UK Budget 2020 - Corporation Tax

It was widely expected that the headline corporate tax rate would be held at 19%, rather than reduced to 17% as previously legislated and the Chancellor followed through with this in order to fund a number of measures in what can very much be seen as a public spending Budget. 

The rate of 19% still holds the title of the lowest in the G20.  

The recently introduced Structures and Buildings Allowance within capital allowances will from April 2020 attract a more favourable rate of 3% per annum rather than the current 2%. This cuts the relief period from 50 years to 33 years and is expected to provide businesses with an additional £1 billion of relief during the period of this Parliament.  

Another relief attracting favourable announcements is R&D tax relief, with the Research and Development Expenditure Credit rate being increased from 12% to 13%. Additionally, the previously announced re-introduction of a PAYE cap on repayable credits under the SME scheme will now be deferred until April 2021, showing that the Government has listened to industry and enabled time for the design of the measure to be appropriately consulted upon.  

As is often the case for corporation tax measures, this Budget brings confirmation of previous announcements.  For this year we see the Digital Services Tax and the Corporate Capital Loss Restriction brought in from April 2020. 

The Digital Services Tax will apply a new 2% levy on certain digital business revenues such as social media platforms, search engines and online marketplaces. The first £25 million of revenues is exempt, making it clear the measures are aimed at the larger businesses with the ability to make the most of global profit shifting to gain tax advantages. 

The Corporate Capital Loss Restriction brings the treatment of capital losses in line with other tax losses such that the existing 50% utilisation cap on losses where taxable profits exceed £5 million now includes capital losses. 

Moving onto future measures, the Government announced plans for a consultation on aspects of the hybrid mismatch rules. Also, the Enterprise Management Incentives scheme (a tax advantaged share option scheme) with a view to potentially opening the scheme up to more companies, which would be widely welcomed. 

Other favourable non corporation tax measures affecting companies are the increase in the Employment Allowance for NIC’s and the continued freeze on fuel duty. The increase in earnings threshold for tapering of the pensions allowance for high earners creates more flexibility to incentivise executives’ tax efficiently.  

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