In recent years the Chancellor has had a dual approach to corporation tax, reducing the headline rates, which feature in international comparisons, but increasing the amounts on which tax is charged so tax revenues are not reduced. This has been done not only by counteracting perceived tax avoidance but also by restricting or delaying permitted deductions such as capital allowances. This Budget is no exception. The Chancellor has announced that corporation tax will fall to 17% from April 2020, 1% below the previously announced rate of 18%.
On the negative side of the equation, however there are various less headline-grabbing measures which come into force before the 2020 tax cut, including the following:
- There will be postponement of loss relief for some larger companies; from April 2017 companies will only be able to use carried forward losses against up to 50% of their profits above £5 million (for groups this £5 million allowance will apply to the group). However, it’s not all bad news, as the streaming rules for losses arising on or after 1 April 2017 will be relaxed so that such losses when carried forward may be set against wider categories of income and also group relieved.
- Banks are already subject to similar 50% restriction on losses carry forward but this will be further restricted to 25% from April 2016.
- There may be some reduction in the level of permitted interest deductions. From April 2017 large multinationals will generally have to restrict their UK interest deductions to 30% of EBITDA, with higher amounts permissible only if they do not exceed a group debt ratio test, likely to be similar but not identical to the existing worldwide debt cap. The UK has opted for the more generous end of the 10-30% EBITDA range permitted by the OECD BEPS project, so it could have been worse.
- Corporation tax payment dates will be brought forward for companies with taxable profits over £20 million; for accounting periods commencing on or after 1 April 2019 they must pay tax in instalments in the 3rd, 6th, 9th and 12th months of the year.
- Loans by close companies to participators will, from April 2016, trigger a 32.5% tax payment, increased from 25% to mirror the higher rates of income tax on dividends.
Looked at in the round, this was a revenue raising Budget, and the Chancellor, despite the flagship 17% tax rate, is clearly planning to increase corporation tax revenues over the coming years.