As trailed, the Chancellor confirmed that the planned 6% rise in corporation tax will not go ahead in April 2023 with rates set at 19%
The current 19% corporation tax rate was confirmed in Kwasi Kwarteng’s statement to the House, which he said means that the UK has the lowest corporation tax rate in the G7.
The measure will reduce projected tax take by £13.5bn in 2023-24, rising to £16.5bn in 2024-25.
The Chancellor said that ‘competitive business taxes are important to growing the economy as they can incentivise investment and enterprise. The government wants to grow the economy by creating the conditions for businesses to thrive, which will create jobs and increase investment in the UK’.
Matthew Hodkin, tax partner at Norton Rose Fulbright, said: ‘The new Chancellor has announced a reversal of the planned increase in corporation tax from 19% to 25%. While this would appear to be a “nothing” announcement – as the 25% rate had not yet come into force – there are likely to be knock-on effects for companies having to deal with the accounting implications of the reversal.
‘Given the timings, companies would have already been making changes to their accounts to prepare for the increase to 25%. Banks will be disappointed (but not surprised) that the bank surcharge has not been reduced.
‘This can have knock-on effects on the level of deferred tax assets and liabilities, which affect companies’ balance sheets and can be of particular concern to banks, insurance companies and other regulated businesses that are required to maintain a certain level of regulatory capital on the balance sheet. It can also affect other liabilities that are tax-variable, such as payments under tax-based finance leases, where the net present value of the impact of changes can be brought through the income statement of the lessee.’
Glenn Collins, head of ACCA said: ‘“The government’s decision to keep corporation tax at 19% will encourage businesses to invest. With the main rate of corporation tax previously set to increase to 25% next April many businesses were becoming more nervous already feeling the strain of a rise in inflation, cost of living and energy prices, putting unnecessary pressure on businesses. Now more than ever businesses are looking at the ease of doing business and where investment opportunities lie.’