Overall no surprises for businesses in today’s announcements as the reversal in corporation tax rates had previously been confirmed. The continued approach to tackle tax avoidance is present and mainly focused on international tax measures to ensure the fair share of tax is paid by businesses in the UK.
CORPORATION TAX RATES
As previously confirmed the planned increase to corporation tax rates to 25% for companies with over £250,000 of profits will go ahead from April 2023. The forecasts have identified 70% of actively trading companies will not be affected by this rate increase. The current 19% remains in place for business with profits under £50,000 with a marginal rate in between the levels to apply. Overall no tax increases for small businesses is expected.
EMPLOYERS NATIONAL INSURANCE
The secondary threshold for employers national remains at £9,100 until April 2028. Due to the employers allowance remaining at £5,000 it is estimated 40% of employers will not be affect by the freeze.
Annual investment allowance to become a permanent allowance of £1m from April 2023 when it was due to revert back to £200,000. With the super-deduction finishing in April 2023 businesses will welcome the continuation of investment support.
ENVELOPED DWELLINGS – ATED
For residential properties valued above £500,000 held in corporate structures the annual chargeable amount will be uplifted by 10.1% for 2023/24.
RESEARCH AND DEVELOPMENT
From 1 April 2023 large companies under the Research and Development Expenditure Credit (RDEC) the rate will increase from 13% to 20%.
The small and medium sized (SME) additional deduction will decrease from 130% to 86% and the SME tax credit will decrease from 14.5% to 10%.
As previously announced the government was undertaking a review of this relief and has identified serious abuse in the system, specifically in the SME section. Further consultation will continue to reform the relief in order that we have one single scheme.
The registration and deregistration thresholds are currently held to remain at their current levels until 1 April 2024. This has been extended for a further two years until 1 April 2026.
Various support measures are being announced to support business and the high street over the next 5 years by freezing multipliers and increasing relief for retail, hospitality and leisure to 75% and reforming transitional relief.
OECD PILLAR 2
The OECD Pillar 2 rules will be implemented for accounting periods beginning on or after 31 December 2023.
This will see the introduction of an “Income Inclusion Rule” IIR which will require large UK headquartered multinational group to pay a top-up tax where their foreign operations have an effective tax rate of less than 15%.
In addition, a “Qualified Domestic Minimum Top-Up” QDMTT which will require large groups including those operating exclusively in the UK to pay a top-up tax where UK operations have an effective tax rate of less than 15%.
From April 2023 large multinational businesses operating in the UK will be required to keep and retain transfer pricing documentation in a prescribed and standardized format as set out in the OECD’s Guidelines for master and local files.
DIVERTED PROFIT TAX
In order to keep the 6% difference the rate of diverted profit tax the rate will increase to 31% from April 2023 to ensure it remains an effective deterrent against diverting profits out of the UK.