Corporation tax rates
The big headline announcement is that the corporation tax rate will increase to 25% from April 2023. Despite this, the UK will still have lowest rate in the G7 based on current rates. To protect the smallest businesses, companies with profits below £50,000 will retain the current 19% as a "small profits rate". Above this profit level, but where profits are below £250,000, there will be an entitlement to marginal relief to ensure that there is no cliff-edge. No detail about how this relief will operate have yet been published, but it is confirmed that the £50,000 and £250,000 thresholds will need to be proportionately reduced where there are associated companies or short accounting periods.
The small profits rate will not apply to close investment companies.
The bank surcharge, currently set at 8%, will be reviewed this Autumn (ahead of the changes) to ensure the crucial UK banking sector does not lose its competitive global position in terms of tax rates.
Diverted profits tax
When the increased rate takes effect, the rate of diverted profits tax will also increase to 31%, maintaining the 6% difference.
Losses
The temporary extension to the loss relief provisions also apply to companies, and will apply to relevant company accounting periods ending in the period from 1 April 2020 to 31 March 2022. The carry back to the previous year is unlimited, however for carry back claims for the earlier years, there will be a restriction to £2 million of unused trading losses to offset profits from the same trade. The losses must be relived in a specific order, starting with the most recent year.
Capital allowances
An enhanced first-year allowance, termed a "super-deduction", will be available for most purchases of equipment that would normally qualify as a main rate asset. The deduction will be 130% of actual expenditure. There will be a corresponding 50% super-deduction for special pool assets. To qualify, the expenditure needs to be incurred between 1 April 2021 and 1 April 2023. There are certain assets that will be excluded, including those covered by CAA 2001, s. 46 and second-hand assets.
An enhanced rate of Structures and Buildings Allowance (at 10%) will apply in the eight "Freeports" confirmed in the Budget. These Freeports are:
East Midlands Airport
Felixstowe and Harwich
Humber Region
Liverpool City Region
Plymouth
Solent
Thames
Teesside
Expenditure will qualify if it is incurred and the structure is brought into use before 30 September 2026. There will also be an enhanced first-year allowance for purchases of plant and machinery in these designated regions until 30 September 2026. Further Freeport sites may be designated at a later date.
Certain anti-avoidance legislation relating to the extension of leases relating to Covid-19 will be "switched off", returning the entitlement to capital allowances to the pre-crisis position.
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