On Wednesday 15 March 2023, the Chancellor unveiled the Budget which included several key tax announcements. We have listed some important tax changes below and commented on the Scottish perspective where appropriate.

1. Pensions

There were a number of announcements in respect of changes to pension limits, which apply equally to Scottish taxpayers. The main changes which will apply with effect from April 2023:

• the annual allowance is to increase from £40,000 to £60,000. This is the maximum amount of pension savings an individual can make each tax year without incurring a tax charge. The £40,000 current limit has been in place since 2014;
• the annual allowance will be tapered for individuals with an adjusted income level of more than £260,000. The effect of tapering is to reduce the annual allowance by £1 for every £2 of adjusted income of more than £260,000, but notably with the minimum tapered annual allowance increasing to £10,000 (tapering currently applies where adjusted income is more than £240,000, with a minimum of £4,000). Prior to tax year 2020/21, the minimum annual allowance was £10,000, but in that regime tapering applied where adjusted income was more than £150,000; and
• no one will face a lifetime allowance charge. The Chancellor announced his intention to remove the lifetime allowance cap entirely in a future finance bill. While the lifetime allowance cap will be removed, the maximum amount that most individuals can claim as a pension commencement lump sum (tax-free lump sum when they become entitled to their pension benefits) is to be capped at £268,275. This is 25% of the current lifetime allowance. Those individuals who already have a protected right to take a higher pension commencement lump sum will continue to be able to do so.

2. Corporation Tax

The proposed increase to the statutory rate of Corporation Tax from 19% to 25% in April 2023 will proceed as planned. At 25%, the UK will have the lowest headline rate of Corporation Tax in the G7. This applies equally in Scotland.

3. Capital Allowances

With the super-deduction coming to an end on 31 March 2023, the Chancellor announced two new capital allowances in the Budget:

• full expensing, which allows taxpayers to deduct 100% of the cost of certain plant and machinery from their profits before tax. It applies to spending on main rate equipment such as plant, machinery and IT equipment; and
• the 50% first-year allowance (FYA), which allows taxpayers to deduct 50% of the cost of other plant and machinery, known as special rate assets, from their profits during the year of purchase. The 50% FYA was introduced alongside the super-deduction and was due to end on 31 March 2023, but has now been extended to 31 March 2026. For each year following the first year, 6% of the remaining cost will be written off via Writing Down Allowances.

Both new measures are effective from 1 April 2023 to 31 March 2026 and apply equally in Scotland.

4. Amendments to the Rules for Real Estate Investment Trusts (REITs)

Amendments will be made to the REIT regime to enhance its competitiveness. In addition to changes announced on 9 December 2022, the Chancellor will make three changes to enhance the REIT regime rules.

These changes remove the requirement for a REIT to hold a minimum of three properties where it holds a single commercial property worth £20 million or more; amend the rule that deems a disposal of property within three years of being significantly developed to be outside the property rental business; and amend the rules for deduction of tax from property income distributions paid to partnerships.

The changes will variously apply from 1 April 2023 and Royal Assent to the Spring Finance Bill 2023.

5. Corporate Interest Restriction (CIR) Rules

The government will make a number of changes to the CIR rules to reduce the administrative burdens for businesses.

In most cases, these will take effect for periods of account commencing on or after 1 April 2023 and will also apply in Scotland.

6. Amendments to the Qualifying Asset Holding Companies (QAHC) Rules

Following the introduction of the new QAHC tax regime from April 2022, the government will make a number of changes to the regime so it is more widely available to investment fund structures which fall within its intended scope.

This will further enhance the attractiveness of the UK as a location for establishing asset holding companies by allowing more relevant companies to make use of the regime.

7. Tax Relief for Research and Development (R&D) intensive Small and Medium-sized Enterprises (SMEs)

From 1 April 2023, a new R&D scheme will take effect, targeted specifically at loss-making R&D intensive SMEs (companies whose qualifying R&D expenditure is worth 40% or more of their total expenditure). Under this scheme, eligible loss-making SMEs will be able to effectively claim £27 from HMRC for every £100 of R&D investment, instead of £18.60 for non-R&D intensive SMEs.

It is expected that this enhanced support will benefit the following high-growth industries (which are key sectors in Scotland):

• pharmaceutical and life sciences;
• computer programming (and other digital-based technologies); and
• consultancy and manufacturing.

This change will apply equally to Scotland.

8. Reforms to Audio-Visual Tax Reliefs

From 1 April 2024, the film, TV and video games tax reliefs will be reformed, becoming expenditure credits instead of additional deductions. Under this new reform, a new Audio-Visual Expenditure Credit will be introduced to replace the current film, high-end TV, animation and children's TV tax reliefs. Accordingly, film and high-end TV will be eligible for a credit rate of 34%, and animation and children's TV will be eligible for a credit rate of 39%.

Additionally, a new Video Games Expenditure Credit will also be introduced, with a credit rate of 34% on qualifying expenditure. It is worth noting that qualifying expenditure under the new scheme will be expenditure on goods and services that are used or consumed in the UK; this is a change in scope compared to the Video Games Tax Relief (VGTR), which currently allows a deduction for core costs on goods or services provided from within the UK or European Economic Area (EEA). However, video gaming companies operating in Scotland should note that there is a transition period for games that have not concluded development on 1 April 2025. These may continue to claim EEA expenditure under the current VGTR until April 2027.

9. Investment Zones

In January 2023, it was announced that Inverness and Cromarty Firth Green Freeport and Forth Green Freeport had been jointly selected by the Scottish and UK governments to become Scotland's first Green Freeports and eligible for Freeport tax reliefs.

Investment Zones are intended to be complementary to Freeports, with an overall aim of driving investment and levelling up the UK, and it is intended that there will be at least one Investment Zone located in Scotland.

Under proposals in the Budget 2023 which will take effect from enactment of the measures, the following tax benefits will in principle be available in designated tax sites within each Investment Zone, subject to agreement between the UK and Scottish governments. These reliefs will be available for five years:

• full Land and Buildings Transaction Tax relief for land and buildings bought for commercial use or development for commercial purposes;
• 100% relief from business rates on newly occupied business premises, and certain existing businesses where they expand in 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. As mentioned above, there is a separate Budget proposal for 100% expensing of plant and machinery for three years to March 2026, so there may be some cross-over between these proposals;
• enhanced Structures and Buildings Allowance – accelerated relief to allow businesses to reduce their taxable profits by 10% of the cost of qualifying non-residential investment per year, relieving 100% of the cost of structures and buildings over 10 years; and
• 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 £25,000 per year, with Employer NICs being charged at the usual rate above this level. This relief can be applied for 36 months per employee.

10. Charities and Community Amateur Sports Clubs (CASCs) – Tax Reliefs

Currently, charities or CASCs located in the UK, EU or the EEA may qualify for charitable tax reliefs in the UK.

The tax definition of a charity or CASC will change to be limited to charities subject to governance by UK courts and CASCs located and providing facilities in the UK.

From April 2024, all non-UK charities and CASCs will no longer be eligible to claim UK charitable tax reliefs.

For non-UK charities and CASCs that already qualify for relief, on 15 March 2023 there will be a transitional period until the relevant applicable date in April 2024 when tax reliefs available to them will stop.

11. Seed Enterprise Investment Scheme (SEIS)

The government is proceeding with an increase to tax reliefs provided under the SEIS, a scheme which provides income tax relief to investors in start-ups. Currently, new companies can raise £150,000 from SEIS investments but from April 2023 this will be increased to £250,000. The amount on which investors will be able to claim income tax relief will increase from £100,000 to £200,000.

These changes will be welcomed by start-ups as they will be able to raise more money from investors and investors will be able to claim income tax relief on more of their investment income.

This applies equally in Scotland.

12. Enterprise Management Incentives (EMIs)

The government announced a simplified process to grant options under an EMI scheme. From April 2023, the requirement for a company to set out details of share restrictions within the option agreement and the requirement for a company to declare an employee has signed a working time declaration will be removed.

From April 2024, the government will also extend the deadline for a company to notify HMRC of the grant of an EMI option from 92 days following grant to 6 July following the end of the tax year.

This applies equally in Scotland.

13. The Company Share Option Plan (CSOP)

CSOP is a share option arrangement under which certain companies can grant tax-advantaged options to their employees. Currently, there is a limit of £30,000 on the value of CSOP options that an employee can hold at any one time. As previously announced, this limit will be increased to £60,000 from April 2023. This applies equally in Scotland.

14. Fuel Duty

Fuel duty was cut by 5p per litre last March for the period to April 2023. The Chancellor announced that fuel duty will be frozen for a further year and the 5p cut will continue, leaving fuel duty levied at a flat rate of 52.95p per litre.

This applies equally across the whole of the UK and is set to save the average driver £100 over the next year.

15. Alcohol Duties – Draught Relief

The alcohol duty freeze is set to end on 1 August 2023. Following this date, duties on alcohol will go up in line with inflation as usual, with taxes generally based on alcohol volume.

However, the Chancellor announced that on 1 August 2023 Draught Relief will be increased and the duty on draught products in pubs will be up to 11p lower than the duty in supermarkets.

The value of Draught Relief will increase from 5% to 9.2% for qualifying beer and cider products and from 20% to 23% for qualifying wine, other fermented products and spirits.

This will reduce the tax burden on some alcoholic drinks sold in pubs in an attempted boost to pubs across the whole of the UK.

The above only provides a summary of the key tax changes. A number of other technical tax changes were announced. In particular, a number of changes were announced that will only apply to large businesses.