Corporate tax will increase but a “super-deduction” announced

“While the improved allocations are welcome, they will add considerable complexity to the system as the improved allocations will need to be considered when selling assets later,” Walker said. “The guidance document giving details of the new regime even goes so far as to say that the measure could ‘negatively impact the customer experience’ due to the additional tax administrative tasks involved in the sale of assets. .”

The current corporate tax rate of 19% will continue until April 2023, when it will be raised to 25%, the Chancellor announced. Businesses with profits of £50,000 or less will continue to pay at 19% even after April 1, 2023. Those with profits between £50,000 and £250,000 will pay tax at the main rate of 25% reduced marginal relief offering a gradual increase in the effective corporate tax rate.

The Small Profits Measure reintroduces a rate that previously applied but was removed in 2015 when the main corporate tax rate reached the 20% rate then applicable to small profits. In 2014, the small profits rate applied to profits of £300,000 or less and marginal relief was available for companies with profits of less than £1.5 million.

“The reintroduction of the small profits rate gives a feeling of deja vu. However, the new small profits rate is much less favorable than the old one and many more companies will pay the main rate of 25% of the income tax. companies,” Walker said.

Under the current rules, banks are subject to an 8% surcharge on their profits, in addition to the normal corporate tax rate. The government has announced a review of the bank surcharge which will be carried out this year, as it would ‘make UK taxation of banks uncompetitive and hurt one of our main exports’ if the 8% surcharge continues to apply in plus the new 25% corporate tax rate from April 2023. She intends to report in the fall.

The government also intends to temporarily extend the period that businesses can carry forward business losses from one year to three years for business accounting years ending in the period April 1, 2020 to March 31, 2022.

Under the current rules, a company that suffers a trading loss during an accounting period can claim to offset the loss against the total profits of the preceding 12 months after first applying the losses against the profits of the accounting period to the during which the loss occurred. The carry-forward of business losses will be extended from the current one-year entitlement to a 3-year period, with losses being carried forward first.

The amount of operating losses carried over to the previous year remains unlimited for companies. However, after carrying forward to the previous year, a maximum of £2 million of unused losses will be available to carry forward against profits from the same transaction to the previous 2 years. This £2 million limit applies separately to unused losses from each 12 month period during the term of the extension. For companies that are members of a group, the £2 million cap applies on a group basis.

The diverted profits tax rate will be increased from 25% to 31% for the year beginning April 1, 2023, to maintain the current differential of 6% between the diverted profits tax rate and the main corporate tax rate.

At the end of the Brexit transition period, the UK was no longer subject to EU directives. One such directive is the Interest and Royalty Directive, which eliminates withholding taxes for intra-group interest and royalty payments. Although UK companies no longer benefit from the Directive, exemption from withholding tax was still found in UK law, so EU companies benefited from the UK exemption from withholding tax. It was announced in the budget that this legislation will be repealed from 1 June 2021, so withholding tax rates on interest and royalties paid to EU companies will then depend on the terms of the applicable double taxation.

The government has also announced the location of the first eight English freeports. Once the designated tax sites within these freeports have been confirmed, the increased rate of 10% Structures and Buildings Allowances will be available on the construction of new structures and non-residential buildings and the renovation of structures and buildings. existing non-residential buildings. In addition, an enhanced capital cost allowance of 100% will be available for businesses that invest in plant and machinery at designated tax sites.