30 Oct 2021

Corporation Tax : Numerous changes

The measure sets the charge to Corporation Tax and sets the main rate at 19 % for the Financial Year beginning 1 April 2022 and also sets the charge to CT for the Financial Year beginning 1 April 2023.

This measure also announces that from 1 April 2023, the Corporation Tax main rate for non-ring fenced profits will be increased to 25 % applying to profits over £250,000. A small profits rate (SPR) will also be introduced for companies with profits of £50,000 or less so that they will continue to pay Corporation Tax at 19 %. Companies with profits between £50,000 and £250,000 will pay tax at the main rate reduced by a marginal relief providing a gradual increase in the effective Corporation Tax rate.

This measure supports the government’s objective to raise revenue whilst keeping the UK’s rate of Corporation Tax competitive relative to other major comparable economies and excluding the least profitable businesses from a rate increase.

At Budget 2020, the government announced that the Corporation Tax main rate (for all profits except ring fence profits) for the years starting 1 April 2020 and 2021 would be 19 %.

The Operative date of the Corporation Tax charge and main rate for Financial Year 2022 will have effect from 1 April 2022 to 31 March 2023. The Corporation Tax charge, main rate and small profits rate for Financial Year 2023 will have effect from 1 April 2023 to 31 March 2024.

Impact on business

This measure is expected to have a significant administrative impact on approximately 2 million businesses who will need to be aware of the changes even if they do not currently have a Corporation Tax liability.

The introduction of a small profits rate will mean that around 1.4 million businesses continue to pay either no Corporation Tax or Corporation Tax at 19%. There will be a one-off cost as businesses familiarise themselves with the rate changes and determine which rate of Corporation Tax they should be paying. Some businesses will have to update internal software systems. The one-off implementation cost to all businesses is estimated to be around £50 million.

There will also be a negligible continuing administrative burden for companies which will make claims to marginal relief particularly where there are changes in the number of associated companies. It is expected that these changes will also affect agents acting for businesses and software providers.

This measure will have no impact on civil society organisations.