Mini-Budget 2022: Corporation Tax

John McAuslin

John McAuslin

Tax Partner, Head of Corporate Tax

Throughout her leadership campaign, the Prime Minister signalled the reversal of recent tax increases and other possible tax cuts as her plan to deal with the current economic challenges and boost economic growth.  

Updated 17 October: The Corporation Tax Rate measure announced in the mini-Budget on 23 September was reversed by the Chancellor on 14 October. The Corporation Tax rate will increase to 25% in April 2023 as originally planned*


Corporation Tax - *the following measure was reversed by Chancellor Jeremy Hunt on 17 October 2022. Corporation Tax will now increase to 25% in April 2023*

In the announcements from the colloquially badged “Mini-Budget” on 23 September, Chancellor Kwasi Kwarteng delivered on the Prime Minister’s promise with the reversal of the upcoming corporation tax increase (due to come into effect on 1 April 2023), restoring the headline rate to 19%. This is a measure geared towards the aim of economic growth, inward investment, and partly to pave a way through the UK’s biggest economic storm with the current cost-of-living and energy bill crises. 

On the tax front, the abolition of the headline 25% corporation tax rate will result in cash tax savings for most of the UK’s profitable companies. The increase was not going to apply to the smallest companies in the UK and, whilst welcomed, this would have brought about additional administrative challenges for groups.   

Under the original plans, the corporation tax rate (and accompanying profit thresholds) was substantially enacted by 24 May 2021. From a statutory accounting perspective, once the reversal of the increase has been substantially enacted, deferred tax must be measured using the rates and laws enacted as at the reporting date. This meant that deferred tax assets and liabilities on balance sheets prepared after 24 May 2021 had to be remeasured, taking into account the new upcoming rate. In addition to deferred tax, certain assets valued using expected future corporation tax rates, such as intangible assets acquired in business combinations, needed to be updated. Once the measures announced in today’s mini-budget are substantively enacted, deferred tax and certain valuations will need to incorporate the new tax rate. 

It is important to note that for tax accounting purposes, a UK tax rate can be regarded as ‘substantively enacted’ under IFRS and UK GAAP if it is included in either: 

  • a Bill that has been passed by the House of Commons and is awaiting only passage through the House of Lords and Royal Assent; or 
  • a resolution having statutory effect that has been passed under the Provisional Collection of Taxes Act 1968 (PCTA 1968). 

Importantly, we must therefore note that enactment is not immediate and remeasurement will only take place once one the above has been actioned.  

The newly announced rate cut will bring some administrative savings related to “associated companies” rules.  This indirect relaxation is a positive simplification. 

Annual Investment Allowance

To further encourage investment and deliver on growth, from April 2023 the Annual Investment Allowance (AIA) is now permanently set at £1m instead of falling back to the planned £200k. Going forward, this will give more certainty allowing businesses to plan their CAPEX and claim 100% tax deductions on more of their plant and machinery expenditure than expected and therefore accelerating tax relief.  

Capital Allowances Super Deduction

When the headline rate increase to 25% was announced in 2021, the Government introduced the “super-deduction", which will now end.

It was introduced and designed to provide effective tax relief on investment in qualifying plant and machinery at a rate of 25%. This was available to companies up to 1 April 2023 so as not to delay any of their capital investment until the expected 25% corporation tax rate came into force on the same date.   

As a knock on effect of the announced removal of the upcoming 25% Corporation Tax rate, the Government has stated it will amend some of the technical provisions around the super deduction. Whilst this is light on detail at this stage, we would expect the technical changes to include a mechanism whereby any company who has benefitted from the effective 25% tax relief on plant and machinery expenditure will be taxed at the same 25% effective tax rate on an onward disposal of those assets. This might create some “winners” if, for example, these assets are not disposed of. We await the detail to see how this will work in practice.   

Investment zones  

The Government has committed to work with local authorities and devolved administrations to introduce various Investment Zones across the UK, 38 local authorities in England have been announced. Time limited (10 years) tax incentives are under consideration including 100% relief from business rates, 100% first year allowances for qualifying expenditure on plant and machinery, and accelerated relief for structures and buildings allowances (up to 20% per annum from 3%). 

Banking sector 

Today’s Growth Plan announces that the financial services sector will be at the heart of the Government’s programme for driving growth across the whole economy. Deregulatory packages will be aimed at unleashing the potential of the UK financial services sector. This will include the Government plan for repealing EU law for financial services and replacing it with rules tailor made for the UK, and scrapping EU rules from Solvency II to free up billions of pounds for investment.  

The loss of tax revenues from large financial institutions pre the banking crisis will have hurt the Government’s purse, let’s hope that today’s strategy reflects the learnings of what went before and that another bubble likely to burst is not the outcome.  

Banks will benefit from today’s headline reductions to corporation tax rate to 19%. From April 2023 banks and building societies will continue to pay an additional 8% surcharge rate of tax on their profits leading to a combined rate of 27%. The surcharge allowance increase to £100 million will go ahead.  

Find out more

For more information or guidance on how these changes will affect you, please don't hesitate to get in touch with me, our Corporate Tax or our Construction & Property Incentives teams.

You can read our full 'mini-budget' summary, here.

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