For once, as a corporation tax specialist, there was actually something in the Budget to get excited about! Not one, but two headline grabbing measures that will have a significant impact on the corporation tax planning arena.
In one breath the Chancellor hit us with the increased 25% rate of corporation tax, with the rate remaining at 19% for small companies and a marginal band in between, this coming into effect in April 2023; whilst in the next breath he introduced a new 130% capital allowances super-deduction that will apply for the two years leading up to April 2023.
Clearly the intention is to incentivise businesses to spend, spend, spend in the next couple of years in order to really rev up the economy and, once the engine is purring nicely, tax the ensuing profits at a significantly higher rate.
Credit where credit is due, I have to say that is very clever.
If all things remain equal, or I should say if and when we return to all things being equal, this plan will very likely work and so the giveaway over the next two years will be recouped very quickly. Thereafter, the increased corporation tax take will help the Government to begin to make inroads into its borrowing.
When we also bring in the temporary extension of the trading loss carry back relief to three years, there is a lot for the corporation tax planner to get their teeth stuck into in the next few years. More than ever, there was an awful lot of detail to get to grips with in this Budget, so we will be poring over the draft legislation for some time to come. At first glance, however, there looks to be plenty of scope for companies to improve their tax positions in the next couple of years.
On top of the three measures mentioned already, there was also a significant raft of tax incentives aimed at businesses setting up within so-called Freeports. These are areas that the Government particularly wants to encourage new investment within, so by definition, they will be areas that have fallen on hard times in recent years. There are some very attractive tax incentives on offer here covering capital allowances, structures and buildings allowances, stamp duty land tax, business rates and perhaps employer’s national insurance.
To end my Budget musings, I’m afraid I have to sound a note of caution – buried at the bottom of page 51 of the Budget Report was a small paragraph announcing the forthcoming publication of a so-called ‘Command Paper’ towards the end of March. This is separate to the Budget announcements and is headed ‘Tax Policies and Consultations’.
Perhaps we haven’t seen the full picture yet?!