Page 13 - Budget Newsletter - March 2023

BUSINESS OWNERS

Corporation tax rate

The main rate of corporation tax has been 19% since 1 April 2017. From 1 April 2023, for companies
with profits of £250,000 and more, the rate will rise to 25%. For companies with profits of up to
£50,000 a revived smaller companies’ rate means that a 19% rate will continue. Between £50,000
and £250,000 of profits there will be a new relief which effectively means corporation tax will be 19%
on the first £50,000 of profits and 26.5% on the excess.

Capital allowances and R&D allowances

Capital allowances have been subject to a variety of changes in recent years, ostensibly to
encourage an increase in business investment.

The Annual Investment Allowance (AIA), which gives 100% initial relief for investment in plant and
machinery, was ‘temporarily’ raised to £1,000,000 from 1 January 2019 and is now fixed at that level,
following an announcement in the Autumn Statement.

However, the AIA has largely been eclipsed, for companies, by the March 2021 Budget’s ‘super-
deduction’ of 130% of the amount invested in qualifying plant and machinery which comes to an
end on 31 March 2023. This was introduced to encourage investment before relief was effectively
increased by the higher corporation tax rates arriving on 1 April 2023.

In the run up to the Budget there were calls to introduce a replacement for the super-deduction
rather than revert to the previous capital allowance regime. The Chancellor has largely met those
requests by introducing:

• A 100% first-year allowance for main rate expenditure – known as full expensing; and
• A 50% first-year allowance for special rate expenditure.

These new allowances will apply to companies (not the self-employed) incurring qualifying
expenditure on the provision of new plant and machinery on or after 1 April 2023 but before 1 April
2026. The cost of these new allowances represents a tax giveaway of over £27bn in the next three
fiscal years, in effect handing back more than half of the projected extra revenue from the
corporation tax rate rise in those years.

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