Budget 2021: Corporation tax, no big surprises

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Budget 2021: Corporation tax – no big surprises

By: Jacquelyn Kimber for AccountingWeb.

As expected, it was a fairly quiet Budget as far as corporation tax changes were concerned. An increase in the main rate of corporation tax to 25% from April 2023 was announced in March 2021, alongside the introduction of a “super deduction” at 130% for expenditure on new qualifying plant and machinery. 

Bank Levy reduced from 2023

Whilst further major changes to the corporate tax landscape weren’t anticipated, it was widely expected ahead of the Budget that the Bank Levy, an additional 8% tax on bank profits, would be reduced, and the Chancellor confirmed a cut in the surcharge to 3% in his speech. The reduction will be deferred until April 2023 to coincide with the increase in the rate of corporation tax from 19% to 25%.

Cross border group relief changes

Following the UK’s departure from the EU, cross border group relief for losses are being withdrawn for accounting periods ended on or after 27 October 2021.  These rules enabled UK companies incurring losses in the EEA to obtain corporation tax relief in the UK for certain losses. After 27 October 2021, cross border group relief claims will no longer be possible, bringing the treatment of a UK company’s EEA losses into line with losses incurred elsewhere in the world.

Temporary annual investment allowance AIA extended

The temporary increase in the annual investment allowance (AIA) to £1m is extended until 31 March 2023.

International business measures

From an international perspective, there were a few announcements that showed the Government’s intention of keeping the UK at the centre of the global business stage. The UK’s tonnage tax regime for shipping businesses is being reformed, with a view to attracting more global shipping companies to locate their headquarters in the UK. Proposals facilitating corporate re-domiciliation were also published on 27 October 2021, along with details of the new tax regime for asset holding companies from April 2022.

No significant new Green incentives

Given the amount of focus on the environment and the forthcoming COP26 summit, the absence of significant new tax incentives for investment in green technologies to bolster the Government’s green agenda was a little surprising.  One suspects the Chancellor may be waiting until nearer the end of the current parliamentary term before pulling green rabbits out of his hat.

No changes to EIS, SEIS or VCT schemes 

Also missing from the Chancellor’s announcements was any relaxation of the limits applying to venture capital reliefs such as the Enterprise Investment Scheme (EIS), Seed Enterprise Investment Scheme (SEIS) and the Venture Capital Trust (VCT) scheme. Now that the UK is no longer a member of the EU, the requirement to comply with EU State Aid thresholds no longer applies, providing scope for the reform of these complex and restrictive reliefs.

Against the backdrop of the Government’s focus on growth and innovation, changes to EIS, SEIS and VCT reliefs would have made a lot of sense. Investors, businesses and tax professionals alike will be disappointed by this missed opportunity.

As ever, whilst there were some headline-grabbing announcements on Wednesday, a number of which were leaked in advance, the devil is always in the detail. Big tax giveaways were always unlikely against the backdrop of record spending over the past 18 months.