In the run-up to Brexit, supporting business with stable corporation tax rate and encouraging inward investment are priorities for the government.

The Chancellor Philip Hammond told MPs the UK is ‘facing a future full of change; full of new challenges and above all full of new opportunities. The negotiations on our future with the EU are in a critical phase… we seek a deep and special partnership, based on free and frictionless trade in goods and services, close collaboration on security and strong mutual respect and friendship.’

A £3bn war chest was also set aside for Brexit planning and costs associated with the UK’s exit from the EU.

The rate of corporation tax will be reduced to 17% for financial year 2020 and is set to come into effect from 1 April 2020.

‘Our long-term phased reduction of corporation tax has generated investment and jobs, and raised £20bn extra for our public services. We are committed to maintaining Britain’s competitive corporation tax rates,’ he said.

The corporation tax rate will remain unchanged as follows:

•             financial year 2018 (commencing 1 April 2018)                     19%

•             financial year 2019 (commencing 1 April 2019)                     19%

•             financial year 2020 (commencing 1 April 2020)                     17%

CGT indexation allowance

In a separate move which will hit businesses, the Chancellor announced plans to freeze the indexation allowance on chargeable gains.

The move was explained as a bid to align taxation of capital gains for business and personal taxpayers, but it will be a significant revenue earner for the Exchequer.

‘There is a case now for removing the anomaly of the indexation allowance for capital gains – bringing the corporate system into line with personal capital gains tax,’ the Chancellor said.

The change will raise up to £2bn in tax revenues by 2021-22 by abandoning the monthly revision of rates and pegging the allowances table at the December 2017 retail prices index (RPI) for disposals of assets on or after 1 January 2018, irrespective of the date of disposal of the asset.

This measure prevents the further accrual of indexation allowance on chargeable gains beyond December 2018.

Stella Amiss, head of tax policy at PwC said: ‘The changes to the indexation allowance for business was a restriction waiting to happen, it provides a significant boost to the Treasury’s coffers, with £1.8bn earmarked against this change and little business can do to manage that cost.'

Research and development (R&D) tax relief

The R&D expenditure credit will also be increased from 11% to 12%, effective 1 January 2018.

This measure increases the tax relief for large companies (and small and medium sized enterprises in some cases) that carry out qualifying R&D and claim the RDEC.

The RDEC (also known as the Above the Line credit) is a standalone credit that is brought into account as a receipt in calculating profits. The current general rate is set as 11% of qualifying R&D expenditure. This measure increases the rate of the RDEC from 11% to 12%.

The increase is expected to cost the Exchequer £745m by 2022/23, according to figures set out in the Budget Red Book.