Background
Chancellor Rishi Sunak delivered his second full Budget on 3 March 2021 announcing the extension of many of the Covid-19 support schemes and freezing the personal allowance, and others, from April 2022.
Some of the more significant changes the Chancellor announced, which we will look at in Muras Matters this week, centred around businesses with a range of measures designed to stimulate business investment including reliefs for losses (available to both companies and unincorporated businesses) and a super deduction for qualifying capital expenditure.
An increase in corporation tax had been widely anticipated and the Chancellor confirmed that the main rate of corporation tax would rise from the 19% to 25% in April 2023, with the existing rate of 19% retained for small businesses. This represents a reintroduction of the two rate system which had been abolished in 2015 in favour of the single rate of corporation tax.
Detail
Corporation Tax Increase
The main rate of corporation tax will increase by 6% from April 2023, from the current rate of 19%, to 25% for companies with profits of£250,000 or more.
In addition the return of the small companies’ rate was also announced. Companies with profits of £50,000 or less will continue to pay corporation tax at the current rate of 19%. This new small companies limit is far lower than the previous threshold of £300,000 which existed up until it’s abolition in 2015.
Companies with profits between £50,000 and £250,000 will pay tax at a marginal rate of 26.5% between the two thresholds. As with the previous small companies rate regime these thresholds will be reduced depending on the number of related or connected companies in existence.
Trading Losses
As many businesses will have found the last 12 months challenging there is good news for companies and unincorporated businesses making trading losses in 2020/21 and/or 2021/22. The ability to carry back a trading loss will be temporarily extended from 12 months to up to three years to offset against taxable profits (for companies) or net income (for individuals) in those previous years on a last in first out basis.
The loss carry back extension applies to a maximum of £2 million for each company, corporate group or unincorporated business per loss-making year for the earlier two years. The level of loss that can be carried back to the previous 12 months will remain unlimited.
As well as a group cap of £2m, each company within a group is limited to a cap of £200,000 per loss-making year for the earlier two years.
Super-Deduction Capital Allowances
To stimulate investment in the economy a new temporary ‘super-deduction’ is being introduced. This will provide an increased incentive to invest in qualifying plant and machinery through generous rates of relief in the period the expenditure is incurred.
From 1 April 2021 until 31 March 2023, companies investing in qualifying new assets will be able to claim:
- a 130% super-deduction first-year capital allowance on qualifying plant and machinery;
- a 50% first-year capital allowance for qualifying special rate assets.
The super-deduction will allow companies to cut their tax bill by up to almost 25p for every £1 they invest in eligible plant and machinery.
The following provides a basic guide to the new super-deduction:
- The super-deduction will apply to companies only.
- The 130% first year allowance will apply to expenditure which usually qualifies for main rate writing down allowances, and a 50% first year allowance will apply to expenditure which usually qualifies as special rate assets (subject to certain exclusions).
- It will apply to expenditure on assets between 1 April 2021 and 31 March 2023, but excludes expenditure contracted for prior to 3 March 2021.
- Expenditure must be on new unused plant and machinery. Excluded assets include:
- Second hand plant and machinery;
- Cars;
- Plant and machinery for leasing;
- Assets acquired from connected party transactions.
- Disposal of an asset before 1 April 2023 on which a super-deduction has been claimed will broadly be subject to either a balancing charge at 1.3 times the disposal proceeds or 50% of the disposal proceeds depending on which super-deduction was previously claimed.
Whilst unincorporated business will not be eligible for the new super deduction, they can continue to utilise the £1 million annual investment allowance in order to obtain a 100% tax allowable deduction in eligible expenditure for plant and machinery
Our Current working arrangement – We remain ‘Open for business’
Our office premises are currently closed, however our staff are continuing to collect post, and are working from home as much as possible. They can still be contacted in the usual way either via email or by calling the office number where reception will divert your call to the appropriate staff member.
If you have any questions or require further information regarding any of the changes outlined above, please speak to your usual contact at the firm.
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