Reduction in main rate of corporation tax to 20% from 1 April 2015
With a view to making the UK a more attractive location for companies, the Chancellor has announced a further reduction in the main rate of corporation tax. The rate is already set to reduce to 21% from April 2014, and will now fall to 20% from 1 April 2015. At that point, the main rate of corporation tax and the small profits rate will be unified and all companies will pay tax at the same 20% rate regardless of their level of profits. Whilst larger companies will benefit from a reduced rate of tax on their profits, smaller companies should benefit from reduced compliance and administration costs in confirming their eligibility for the 20% rate.
Increase in ‘Above the Line’ Research and Development (‘R&D’) tax credit
Companies engaged in qualifying R&D and claiming R&D tax credits under the ‘large companies’ scheme will benefit from an increase in the rate of ‘Above the Line’ (ATL) credit that they will be able to claim from 1 April 2013, when it is introduced.
The ATL R&D credit changes the way in which the R&D credit is claimed and reported in the accounts. It was previously announced that the credit given would be 9.1% of a company’s qualifying R&D expenditure, but the Chancellor stated in the Budget that it will now be 10%.
The ATL tax credit is itself taxable, and the original 9.1% figure was calculated to give a similar post-tax result to the current method of calculation (a super-deduction from taxable profits). Companies were then to be able to choose whether to apply the old or new calculation until the new method becomes mandatory in April 2016. The increase in the ATL credit may encourage more companies to opt in early to this new method of calculation, as the tax savings will be greater by doing so.
Although this scheme of R&D tax credits applies predominantly to large companies, small and medium-sized companies can also claim under it in certain circumstances, notably where their R&D activities are funded or are undertaken on a subcontract basis for large companies or parties not liable to UK corporation tax. Specialist advice should be sought in such cases.