Corporation tax, diverted profits tax and bank surcharge
The main rate of corporation tax will remain at 19% for the year beginning 1 April 2022 and will rise to 25% from April 2023 for businesses with profits of £250,000 and over. The rate for businesses with profits of £50,000 or less will remain at 19% and there will be a marginal taper for profits between £50,000 and £250,000.
These thresholds are proportionately reduced for the number of associated companies and for short accounting periods. The rate of diverted profits tax will increase to 31%. The government will review the bank surcharge rate of 8% in light of the corporation tax increase.
The period over which incorporated and unincorporated businesses may carry back trading losses will be extended temporarily from one year to three years.
This extension will apply to a maximum £2 million of unused trading losses made in each of the tax years 2020/21 and 2021/22 by unincorporated businesses. The same maximum will apply separately to companies’ unused trading losses, after carry back to the preceding year, in relevant accounting periods ending between 1 April 2020 and 31 March 2021 and for periods ending between 1 April 2021 and 31 March 2022.
The £2 million cap will be subject to a group-level limit, requiring groups with companies that have the capacity to carry back losses above £200,000 to apportion the cap between their companies.
Your business might be entitled to a valuable R&D tax credit – even if it doesn’t make a taxable profit. Check out the position; you might be surprised what expenditure can qualify and how much it could be worth to you.
Research and development (R&D) tax credits
As previously announced, for accounting periods beginning on or after 1 April 2021, the amount of payable R&D tax credit that a small and medium-sized enterprise (SME) can receive in any one year will be capped at £20,000 plus three times the company’s total PAYE and NIC liability.
Super-deduction for investment in plant and machinery and 50% first-year allowances
Companies investing in qualifying new plant and machinery between 1 April 2021 and 31 March 2023 will benefit from new first-year capital allowances. Investments in main-rate assets – those that qualify for 18% writing down allowance (WDA) – will be relieved by a 130% super-deduction, while investments in assets qualifying for 6% WDAs will benefit from a 50% first-year allowance.
Annual investment allowance (AIA) extension
As previously announced, the temporary £1 million limit for the AIA will be extended again – to 31 December 2021.
Eight new English freeports have been announced: East Midlands Airport, Felixstowe and Harwich, Humber Region, Liverpool City Region, Plymouth, Solent, Thames and Teesside. Several tax reliefs will be available in designated tax sites within the freeports once these sites have been confirmed.
- Companies investing in plant and machinery will qualify for a 100% enhanced capital allowance. This will have effect for investment incurred on or after their designation as tax sites until 30 September 2026.
- An enhanced 10% rate of structures and buildings allowance will be available for constructing or renovating non-residential structures and buildings. The structure or building will have to be brought into use by 30 September 2026.
- Full relief from SDLT will apply until 30 September 2026 to the purchase of land for qualifying use in freeport tax sites in England once they have been designated.
- Full business rates relief will be available to all new businesses and certain existing businesses that expand, until September 2026. Relief will apply for five years from when the business first receives relief.
- Subject to parliamentary process, an employer NIC relief will be available for eligible employees from April 2022 until at least April 2026 and possibly up to April 2031.
Plant and machinery leases
Certain parts of anti-avoidance legislation affecting leases extended as a result of COVID-19 will be turned off. This will restore eligibility to claim capital allowances to the position as originally intended immediately before the date of the change in consideration due under the lease.
The change will affect leases only where a relevant change in consideration is implemented between 1 January 2020 and 30 June 2021. Either party may choose not to apply this treatment, the election for which will be binding on both parties.
A technical change will address an unintended widening of the definition of an intermediary company in the off-payroll working rules legislation.
Changes to the rules regarding the provision of information by parties in the labour supply chain will make it easier for parties in a contractual chain to share information relating to the off-payroll working rules. The changes will allow an intermediary, as well as a worker, to confirm if the rules need to be considered by the client organisation.
The government will also amend a provision relating to fraudulent information to allow HMRC to take action against any UK-based party in the labour supply chain providing fraudulent information.
If you want to take advantage of Time to Pay, make sure that you have adequate records to justify your claim to HMRC.
Withdrawal of London Inter-Bank Offered Rate (LIBOR)
References to LIBOR in certain leasing provisions will be replaced by ‘incremental borrowing rate’ as defined by generally accepted accounting practice (GAAP). A time-limited power will be introduced to allow any unintended tax consequences arising from the transition away from LIBOR and other benchmark rates to be addressed in secondary legislation.
The standard and lower rates of landfill tax will rise in line with RPI, rounded to the nearest five pence with effect from 1 April 2022.
Plastic packaging tax
A new plastic packaging tax will start on 1 April 2022 to encourage the use of recycled plastic instead of new plastic in packaging. As previously announced, the rate will be £200 per tonne of plastic packaging that contains less than 30% recycled plastic content.
If COVID-19 has left your business with tax losses, you could benefit from the temporary facility to carry back trading losses for up to three years.
Tax treatment of business rates repayments
The repayments of business rates relief by some businesses will be deductible for corporation tax and income tax, as previously announced.
Interest and royalties
The legislation that gives effect to the EU Interest and Royalties Directive will be repealed. This legislation currently provides an exemption from withholding tax on intra-group interest and royalty payments between UK and EU companies. From 1 June 2021 withholding taxes will apply to payments of annual interest and royalties made to EU companies, subject to the terms of the relevant double taxation agreement.
Enterprise management incentives (EMI)
As previously announced, the government will extend until 5 April 2022 the time-limited exception ensuring that employees continue to meet the working time requirements for EMI schemes if they are furloughed or working reduced hours because of COVID-19.