Finance Act 2023

This article covers the changes made by the Finance Act 2023 (which is the legislation as it relates to the tax year 2023/24).

It should be read by those of you who are sitting the ATX-UK exam in the period from 1 June 2024 to 31 March 2025.

The Finance (No. 2) Act 2023 did not receive Royal Assent by the exam cut-off date of 31 May 2023, and is therefore not examinable as regards exams falling in the period 1 June 2024 to 31 March 2025.

Please note that if you are sitting ATX-UK in the period 1 June 2023 to 31 March 2024, you will be examined on the Finance Act 2022, which is the legislation as it relates to the tax year 2022/23. Accordingly, this article is not relevant to you, and you should instead refer to the Finance Act 2022 article published on the ACCA website.

All of the changes set out in the TX-UK article (see ‘Related links’) are also relevant to ATX-UK. In addition, all of the exclusions set out in the TX-UK article apply equally to ATX-UK unless they are referred to below.

This article does not refer to any amendments to the ATX-UK syllabus coverage unless they directly relate to legislative changes and candidates should therefore consult the ATX-UK Syllabus and Study Guide for the period 1 June 2024 to 31 March 2024 for details of such amendments.

Devolved taxes

You are reminded that none of the current or impending devolved taxes for Scotland, Wales, and Ireland are, or will be, examinable.

Non-technical matters

On the ACCA website, there are several non-technical resources relevant to ATX-UK which you should refer to.

• Changes and enhancements from June 2023
• Professional skills in Strategic Professional Options exams
• Professional skills for ATX
• Ethics questions in ATX

Changes relevant to the ATX-UK exam only

Corporation tax

Research and development (R&D) expenditure
Small or medium-sized companies which incur qualifying expenditure on R&D are entitled to an additional tax deduction. This additional deduction has been reduced from 130% to 86% of the qualifying costs incurred, resulting in a total tax deduction of 186% of the qualifying costs.

Where this deduction results in a trading loss, the company may surrender the loss in return for a payment from HM Revenue and Customs (HMRC). This payment has been reduced from 14.5% to 10% of the amount surrendered.

Changes relevant to both the TX-UK exam and ATX-UK exam

The following changes are explained in detail in the TX-UK article.

The notes set out below highlight the fundamental issues arising from the changes, but you will also need to read the detail in the TX-UK article.

Income tax

Basis of assessment for unincorporated businesses
In summary, for exams in the period 1 June 2024 to 31 March 2025:

• Unincorporated businesses will always have an accounting period ending on 5 April (or 31 March) in questions where you are required to calculate the assessable profits for a tax year.
• Some questions may involve an unincorporated business which does not have an accounting period ending on 5 April (or 31 March), but in this case the taxable trading profit for the relevant tax year(s) will be provided.
• The current year basis opening and closing year rules, together with overlap profits, will NOT be tested. If a question involves the commencement or cessation of an unincorporated business, the taxable trading profit for the relevant tax year(s) will be provided.
  
• You are expected to have an awareness of the following:
  
  
  • From the tax year 2024/25 onwards the current year basis of assessment will be replaced by a tax year basis.
  • The transition from the current year basis to the tax year basis will use all of a trader’s overlap profits in the tax year 2023/24.
  • As a result of the change in the basis of assessment, transitional profits will arise in the tax year 2023/24. You do NOT need to know how to calculate these profits but you should be aware that they will be taxed in the future.
  • Calculations of income tax liabilities which include these transitional profits will NOT be examinable until exams in the period 1 June 2025 to 31 March 2026.

Corporation tax

Enhanced capital allowances for companies

• The 130% super deduction and 50% first year allowance came to an end on 31 March 2023 and therefore the initial claim of these enhanced capital allowances will NOT be tested.
• In respect of disposals of plant and machinery on which enhanced capital allowances have been claimed:
  
  
  • Where the original expenditure (on which the super deduction was claimed) fell into the main pool, the sale proceeds are brought in as a balancing charge (and are NOT deducted from the main pool).
  • Where the original expenditure (on which the 50% first year allowance was claimed) fell into the special rate pool, 50% of the sale proceeds are deducted from the special rate pool, with the other 50% brought in as a balancing charge.

Rates of corporation tax
For the financial years 2021 and 2022, the rate of corporation tax was 19%, regardless of the level of a company’s profits.

For the financial year 2023 (the year ended 31 March 2024) the rates of corporation tax are:

• 19% where augmented profits do not exceed the lower limit (a maximum of £50,000).
• 25% less marginal relief where the level of augmented profits is between the limits.
• 25% where augmented profits are greater than or equal to the upper limit (a maximum of £250,000).

It is very important that you go through the detail of this in the TX-UK article and, in particular, that you understand the way in which the lower and upper limits are reduced for both short accounting periods and by reference to the number of associated companies.

The effect of having the two rates of corporation tax together with marginal relief, is that the tax saving resulting from the relief of losses will be maximised if, where possible, losses are targeted to relieve the following profits:

When advising on the offset of losses there are two fundamental issues:

• The amount of tax saved as a result of the losses relieved, and
• The timing – ie the cash flow implications, of the relief obtained.

When considering these two issues you should recognise that:

• A company wishing to obtain earliest possible relief will only be able to obtain relief at 19% where losses are offset against total profits arising prior to 1 April 2023.
• Current and prior year loss relief claims against total profits cannot be restricted; they are all or nothing claims.
• When claiming group relief or offsetting losses carried forward against future total profits a company can choose how much of the loss to offset. This makes it possible to target those profits being taxed at the higher rates, such that the relief obtained is maximised in accordance with the guidance set out above.

In the ATX-UK exam you should be prepared for a range of group scenarios, for example:

• where it is up to you to determine the rates of tax being borne by a company
• where you are told the rates of tax being borne by one or more companies, including the situation where ALL companies pay tax at the main rate.

Quarterly instalment payments
A company is required to make quarterly instalment payments in respect of its corporation tax liability if its augmented profits exceed the profit threshold of £1,500,000. This threshold must be divided by the number of associated companies as at the end of the immediately preceding accounting period.

Although TX-UK candidates will be told the number of associated companies in a question involving quarterly instalment payments, ATX-UK candidates will be expected to be able to determine the number of associated companies for the purposes of payment of tax by quarterly instalments.

Further reading

The following technical articles will be published on the ACCA website at a later date:

• Taxation of the unincorporated business – the new business
• Taxation of the unincorporated business – the existing business
• International aspects of personal taxation
• Inheritance tax and capital gains tax
• Trusts and tax
• Corporation tax
• Corporation tax – Group relief
• Corporation tax – Groups and chargeable gains

The following exam technique articles will also be published on the ACCA website at a later date:

• Passing the ATX-UK exam’
• ‘Examiner’s approach to ATX-UK’, which explains the structure of the ATX-UK exam and the skills required of candidates
• ‘Stepping up from TX-UK to ATX-UK’, which provides guidance on the progression from TX-UK to ATX-UK in terms of the syllabus, the style and format of the exam, and the approach necessary to maximise your chance of success
• ‘Guidance on answering Section A questions in ATX-UK’, which provides detailed guidance on the approach to be taken when answering Section A questions
• ‘Improving your performance in ATX-UK’, a series of five articles which provide detailed guidance on various aspects of exam technique
• Exam technique and fundamental technical issues for ATX-UK 
• Making the best use of the tax tables in your ATX-UK exam
• How to approach Advanced Taxation

Written by a member of the ATX-UK examining team