The rise in the main rate of corporation tax to 25% was first announced in March 2021, reversing a trend of lowering rates which had been in progress since 2008. The rise from the current 19% is significant and, whilst still modest in the context of others in the G7, is something that businesses should be planning for.
As the rate is not set to change until 1 April 2023, there is the possibility of a change in intent from the Government. We have a Spring Statement scheduled for 23 March 2022 and expect a more extensive Budget in the Autumn, both of which could amend the 25% rate increase.
However, in the meantime, how can you plan for it?
- Update your forecasts. Financial forecasts should now take account of the 25% rate and another change coming from 1 April 2023 – a reversion to the old ‘associated companies’ rules. This will mean (broadly) that all companies under common control (not just those in a group) will count towards the number of companies for the quarterly instalment payment regime.
That could mean a company which has been paying tax 9 months after the year end moves to paying tax (roughly) 6 months ahead of the year end and quarterly thereafter – and at a higher rate.
- Review your intellectual property. The patent box rate for qualifying profits will remain at 10% so the increased main rate will make this even more valuable. This leads to two considerations: a) are there patents which are being exploited already which haven’t yet been claimed? b) Is there any scope to patent existing intellectual property to allow a patent box claim?
- Revisit your international group. Once established, international structures are rarely revisited but this is a good opportunity to consider if the activities in each country and consequent transfer pricing policy remain appropriate.
- Consider your capital investment plans. At the same time as announcing the rise in rate, the Government announced incentives to invest by providing increased capital allowances on some areas. These increased allowances will stop from 1 April 2023 (when the main rate rises) but planning ahead may allow your company to fall below the quarterly instalments threshold and therefore delay the cash-effect of the rise.
Find out more
For further guidance on this topic, please contact your usual MHA advisor or Contact Us.
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