In this week’s Budget, it was announced corporation tax rate will rise to 25% from 2023 to help pay back the UK’s riding debts; but a temporary 130% ‘super deduction’ capital allowance on qualifying plant and machinery investments will be available.
Corporation tax rate changes in 2023
Chancellor Rishi Sunak has confirmed plans to raise corporation tax rates to 25% by April 2023 – a 30% increase on the current rate, and reversing a decade of corporation tax cuts by previous chancellors.
The current 19% rate of corporation tax will continue until April 2023. Smaller businesses with profits of £50,000 or less won’t be affected (and will still only be liable for the current 19%). However, a tapered rate of tax will be introduced for taxable profits above £50,000 – if a company makes profits over £250,000, the full 25% rate will apply.
It’s expected the tax increase will raise £47.8bn by April 2026, with Sunak saying it was “fair and necessary to ask [businesses] to contribute to our recovery” following the £100bn spend on emergency support for companies during the pandemic.
Capital allowances – a temporary ‘super deduction’
Another of the eye-catching announcements made in the Budget was a two-year ‘super deduction’ scheme to encourage immediate investment by businesses.
Described by the chancellor as ‘the biggest business tax cut in modern British history’, it will allow a 130% super deduction capital allowance on qualifying plant and machinery investments – which will be welcome news for companies looking to invest their capital over the next two years.
What will the new temporary deduction look like? In a nutshell, companies investing in new plant and machinery between 1 April 2021 and 31 March 2023 will be able to claim a 130% capital allowance on that spend. The new rules also allow for a first-year allowance of 50% on special rate pool expenditure.
When linking this to the increase in corporation tax, the chancellor said: ‘With the lowest corporation tax in the G7, we need to do even more to encourage businesses to invest – for decades we have lagged behind our international peers.
We need to unlock cash reserves so today I can announce the super-deduction. For the next two years when companies invest, they can reduce their tax bill with super deduction by 130% of the cost.”
The deduction will only apply to “companies investing in qualifying new plant and machinery assets” (rather than intangible assets), so care will need to be taken in relation to certain assets where restrictions might apply.
Not only is this expected to encourage an immediate acceleration of business investment (an anticipated £25bn over two years) but it’s also a fantastic opportunity for businesses to reduce their corporation tax liability during a critical time.
For more information, and to discuss the Budget in more detail with our team, you can get in touch here.
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