Following last week’s budget there were several announcements of relevance to our clients and partners.
6 percent increase in the corporation tax rate
The main rate of UK corporation tax will increase to 25 percent from April 2023. The rate is currently 19 percent.
While there have been whispers of increased corporation tax in the press for weeks, the official announcement will constitute the first increase in the headline rate of UK corporation tax since the mid-1970s. For many years the UK corporation tax has gradually decreased to a rate amongst the lowest in the G20. However, the Budget report notes that at 25 percent, the U.K. corporate tax rate will now remain the lowest in the G7, meaning the UK corporate tax rate has returned to the middle of the pack of advanced global economies.
Fortunately for our clients, we won’t seeing any of these changes until 2023, and the increase will only affect businesses with profits over £50,000 a year, meaning a small profits rate of 19 percent will be preserved for the businesses below this threshold.
This does mean for the next 2 years, commercial property owners can further reduce their tax liability through embedded capital allowance claims and should seek to do so before the 2023 corporation tax increase in order to maximise their tax position.
130 percent ‘Super-Deduction’ for Capital Expenditure
The Chancellor also announced the introduction of a super-deduction for qualifying expenditure by businesses on new plant and machinery assets over the next two years.
The super-deduction is projected to cost parliament over £12 billion per annum for the next two years and is intended to stimulate investment by businesses with cash reserves. This comes into play on 1st April 2021, but detailed legislation is not yet readily available.
From our in-house analysis, there seems to be no cap on the amount of relevant expenditure on new plant and machinery which can qualify for the 130 percent deduction, potentially providing current-year tax relief of approximately one-quarter of the pre-tax costs incurred—so long as the business also makes sufficient taxable profits in the year to absorb the deduction in full.
It also appears that this will only apply to purchase of new plant and equipment for expenditure incurred after the 1st of April 2021 – therefore most properties won’t be affected.
For more information, contact us today to find out how these changes may affect you or your commercial property.