On Wednesday 3rd March, Richi Sunak made possibly one of the most important modern Budget announcements, outlining the plan to get our economy back on-track from the repercussions of Covid-19.
We sat down with our Senior Financial Consultant, Rob Elliott, to discuss the announcement; the increase in Corporation Tax, the impact this will have on RDECs and SMEs, the Super Deduction and, finally, the R&D Tax Review.
The rate of corporation tax will increase to 25% from April 2023, a 6% increase from the current rate of 19%. The increase is expected to raise £22bn in revenues per year whilst keeping the UK’s rate of corporation tax as the lowest in the G7.
The smallest companies will not be affected as a small profits rate will be introduced for businesses with less than £50,000 profit. These businesses, which is estimated to account for 70% of actively trading companies, will continue to pay corporation tax at the current rate of 19%. A tapered rate will also be introduced for profits of over £50,000 so that only businesses with profits above £250,000 will be taxed at the full rate of 25%.
For a two-year period from 1 April 2021 until 31 March 2023 businesses will be able to claim the super-deduction on their investment in qualifying plant and machinery. This will allow companies to deduct 130% of what they invest from their taxable profits in the form of a capital allowance. This equates to a saving of 25p for every £1 invested in plant and machinery.
The aim is to encourage businesses to invest. Levels of business investment in the UK, already low in comparison with the UK’s peers, have fallen sharply during the pandemic with a reduction of 11.6% between Q3 2019 and Q3 2020. The super-deduction aims to give companies the incentive and the confidence to invest in their business and ultimately promote economic growth.
R&D Tax Consultation
The government will be running a review of the R&D tax relief scheme which plays a vital part in promoting innovation and stimulating growth in the UK economy. The government has set a target or raising total investment in R&D to 2.4% of GDP by 2027. The consultation, therefore, aims to ensure that the current R&D tax relief schemes in the UK are still fit for purpose.
The consultation will seek the views of stakeholders on the R&D tax relief schemes currently in operation and will focus on:
For more information or to see how we assist you in light of this announcement, please get in touch.