Although we did not see an immediate increase in the headline rate of corporation tax announced in yesterday’s Budget Statement, the Chancellor did confirm changes to come into effect from 1 April 2023. So what is changing? 

  1. The headline rate of corporation tax is increasing from 19% to 25% for companies with annual profits in excess of £250,000;
  2. A small companies rate of 19% will apply to companies with annual profits below £50,000; and
  3. For companies with profits between £50,000 and £250,000 there will be a marginal rate applied on profits between the two limit. The marginal rate will equate to an effective rate of 26.5%, encouraging planning to reduce profits exposed at this rate. 

Interestingly when looking at the detailed announcement it appears we are going back to the previous way of calculating what rates will apply. Currently if the company is in a group then the limits are divided by the number of group companies, however if it is simply two companies under common control then each company has their own limit. For example, if we have a parent company and a trading subsidiary the profit limits would be £125,000 for each company, whereas if they are two companies under common control then the profit limit for each company is £250,000.

Under the proposed rules the limit in each scenario would be £125,000 for each company. The same will also apply when considering whether there is a requirement to for the companies to make quarterly payments rather than a single tax payment each year. Consideration of the impact on this not only for groups but companies under common control on future tax payments should therefore be considered.

Enhanced Loss Relief

For losses arising between 1 April 2020 and 31 March 2022 it will be possible to carry back trading losses up to three years, normally only 12 months. There will be a limit of £2million on the losses that can be carried back in this way, with the £2million applying for each year of the loss carry back. 

Although exact details are awaited there will be an overall group restriction of £2million, but it will be open to the group to decide which companies use what part of the allowance. 

The enhanced loss carry back will also apply to unincorporated businesses over the same period.

Super Deduction on capital investment

Companies incurring qualifying capital expenditure on plant and machinery between 1 April 2021 and 31 March 2023, will be able to claim an enhanced first year allowance of 130% of the qualifying spend. This effectively gives tax relief at 24.7% on capital spend. 

The annual investment allowance which was extended until 31 December 2021 is also still available, but as this is less generous companies should consider delaying capital spend planned until post 1 April 2021 to maximise the tax relief available. 

In addition to the enhanced deduction on plant and machinery there will also be a 50% first year allowance on special rate asset additions over the same period.

For a more detailed analysis of specific areas of the Budget please see our specific blogs as they are released over the coming days or join us for our FREE post Budget webinar tomorrow afternoon


By Mark Tibbert, Partner and Head of Tax