The Chancellor announced that the Corporation Tax rate will rise from the current 19% rate to 25% with effect from the financial year starting on 1 April 2023.  This means that companies with a year end which straddles 1 April 2023 will be subject to two main corporation tax rates, 19% for profits apportioned to the period to 31 March 2023 and 25% for profits apportioned from 1 April 2023.

The 25% rate will apply to companies with profits above £250,000.  Companies with profits up to £50,000 will be taxed at a new “small profits” rate which will be set at 19%.  Companies with profits between £50,000 and £250,000 will pay tax at the main 25% rate reduced by a marginal relief providing a gradual increase in the effective Corporation Tax rate.

For the purposes of working out if a company’s profits fall within the new small profits rate or are eligible for marginal relief, associated companies under the control of the same person, persons or another company will have to be taken into account.

Corporation Tax – Carried forward losses

The 2017 corporation tax loss reform increased flexibility over the use of tax losses against profits, whilst ensuring that businesses pay tax in each accounting period that they make substantial profits by capping the amount of losses that could be used. Today’s Budget makes some changes to ensure that the legislation works as intended and corrects or improves some administrative requirements around the group allowance statement, time limits for the statement and the loss restriction calculation.

Corporation Tax – Temporary extension to loss carry back

The Chancellor has introduced a temporary extension to the period over which businesses may carry trading losses back for relief against profits of earlier years to get a repayment of tax previously paid. Normally a company incurring a trading loss in an accounting period can make a claim to offset the loss against total profits of the previous 12 months.  Today’s announcement means that the loss can instead be offset against profits of the previous 3 years (being set against later years first).  Losses will first of all be able to be offset against total profits of the previous 12 months.  After carry back to the preceding year, unused losses will be available for carry back to the earlier 2 years. There is no cap on the amount of losses that can be carried back to the preceding year but an overall group wide cap of £2,000,000 on the loss carry back to the earlier 2 years will apply.

This measure will have effect for company accounting periods ending in the period 1 April 2020 to 31 March 2022.

Off-payroll working in the private sector

The changes to off payroll working (OPW) in the private sector, which were announced in Budget 2018 and due to be introduced in April 2020 but deferred, will now apply for contracts entered into, or for payments made for work carried out, on or after 6 April 2021.

Under the new OPW rules,  responsibility for operating the off-payroll working rules will shift from the individual’s intermediary (personal service company or “PSC”) to the client organisation or business to which the individual is supplying their services.

Medium and large-sized client organisations in the private and voluntary sectors that engage individuals working through PSCs will have to apply the new rules.  However, there is an exception for small organisations, therefore if a PSC is engaged by a small engager, the “old” IR35 rules will continue to apply whereby the PSC (not the engager) will be responsible for assessing its own tax position.

Broadly, if the engager is a company or an LLP it is a “small” engager for OPW purposes if it meets two or more of the following:

  • Annual turnover not more than £10.2 million
  • Balance sheet total not more than £5.1 million
  • Not more than 50 employees

For non-corporate engagers there is a simplified rule to assess if they are “small”, which is whether their annual turnover is not more than £10.2 million.

Note that if there is a group structure, or connection with another entity or joint venture arrangements, then the financial position of the engager needs to be aggregated together with its relevant connected parties to assess whether it is “small” or not.

Extension to Social Investment Tax Relief (“SITR”)

SITR is extended from April 2021, when it was due to end, to April 2023.  SITR encourages individuals to invest in third sector organisations by offering them tax incentives on their investment and this extension continues the availability of Income Tax relief and Capital Gains Tax hold-over relief for investors in qualifying social enterprises.

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