UK Spring Budget 2021 – International
On 3 March, the UK’s Chancellor of the Exchequer, Rishi Sunak, delivered his Spring Budget. With further consultations and policy changes to potentially follow on 23 March, there were fewer announcements in the Budget than we are used to, but there were still a number of developments of note for multinationals.
Corporation tax rate to increase to 25% from April 2023
The Chancellor announced that the UK’s current corporation tax rate of 19% will increase to 25% from 1 April 2023. Whilst this is a material increase, it will still remain the lowest rate in the G7.Companies with profits of GBP50,000 or less will continue to be taxed at 19%, and a tapered rate will apply to profits between GBP50,000 and GBP250,000, so only companies with profits of GBP250,000 or greater will be taxed at the full 25% rate.
The rate of Diverted Profits Tax will also increase to 31% from April 2023 to ensure it remains higher than corporation tax and retains its deterrent effect.
Temporary extension of period for carry-back of losses
Companies that incur trading losses in accounting periods ending between 1 April 2020 and 31 March 2022 will temporarily be able to carry back those losses for a longer period of three years, rather than the normal period of one year, which may entitle companies to claim tax refunds. This loss carry-back is subject to a group cap of GBP2 million per accounting period.
Temporary super-deduction for expenditure on new plant and machinery
From 1 April 2021 to 31 March 2023, companies investing in new plant and machinery will be able to claim:
- a 130% super-deduction for expenditure on most new plant and machinery that would ordinarily qualify for 18% depreciation allowances; and
- a 50% first-year allowance for most new plant and machinery that would ordinarily qualify for 6% depreciation allowances.
Repeal of provisions relating to Interest and Royalties Directive
The Government had previously confirmed that the Interest and Royalties Directive, which can provide an exemption from withholding tax on payments of interest and royalties between related companies, would continue to apply to payments made out of the UK notwithstanding Brexit. It was therefore a surprise that this will no longer be the case for payments of interest and royalties made on or after 1 June 2021.
As a result, where a UK company makes a payment to a related EU company, it will now need to rely on any relevant double tax treaty to relieve UK withholding tax. Whilst this change is disappointing, it may not have as significant an impact as it may first appear given the UK’s comprehensive treaty network.
Review of tax administration for large businesses
The Government intends to start discussions with businesses, advisers and stakeholders over the coming months to build an understanding of large businesses’ experiences of UK tax administration and the perceived challenges that they face. Areas to be considered include the degree to which businesses can be provided with early certainty and the efficient resolution of disputes. This is a great opportunity for multinationals to raise any concerns they have with the Government and to suggest any improvements.
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.
