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UK raising corporate rate, offering 130% expensing

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Tax Hot Topics newsletter The United Kingdom released a sweeping budget that will usher in major tax changes for businesses, including an increase in the corporate rate and generous business expensing provisions.

The main rate of U.K. corporation tax will increase to 25% from April 1, 2023. For “small profits” up to £50,000 per year, the 19% rate will continue to apply, and profits up to £250,000 will be tapered up to the main rate. The diverted profits tax rate will increase to 31% to rise at the same rate as the CT rate increase.

For qualifying new investments made between April 1, 2021, to March 31, 2023, companies can claim increased capital allowances deductions on their plant and machinery investments. This equates to a 130% deduction on main pool items that would ordinarily qualify for 18% writing down allowances, and a 50% deduction on special rate pool items that would ordinarily qualify for 6% writing down allowances. Wider amendments to disposals of assets are included to effect these changes. Planned plant and machinery investments in the short term may benefit from waiting a month.

The budget would also extend the one-year carryback period for losses to three years for accounting periods ending between April 2020 and March 31, 2022. There is a cap of £2 million for each corporate group, per financial year. Claims below a de minimis of £200,000 can be made outside of the tax return process.

The U.K. will also repeal the Interest & Royalties Directive from domestic law from June 1, 2021, and with anti-avoidance measures to tackle any accelerated payments between March 3 and June 1. This means that U.K. outbound payments of interest or royalties to a European Union Member State entity currently qualifying for relief under the Directive will cease to do so. Withholding tax rates under the relevant double tax treaty should be considered, and this could lead to a tax cost. The U.K. does not levy a dividend withholding tax on outbound payments.

For more information, see the Grant Thornton U.K. full analysis here or the ‘Budget on a page’ here.

Contact:
David Sites
Partner
Washington National Tax Office
T +1 202 861 4104

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