Kwasi Kwarteng’s Growth Plan, announced on Friday 23 September, contained some measures that directly affect taxation in the project finance sector. The major ones are the cancellation of the planned increase in the corporation tax rate and the extension of the £1 million Annual Investment Allowance (AIA). We can help you assess the impact of the measures on your transaction and group.
Corporation Tax Rates
The corporation tax rate increase from 19% to 25% on 1 April 2023 has now been scrapped Therefore, we expect financial models to assume that a 19% corporation tax rate continues to apply beyond 31 March 2023.
In addition, the Diverted Profits Tax, legislated to increase from 25% to 31% from April 2023, will now be retained at 25%, keeping the current 6% differential with the main Corporation Tax rate.
The AIA allows a 100% deduction of the costs, up to £1 million, of qualifying plant and machinery in the year they are incurred.
It was announced in the Growth Plan 2022 that the AIA will now permanently be £1 million, scrapping the decrease to £200,000 planned for April 2023.
Due to the corporation tax rate being maintained at 19%, some of the provisions of how the super deduction operates will also be amended.
Other measures that might affect some companies in the project finance sector depending on their nature and location include:
New Investment Zones
Investment Zones will be introduced across the U.K. These zones will benefit from tax incentives, planning liberalisation, and wider support for the local economy. Specific sites in England will benefit from the following time-limited incentives over ten years:-
Business rates – 100% relief from business rates on newly occupied business premises and certain existing businesses where they expand in English Investment Zone tax sites.
Enhanced Capital Allowances – 100% first-year allowance for companies’ qualifying expenditure on plant and machinery assets for use in tax sites.
Enhanced Structures and Buildings Allowance – accelerated relief to allow businesses to reduce their taxable profits by 20% of the cost of qualifying non-residential investment per year, relieving 100% of their cost of investment over five years.
Employer National Insurance contributions relief – zero-rate Employer NICs on salaries of any new employee working in the tax site for at least 60% of their time, on earnings up to £50,270 per year, with Employer NICs being charged at the usual rate above this level.
Stamp Duty Land Tax (SDLT) – full SDLT relief for land and buildings bought for use or development for commercial purposes and purchases of land or buildings for new residential development.
We expect further detail of the planning liberalisation to be announced in due course.
Accelerated Delivery of Infrastructure
In an attempt to speed up the delivery of infrastructure, new legislation (Planning and Infrastructure Bill) will be introduced in the coming months. This includes:
- reducing the burden of environmental assessments;
- reducing bureaucracy in the consultation process;
- reforming habitats and species regulations; and
- increasing flexibility to make changes to a Development Consent Order (DCO) once submitted.
Further sector-specific changes were also announced to accelerate the delivery of infrastructure, including:
- prioritising the delivery of National Policy Statements for energy, water resources and national networks, and of a cross-government action plan to reform the Nationally Significant Infrastructure planning system;
- bringing onshore wind planning policy in line with other infrastructure to allow it to be deployed more quickly in England;
- introducing reforms to accelerate roads delivery, including by consenting more through the Highways Act 1980 and by considering options for changing the Judicial Review system to avoid claims which cause unnecessary delays to delivery; and
- amending the Product Security and Telecommunications Infrastructure Bill to give telecom operators easier access to telegraph poles on private land, supporting the delivery of broadband.
One hundred thirty-eight infrastructure projects will be prioritised for acceleration across transport, energy and digital infrastructure.
Stamp Duty Land Tax (SDLT)
The Growth Plan includes changes relating to the applicable SDLT on residential properties that will affect anyone undertaking the development of resident property schemes. From 23 September 2022, the threshold above which SDLT must be paid on the purchase of residential properties in England and Northern Ireland increased from £125,000 to £250,000.
The first-time buyers’ relief has increased from 23 September 2022. Specifically, the threshold at which first-time buyers begin to pay residential SDLT increased from £300,000 to £425,000. The maximum value of a property on which first-time buyers can claim a relief has also increased, from £500,000 to £625,000.
Employer (and Employee) NICs
From 6 November 2022, Employer and Employee NICs rates will reduce by 1.25%.
The Health and Social Care Levy due to be introduced from April 2023 has been cancelled.
Energy Markets Financing Scheme (EMFS)
The Bank of England will deliver the £40 billion EMFS. The scheme will provide a backstop source of additional liquidity to energy firms through a 100% guarantee, delivered via commercial banks. It opens to applications from 17 October.
If you have any questions regarding the above or would like to speak to someone at Operis about potential issues relating to the impact on your projects, please don’t hesitate to get in touch.