UK Spring Budget 2021 – Corporate
After months of speculation about a potential rise in the 20% rate of capital gains tax and paring back of related reliefs for business owners, investors will have breathed a sigh of relief after hearing Chancellor Rishi Sunak’s Spring Budget announcement.
No increase in capital gains tax rate
The current rates of capital gains tax, and the rules on Business Asset Disposal Relief (formerly Entrepreneurs’ Relief) will remain unchanged. In fact, the current annual exempt allowance for capital gains tax (GBP12,300 for individuals) will be maintained until 6 April 2026. Chancellor has also continued to honour the Tory “triple tax lock” pledge not to raise the rate of income tax, national insurance or value added tax.
Increase in corporation tax rate to 25% from April 2023
From April 2023, the corporation tax rate will increase to 25% (from the current rate of 19%). The 19% rate will continue to apply to companies with profits of GBP50,000 or less, and a tapered rate will be introduced for profits above GBP50,000, so that only companies with profits of GBP250,000 or greater will be taxed at the full 25% rate.
Other notable changes
There were a large number of technical changes, consultations, and previously trailed reforms (such as the introduction of Freeport tax sites, and plastic packaging tax) that affect corporates, but two more notable changes were as follows:
- Despite the government indicating they would retain the UK domestic laws that implemented the Interest and Royalty Directive post Brexit – these being the rules that provide relief from UK withholding tax on payments of interest and royalties to EU 25% associated persons – the rule will be abolished after all from 1 June 2021.
- As a temporary measure, companies that have incurred trading losses between 1 April 2020 and 31 March 2022 will have the ability to carry these back to set off against profits arising in the previous three years (extending the current rule of carrying back one year only). Losses carried back one year will be unlimited (as currently) but any unused losses carried back further will be capped at GBP2 million (subject to special rules for groups).
Should you have any queries on the issues raised in this summary, please reach out to your usual UK tax contact or one of the contacts below.
