Reading the start of the Policy Paper trumpeting the cancellation of the intended increase in the headline rate of corporation tax from 1 April 2023, if you hadn’t lived through the surreal last month or so, you would assume that when Liz Truss became Prime Minister on 6 September she had succeeded in throwing out a Labour Government, rather than it being as a result of Blue-on-Blue action. One might also argue that two and a bit weeks is nowhere near long enough for a brand new inexperienced Cabinet team to have decided on such a wide ranging and radical set of measures, especially having “lost” Sir Tom Scholar from the Treasury Permanent Secretary role in that time.
Despite the billions thrown at the pandemic and the new billions being found to keep the lights on round the UK, the answer (short term at least) is to collect less corporation tax, not more. The intended rate rise to 25% for more profitable companies, which was to bring with it the return of the old favourite marginal rate relief, has been scrapped. This leaves all companies big and small paying just 19% for the foreseeable future, the lowest rate of any country in the G20.
At the same time, the £1m Annual Investment Allowance limit was confirmed as permanent. This allows companies (or Groups as a whole if applicable) to spend up to £1m on qualifying fixed assets and get 100% tax relief in the year of acquisition, despite them being of longer term benefit to the company. This level was originally introduced from 1 January 2019 and was supposed to be just temporary before dropping down again, but the end date had been extended a couple of times due to circumstance. Now it is permanent – well until they change it…
The 130% ‘super deduction’ looks like it will cease on 31 March 2023 as intended. However I suspect that the continuation of the 19% corporation tax rate will mean rules will have to be tweaked, impacting some people who took advantage of this additional capital allowance with the intention of not selling the asset until after 1 April 2023.
The spin is that lower taxes encourage inward investment into the UK from abroad, plus businesses here to have the confidence to invest in growth too. The trouble is in this day and age of globalisation, the World economy as a whole needs to be on the up to enable true business success. Perhaps Liz has that scheduled in for next week…
Mike Carabine – Senior Manager