Budget 2021: Corporation Tax Announcements

In this News Article, Andrea has summarised (in order of importance) the Corporation Tax  announcements that may be of relevance (or just of interest!) to the HE sector.  

Budget 2021: Corporation Tax Announcements

The changes that may be relevant to subsidiaries are as follows:

Corporation Tax charge and rates from 1 April 2022 and Small Profits Rate and Marginal Relief from 1 April 2023

This measure sets the Corporation Tax charge and main rate at:

• 19% for the financial year beginning 1 April 2022 (NB the rate for 2020 and 2021 will be 19% as announced at Budget 2020)

• 25% for the financial year beginning 1 April 2023

• Small Profits Rate (SPR) at 19% for the financial year beginning 1 April 2023

The small profits rate will apply to businesses with profits up to £50k.   The rate of tax payable or businesses with profits between £50k and £250k will be tapered.

Thanks to Harriet Latham for this comment:  The change in tax rate will impact on the value of any deferred tax liabilities/assets, and require a change in the tax note in the financial statements.

R&D Tax Reliefs: consultation

The Chancellor's Budget Speech includes reference to an R&D Tax Reliefs consultation.  Universities are included in the list of those who are invited to respond.  The deadline for responses is 2 June 2021. 

The purpose of the consultation is described as follows:

The government has an ambitious target to raise total investment in research and development to 2.4% of UK GDP by 2027. R&D tax reliefs have a key role in incentivising this investment by reducing the costs of innovation. It is therefore important to ensure that the reliefs remain up-to-date, competitive and well-targeted.

At Budget 2021 the government announced a review of the reliefs, supported by a consultation with stakeholders. This consultation will explore the nature of private-sector R&D investment in the UK, how that is supported or otherwise influenced by the R&D relief schemes, and where changes may be appropriate.

Andrea will be pulling together a small working group on this topic.  We will hold a call in early April and Andrea will draft an initial response for comment. 

 If you would like to be involved in the working group please email Andrea.

Making payments of interest or royalties to connected companies in the EU

This explains the new requirements to deduct tax from some payments of interest and royalties made to companies in EU Member States.

Thanks to Harriet Latham for this comment.  The payment of interest will be less likely but more material – even if an HEI has EU financed loans they are probably sourced through a UK lender. Anyone affected, i.e. with loans directly from an EU bank or investor, should be aware of the clearance procedure as they will have already had to seek clearance under the EU scheme, and so they should move over to the treaty scheme.

For royalties, this will probably be smaller amounts but more likely. There is a need to review royalty payments and check the relevant treaties.

Changes to the reform of loss relief rules for Corporation Tax

This makes amendments to the reform of loss relief rules to ensure the legislation works as intended and to reduce administrative burdens.

The following amendments will apply for accounting periods beginning on or after 1 April 2021:

• group relief for carried-forward losses

• amendment to correct a group relief circularity issue

• amendment to the time limits and requirement to submit a group allowance allocation statement

• the amendment of the formula for allocation of the deductions allowance

Temporary extension to carry back of trading losses for Corporation Tax and Income Tax

This introduces a temporary extension to the period over which businesses may carry trading losses back for relief against profits of earlier years to get a repayment of tax paid.  It will apply to company accounting periods ending in the period 1 April 2020 to 31 March 2022 , extending the current one year entitlement to a period of 3 years, with losses being carried back against later years first.  A £2,000,000 cap will apply. Guidance on how the claims can be made can be found in Extended Loss Carry Back for Businesses

Temporary increase in annual investment allowance for plant and machinery

Probably less likely for the HE sector, but just in case it is relevant, this change will temporarily increase the limit of the annual investment allowance (AIA) from £200,000 to £1,000,000 for expenditure on plant and machinery incurred during the period from 1 January to 31 December 2021.

Restoring plant and machinery leases to pre COVID-19 treatment

Again, probably less likely for the HE sector, but just in case it is relevant, this “turns off” capital allowances anti-avoidance legislation, normally triggered when the term of the following plant or machinery leases is extended, when that extension to the lease term is related to COVID-19.

The Corporation tax allowances and reliefs have been summarised in this table (which can be found here on GOV.UK)