of its upstream petroleum production and part of which is not, the expenditure is to be apportioned on a just and reasonable basis.

• (4) After that section insert—

(2A) (1) Expenditure incurred by a company is expenditure on the “de-carbonisation of its upstream petroleum production” for the purposes of section 2 if— (a) the expenditure is incurred in qualifying circumstances, and (b) the main purpose, or one of the main purposes, in incurring the expenditure is to reduce greenhouse gas emissions in the carrying on by the company of its ring fence trade. (2) For this purpose expenditure is incurred in qualifying circumstances if— (a) it is incurred on the provision of an alternative energy asset which is to be used for the purpose of generating or storing power for use by the company in its upstream petroleum facilities, (b) it is incurred on the modification of an asset so that it becomes an alternative energy asset which is to be used for that purpose, (c) it is incurred on the provision of an asset (such as a cable or substation) where the asset is to be used to make a connection to the electric grid or to an alternative energy asset so that (in either case) the company can use the power generated in its upstream petroleum facilities, (d) it is incurred for the purpose of reducing or eliminating flaring or venting, (e) it is incurred for the purpose of capturing greenhouse gas emissions, or (f) it is incurred for the purpose of monitoring or measuring greenhouse gas emissions (including with a view to detecting leaks of greenhouse gas emissions from the company’s upstream petroleum facilities). (3) For the purposes of this section an asset is an alternative energy asset if the asset generates or stores power (wholly or mainly) from sources of energy other than fossil fuels. (4) For the purposes of this section references to a company’s upstream petroleum facilities are to any facility used by the company for the purposes of its oil extraction activities. (5) In this section— - “the electric grid” means— in Great Britain, anything which is a transmission system, or a distribution system connected to a transmission system, for the purposes of Part 1 of the Electricity Act 1989, or in Northern Ireland, anything which is a transmission system, or a distribution system connected to a transmission system, for the purposes of Part 2 of the Electricity (Northern Ireland) Order 1992, - “emissions” has the same meaning as it has in the Climate Change Act 2008 (see section 97), - “fossil fuel” has the meaning given by section 32M of the Electricity Act 1989, and - “greenhouse gas” has the same meaning as it has in the Climate Change Act 2008 (see section 92).

• (5) In section 3 (section 2: meaning of “operating expenditure”), for subsection (5) substitute—

(5) In this section “tariff receipts” has the meaning given by section 291A of CTA 2010.

• (6) In section 18(1) (interpretation)—

• (a) after the definition of “energy (oil and gas) profits levy” insert—

• “facility” means a platform, an oil well, a platform well, an oil well head or upstream petroleum infrastructure,

, and

• (b) omit the “and” before the definition of “ring fence trade” and after that definition insert—

• “upstream petroleum infrastructure” means any upstream petroleum pipeline, oil processing facility or gas processing facility (as those expressions are defined by section 90 of the Energy Act 2011 but as if that section also applied (with the appropriate modifications) to Northern Ireland).

• (7) The amendments made by subsections (2) to (4) have effect in relation to expenditure incurred on or after 1 January 2023 and the amendments made by subsections (5) and (6) have effect in relation to expenditure incurred on or after 26 May 2022.

Museums and galleries exhibition tax relief: extension of sunset date

13

In section 1218ZCG(1)(c) of CTA 2009 (date before which qualifying expenditure must be incurred), for “2024” substitute “2026”.

Extension of the temporary increase in theatre tax credit etc

14

• (1) In each of the following provisions of FA 2022—

• (a) section 17(2) (temporary increase in amount of theatre tax credit),

• (b) section 19(2) (corresponding provision for orchestra tax credit), and

• (c) section 21(2) (corresponding provision for museums and galleries exhibition tax credit),

for “2023” substitute “2025”.

• (2) In each of the following provisions of that Act (which provide for an increase in the amount of those credits for a further year but at a lower rate than that provided for by sections 17(2), 19(2) and 21(2))—

• (a) section 17(3),

• (b) section 19(3), and

• (c) section 21(3),

for “2023” substitute “2025” and for “2024” substitute “2026”.

• (3) In each of the following provisions of that Act (which deal with straddling periods for those credits)—

• (a) section 17(4),

• (b) section 19(4), and

• (c) section 21(4),

for “2023” substitute “2025” and for “2024” substitute “2026”.

Seed enterprise investment scheme: increase of limits etc.

15

• (1) Part 5A of ITA 2007 (seed enterprise investment scheme) is amended in accordance with subsections (2) to (5).