Corporation tax rate
The Chancellor reminded us that the corporation tax rate will rise from the current 19% rate to 25% with effect from the financial year starting 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.
Banking companies pay a surcharge on top of the main corporation tax rate, currently 8%, to take their rate to 27%. From 1 April 2023 the surcharge will be cut to 3%, which, added to the new 25% main rate, will give them a tax rate of 28%.
Research & Development (R&D) tax relief reform
Following a consultation launched at Spring Budget 2021, the Government has concluded that R&D relief will be extended by expanding qualifying expenditure to include data and cloud costs. R&D relief will also be reformed so that support is refocussed towards innovation in the UK (rather than overseas) and so that abuse is targeted effectively and compliance is improved.
These changes will take effect from April 2023 but further details of these changes are not yet available and will be set out “in due course”, according to the Autumn Budget overview document.
Creative industry tax reliefs
The Chancellor announced a temporary extension to the relief rates for Theatre Tax Relief (TTR), Orchestra Tax Relief (OTR), and Museums and Galleries Exhibition Tax Relief (MGETR) for expenditure taking place from 27 October 2021, returning to current rates by 1 April 2024.
The rates for TTR and MGETR will increase from 20% (for non-touring productions) and 25% (for touring productions) to 45% and 50% respectively from 27 October 2021. From 1 April 2023, the rates will be reduced 30% and 35%. The rate for TTR will return to 20% and 25% on 1 April 2024. For MGETR, the relief will expire after 31 March 2024 and no expenditure after this date will be eligible.
The rates for OTR will increase from 25% to 50% for expenditure taking place from 27 October 2021, reducing to 35% from 1 April 2023, and returning to 25% from 1 April 2024.
Residential Property Developer Tax
A new residential property developer tax (RPDT) on company profits derived from UK residential property development has been created. The tax will be charged at 4% on profits exceeding an annual allowance of £25 million. It will therefore only affect companies or groups of companies undertaking UK residential property development with annual profits in excess of £25 million.
The rationale for the new tax is that it will help fund the government’s Building Safety Package, aiming to bring an end to unsafe cladding.
The tax will apply from 1 April 2022. Where a company’s accounting period straddles 1 April 2022 the profits of the accounting period will be time apportioned to determine amounts falling before and after the start date.
Large businesses to notify HMRC of uncertain tax treatment
This measure introduces a new requirement for large businesses to notify HMRC when they take a tax position in their returns for VAT, Corporation Tax, or Income Tax (including PAYE) that is uncertain. Uncertainty is defined by reference to two criteria: that a provision has been made in the accounts for the uncertainty, OR that the position taken by the business is contrary to HMRC’s known interpretation. It only affects very large businesses, those with a turnover of more than £200 million per annum OR a balance sheet total over £2 billion. Such businesses will be required to notify HMRC only if the tax advantage exceeds a £5million threshold.
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