Autumn Budget 2021: Corporate tax

As expected, the Autumn Budget delivered few surprises for the majority of corporates following the announcement earlier this year of an increased main rate of corporation tax from April 2023. However, the Chancellor did reveal a number of new measures that may be of interest.

Extension of the £1m annual investment allowance (AIA)

The current £1m AIA , which provides a 100 per cent tax deduction on qualifying plant and machinery additions in the year of acquisition, will no longer be reduced to £200,000 from 1 January 2022. The government has confirmed that the £1m limit will continue to apply until 31 March 2023, to continue to encourage businesses to invest.

For many corporates, this change may not actually have a substantial impact because the super-deduction, announced at the March Budget earlier this year, provides an enhanced deduction of up to to 130 per cent, will be available in respect of much AIA-qualifying expenditure incurred in the period of the extension. However, those with significant spend on assets that do not qualify for the super-deduction, such as second hand plant and machinery and certain integral features of buildings, will benefit from this change. There is, however, a potential cliff-edge for companies with significant capital investment on 1 April 2023, when the super-deduction will no longer be available, the AIA will reduce to £200,000, and corporation tax rates will increase. 

Extension of creative sector reliefs

Museums and galleries exhibition tax relief (MGETR), which was due to be withdrawn on 31 March 2022, will be extended for a further two years to 31 March 2024. In addition, the rates of relief for MGETR, theatre tax relief and orchestra tax relief will be broadly doubled from 27 October 2021 until 1 April 2023, and will not reduce back to their current levels until 1 April 2024.

There are no changes in the rates of film tax relief (FTR) or high-end television tax relief (HETR) but production companies will be able to switch between FTR and HETR during production, ensuring that relief is not lost should a company decide to change the distribution method of a particular production. This new treatment will be available from 1 April 2022.

These changes will provide welcome support for the cultural sector as it attempts to recover from the disruption the decimation of caused by the pandemic.

Reduction in the banking surcharge and increased allowances

From 1 April 2023 the rate of the corporation tax banking surcharge will reduce from 8 per cent to 3 per cent, at the same time that the main rate of corporation tax increases from 19 per cent to 25 per cent. The effective rate of corporation tax paid by banking companies might be expected to increase broadly from 27 per cent per cent to 28 per cent.

Alongside this, the threshold for group profits before the surcharge applies will also be increased from £25m to £100m, which the government believes will encourage competition from smaller, challenger banks in the UK. The beneficiaries of the increased threshold may, however, be a wider population than the government is suggesting, with larger banks also benefitting.

Changes to research and development (R&D) tax relief

R&D tax relief will be expanded to provide relief in respect of data and cloud computing costs, to more accurately reflect the continuously evolving nature of R&D expenditure. The relief will also be refocused towards supporting innovation activities carried out in the UK. This, and this change could lead to a reduction in the the extent to which R&D tax relief is available to some companies, particularly those with international R&D programmes. A consultation will be issued later in the Autumn with any changes expected to take effect from 1 April 2023.

Summary

There’s nothing fundamental here. Each of these measures targets a relatively small proportion of companies, but might be expected to deliver a high impact where they do apply. None of the measures represent significant changes to the overall scheme of corporation tax. The most significant recent change from a corporation tax perspective remains the increased rate of tax announced in March 21.

A big win for businesses is the introduction of a 50 per cent business rates discount for 2022-23 for businesses in the retail, leisure and hospitality sectors (subject to a cap of £110,000).

Notable in its absence was any mention of the future of the UK’s digital services tax , which may be required to be abolished as a result of the next phase of the OECD’s Base Erosion and Profit Shifting (BEPS) project, due in 2023.

Let’s not forget that, in terms of impact on government revenues, everything announced today is dwarfed by the new health and social care levy that was confirmed in September. Apart from that particular bombshell (conveniently out of the way before the Autumn Budget day announcements), for the majority of businesses, it’s pretty much a case of ‘as you were’. 

For more information please contact

Claire Spencer Claire Spencer

Partner

Duncan Beckwith Duncan Beckwith

Director