Corporation Tax Increase & Super Deduction Updates

As the dust settles on last months budget we can look at a couple of measures in more detail.

Corporation Tax Increase In 2023

As we know, the main rate of corporation tax will rise from 19% to 25% in April 2023.

Only the largest 10% of companies will be affected by this increase as the existing 19% rate will be retained for small businesses with annual taxable profits of up to £50,000. Companies with profits between £50,000 and £250,000 will pay tax at the main rate reduced by a marginal relief providing a gradual increase in the effective corporation tax rate. This marginal rate works out to be 26.5%.

Super deduction and Capital Allowances Update April 2021

Many commentators have been discussing the savings from the Super Deduction.

From 1 April 2021 the Chancellor hopes to stimulate investment by providing a “super deduction” of 130% of eligible expenditure by companies on qualifying plant and machinery. This will generate a reduction in tax of 24.7p for every £1 spent. Obviously, you will need the spare cash to invest in your business to then get this tax saving.

Expenditure on special rate assets “integral assets” or integral features” will attract a 50% rate and a 9.5p tax reduction. However, the annual investment allowance (AIA) limit of £1m (relief of 100%) will continue to apply until the end of 2021 so 99.9% of small businesses will simply use this allowance before the new 50% rate is even considered.

Trading losses

There is more good news for companies and unincorporated businesses making trading losses in 2020/21 and/or 2021/22. They will be able to carry back these losses for up to three years to offset against taxable profits (for companies) or net income (for individuals) in those years on a last in first out basis.

The loss carry back extension applies to a maximum of £2m for each company, corporate group or unincorporated business per loss-making year.

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. The ability to carry back to the previous 12 months remains unlimited.

Where trade has been impacted by COVID meaning losses have been made on 2020 and 2021, then this is welcome news.

As always, we’ll keep you updated as and when we have further news or updates.

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