17 October update
On 17 October, the new Chancellor of The Exchequer, Jeremy Hunt, brought forward a number of measures from the late October Medium-Term Fiscal Plan. These reversed most of the changes that had been announced by his predecessor, Kwasi Kwarteng, on 23 September.
The Growth Plan published on 23 September 2022 confirmed Liz Truss’s leadership campaign pledge that the planned increase in the main rate of corporation tax (CT) to 25% from 1 April 2023 will be cancelled. The government hopes that maintaining low tax rates will increase business investment and make the UK more internationally competitive.
From a financial reporting perspective, as the 25% CT rate is currently enacted (in Finance Act 2021), this rate will continue to be used in deferred tax calculations until the 19% rate is substantively enacted. This generally occurs when the Finance Bill to make the change has received its third reading.
Other rates linked to the CT rate were also due to change from April 2023. The diverted profits tax had been set to increase to 31%, but will remain at 25% to maintain its current six percentage point differential with the main CT rate.
Similarly, the bank corporation tax surcharge will be maintained at 8% instead of falling to 3%. However, the increase in the bank surcharge allowance to £100m from April 2023 will remain to ensure that the tax system is supportive of growth within the UK banking market.
Business investment had also been on the agenda of the previous government. ICAEW recently responded to a government policy paper on Potential Reforms to UK’s Capital Allowance Regime. In its response, ICAEW called for more radical thinking to shift the regime from rewarding capital investment towards incentivising it.
Many businesses will welcome the certainty provided by the £1m annual investment allowance (AIA) limit becoming permanent. ICAEW had called for certainty in its response, highlighting that the AIA limit has changed six times over the past 14 years. The AIA limit had been due to reduce to £200,000 from April 2023, at the same time as the end of the super deduction.
In the absence of an announcement, it is assumed that the 130% super deduction, designed to encourage companies to invest before the 25% CT rate kicked in, will end as planned in April 2023. The documents refer to the requirement to “amend some of the technical provisions…” relating to the super deduction to “…ensure that the relief continues to operate as intended.”
It is assumed that this is because the balancing charge as a percentage of disposal proceeds varies depending on whether the disposal takes place in an accounting period beginning on or after 1 April 2023, ending before 1 April 2023, or straddling 1 April 2023. With the CT rate remaining unchanged, this should no longer be required.
Further incentives to promote capital investment will also be provided by the new investment zones announced in the Growth Plan.
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