Budget briefing | Tax |

Budget 2021: Business tax measures

Overview

The headline-grabbing item here is, of course, the announcement of an increased corporation tax rate of 25% from April 2023. An increase in rate had been widely trailed in the Press, but this step up is higher than those rumours, and will raise c.£12bn in 2023/2024 and c.£17bn after that. A big leap, sufficiently so to require a matching rise in Diverted Profits Tax and very likely a reduction in the Bank Surcharge. More detail on this measure is available here, and the possible incentive to incorporate (and additional complexity) created by the reduced rate for small businesses is available here.

The Chancellor has sought to balance this somewhat, at least as regards capital asset intensive businesses, with a very generous enhanced capital allowances regime, which he has grandly dubbed "Super-Deductions", at up to 130% of capital expenditure. These are, somewhat unusually, multi-year (2021-2023) and are expensive (slated for c. £12bn per year). He has also introduced extended loss carry back (so losses can be carried back 3 years rather than 1), although this was a measure that many jurisdictions introduced last year in an immediate response to the pandemic, and largely reverses within 5 years.

Among the COVID support measures, there are a number of extensions of tax support. This includes the continuation of the reduced VAT rate of 5% for the tourism and hospitality sectors until October, and then a 12.5% for a further 6 months; and the business rates support for retail, hospitality and leisure with a full rebate until the end of June 2021 and then 66% until March 2022. This is expensive (total cost of c.£11bn) but needed and well targeted. You can read more here.

Looking forward, other themes emerge:

  • The strong endorsement of Lord Hill's review in relation to the public listing of securities issued by high growth companies is potentially of huge significance. Alongside the ongoing review of the regime for asset holding companies, this could lead to a very different landscape for the capital markets and asset management industries in a post-Brexit world.

  • There is a clear emphasis on technology and high growth elsewhere as well – including the reviews for the Research & Development (R&D) tax regime and the Enterprise Management Incentives (EMI) rules; the promise of a streamlined visa process for high skill applicants; and the £12bn UK Infrastructure Bank and £375m additional Future Fund.

  • Finally, there is a (or another) review of the experiences of large businesses in dealing with tax administration. This will "review large businesses’ experiences of UK tax administration, including the degree to which it provides businesses with early certainty where appropriate, ensures the efficient resolution of disputes in accordance with the law, and promotes a collaborative and constructive approach to compliance with the law". Hopefully, those running this review will be open to having a frank discussion…

 

Return to Budget 2021.

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