As widely expected, corporation tax rates will rise but just for bigger companies and not until April 2023.
The main rate of corporation tax will then rise from 19% to 25%, which is in line with countries such as France and Germany.
A new small profits’ rate of corporation tax will be introduced for companies with annual profits below £50,000.
Marginal relief will be available for profits between £50,000 and £250,000, such that the overall rate will be on a sliding scale between 19% and 25% for such companies.
This marginal rate will be 26.5% which will encourage tax planning to reduce profits to the £50,000 threshold.
The measure is forecast to raise £12 billion, £16 billion and £17 billion for the three years after implementation, respectively.
Loss carry back
From April 2021 companies, partnerships and sole traders will be able to carry back trading losses for three years, as opposed to the current one year carry back rule.
There will be a limit of £2 million of losses for each additional year, per taxpayer, as well as for groups of companies.
The new rules will apply to trading losses which fall into the 2020-21 and 2021-22 tax years, so it is only a temporary measure.
To be eligible, companies and individuals must not have ceased trading and individuals and partnerships must not be in their first three years of trading.
130% super deduction for companies
Companies will be able to claim 130% capital allowances for main rate capital expenditure on plant and machinery, from 1 April 2021 to 31 March 2023. As a result, companies may want to consider deferring capital expenditure by one month, to take advantage of the new allowance.
There will also be a 50% relief for special rate capital expenditure but excluding operating leases, second-hand assets and cars for the same time period.
The 100% annual investment allowance (AIA) for expenditure up to £1 million until 31 December 2021 and £200,000 each year thereafter, remains in place for all businesses, but for companies the new super deduction will obviously be far more valuable.
During the coronavirus crisis, UK companies have significantly reduced their capital expenditure. This measure is clearly designed by the Government to try and encourage corporate investment to generate growth.