Budget 2021 – Corporate tax – what you need to know

Corporation tax rate

Recognising the need to raise revenue to tackle the debt mountain following the pandemic, the Chancellor announced that the rate of corporation tax will increase from April 2023 to 25% on profits over £250,000. The rate for small profits under £50,000 will remain at 19% and there will be relief for businesses with profits under £250,000 so that they pay less than the main rate. This proposed increase will, if actually introduced, hopefully only become effective once all businesses have recovered, or at least started to recover from the effects of the pandemic. Even with this increase, the UK will have the lowest corporate tax rate in the G7.

Extended loss carry back for businesses

To help UK businesses which have been pushed into a loss-making position, the trading loss carry-back rule will be temporarily extended from the existing one year to three years. This will be available for both incorporated and unincorporated businesses.

Diverted profits tax

This will rise from 25% to 31% in April 2023 to remain an effective deterrent against diverting profits out of the UK.

Super deduction – Capital allowances

From 1 April 2021 until 31 March 2023, companies investing in qualifying new plant and machinery assets will benefit from a 130% first-year capital allowance. Much of this expenditure would have already qualified under the annual investment allowance but, the additional relief should hopefully encourage increased investment.

Investing companies will also benefit from a 50% first-year allowance for qualifying special rate (including long life) assets.

R&D tax relief

For accounting periods beginning on or after 1 April 2021, the amount of payable R&D tax credit that a small and medium sized business can receive in any one year will be capped (subject to certain exemptions) at £20,000 plus three times the company’s total PAYE and NICs liability. This capping has been introduced in order to deter abuse.

The government will carry out a review of R&D tax reliefs, with a consultation published alongside the Budget. This review will consider all elements of the two R&D tax relief schemes (for small and medium sized businesses and large businesses), with the objective of ensuring the UK remains a competitive location for cutting edge research, that the reliefs continue to be fit for purpose and that taxpayer money is effectively targeted. The government will consider bringing data and cloud computing costs into the scope of relief.

EMI options

Alongside the Budget the government is publishing a call for evidence on whether and how more UK companies should be able to access EMIs to help them recruit and retain the talent they need to scale up.

UK listings

Following of Lord Hill’s review on how to make the UK the best place for high-growth, innovative businesses to publicly list, the government is to work with the Financial Conduct Authority following its commitment to bring forward consultations on changes to their rules on issues raised by the review. The government will next also examine the case for wider capital markets reforms, and will set out further plans on this soon.

Loan Recovery Scheme

This will support businesses in Scotland, Wales and Northern Ireland to access loans of between £25,000 and £10 million.

VAT and the hospitality sector

The UK’s hospitality sectors will benefit from the six-month extension to the UK-wide VAT reduction to 5% until 30 September 2021, with a further reduced rate of 12.5% for the following six months.