The UK Government today committed to "building back better" following the devastation wreaked by COVID-19 on the UK people and economy. Featuring prominently at the forefront of the package of measures presented by Chancellor Rishi Sunak in his 2021 Budget was support for sustainable investment in UK technology, infrastructure and skills: commitment to establishing a UK Infrastructure Bank to provide financing support to private sector and local authority infrastructure projects, the creation of eight English Freeports including special "tax sites" (with Freeports in Scotland, Wales and Northern Ireland to follow) and backing for solutions to cut carbon emissions including for ports infrastructure for offshore wind.
1. Rate increases
As widely anticipated, and as pseudo-compensation for the support which companies have received from the Government, the Chancellor announced a rise in the main rate of corporation tax to 25% from financial year 2023 to apply to profits exceeding £250,000, while a new "small profits rate" of 19% will apply to profits of £50,000 or less (corporation tax rates will effectively gradually increase for profits of between £50,000 and £250,000). The rate of diverted profits tax will increase from 25% to 31% from the same date, in line with the increase in corporation tax. In order to prevent the increase in corporation tax from rendering UK taxation of banks uncompetitive and damaging "one of the UK's key exports", the Government announced a review of the 8% bank surcharge with the intention that the combined rate of tax on banks' profits does not increase substantially from current levels.
2. Corporation tax "super-deduction"
To encourage business investment, a new first-year capital allowance "super-deduction" of 130% will apply to expenditure on qualifying plant and machinery incurred from 1 April 2021 up to and including 31 March 2023. This super-deduction applies to "new" main rate assets (i.e. used or second hand plant and machinery will not be eligible) and a 50% rate will apply to special rate assets. The Chancellor confirmed also the extension of the increased annual investment allowance of £1,000,000 for expenditure on qualifying plant and machinery until 31 December 2021. See below for the Freeport tax sites capital allowances reliefs.
3. Carry-back of losses
The period for which companies and unincorporated businesses can carry back and relieve trading losses against previous profits has been temporarily extended. For accounting periods ending between 1 April 2020 and 31 March 2022 (and tax years 2020/21 and 2021/22), businesses will be able to carry back trading losses and relieve against profits from the previous three years (previously limited to the preceding year only). Although the amount of trading losses that can be carried back to the preceding year remains unchanged, a £2,000,000 cap (per accounting period ending between 1 April 2020 and 31 March 2022 (tax years 2020/21 and 2021/22)) will apply to trading losses carried back to the earlier two years. For corporate groups, the £2,000,000 cap will be subject to a group-level limit, details of which will be announced in due course.
4. R&D tax reliefs
The UK's generous tax relief for research and development continues to play a key role in attracting to the UK cash and the best brains to innovate in science and technology, forge a way through the climate crisis and continue to spear-head the technology revolution (supplemented from March 2022 with an elite points-based fast-track visa system for prospective staff of fast-growth companies). Following a flurry of recent activity in this space by HM Treasury and HM Revenue & Customs, the Government announced a wide review of its R&D tax relief schemes (RDEC and SME) and published a consultation document with the aim of ensuring that the UK remains a competitive location for R&D and the reliefs continue to be "fit for purpose". Data and cloud computing costs may be brought into scope and grants will be offered to innovative, R&D-heavy businesses through the new "Future Fund: Breakthrough" scheme.
The temporary reduced rate of 5% will be extended to 30 September 2021 for goods and services supplied by businesses in the tourism and hospitality sector. To ease the transition back to the standard 20% rate, a 12.5% rate will apply for the subsequent six months, i.e. until 31 March 2022. VAT registration and de-registration thresholds for all businesses have been "frozen" for a further period of two years, i.e. until 31 March 2024 (at £85,000 per year and £83,000 per year respectively).
And in case you were wondering…
Businesses in the eight new English Freeports special tax sites will benefit from:
- An enhanced 10% rate of structures and buildings allowance for constructing or renovating non-residential structures and buildings
- An enhanced capital allowance of 100% for investment in plant and machinery for use in the tax sites
- Full relief from stamp duty land tax on the purchase of commercial property within the tax sites
- Full business rates relief
- Customs duties relief
- Subject to Parliamentary approval, employer National Insurance contributions relief for eligible employees in all tax sites from April 2022 or (if later) designation of a tax site
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