6 percent higher corporate tax rate and 130 percent super deduction for investments
The main rate of UK corporate tax will rise to 25 percent from April 2023, as announced in today’s Chancellor of the Exchequer. The rate is currently 19 percent.
The Chancellor also announced the introduction of a “super deduction” for the qualified expenses of companies for new systems and machines in the next two years. These expenses would otherwise result in 18 percent annual capital relief deductions, but a 130 percent upfront deduction will be available between April 2021 and March 2023.
The stated expectation is that a corporation tax hike will occur in April 2023 once the economy returns to pre-pandemic levels. The budget report forecasts that around £ 12 billion will be raised in the first year.
While there has been news of a possible corporate tax hike for the past few days, this will mark the first UK corporate tax rate hike since the mid-1970s, and after a longstanding policy of gradually falling to one rate below the lowest in the world G20. The budget report says the UK corporate tax rate will remain the lowest in the G7 at 25 percent, although taking that claim into account seems to require a certain amount of lateral thinking and a working crystal ball. The Bureau of Budgetary Responsibility, on the other hand, noted that the increase would mean a return to the middle of the pack of advanced economies.
A small profit rate of 19 percent will maintain the current rate for the smallest companies. Today’s proposal is for the 25 percent main rate to apply in full once a company or its group’s annual profits reach £ 250,000. While it has been stated that this covers only 10 percent of businesses, it is noteworthy that under a similar two-rate corporate tax system in effect prior to 2015, the corresponding threshold was orders of magnitude higher at £ 1.5 million.
In contrast, the two-year “super deduction”, which is expected to cost more than £ 12 billion over the next two years, is intended to stimulate investment by companies with cash reserves. There is no upper limit for the amount of relevant expenditure for new machines and systems that are eligible for the deduction of 130 percent, which may lead to a tax relief of around a quarter of the input tax costs incurred in the current year – as long as the business is also in business Year enough taxable profits to fully absorb the deduction.