The corporation tax (CT) rate will be cut to 19% in 2017, bringing UK rates in line with Singapore, Hong Kong and Switzerland, the Chancellor announced in his Summer Budget, with a further reduction to 18% in 2020, a measure which is set to cost the Exchequer £4bn over three years
As announced, the CT main rate for 1 April 2016 is set at 20%. It will now drop to 19% for the financial year beginning 1 April 2017 and stay at this rate for the financial years beginning 1 April 2018 and 1 April 2019. The CT main rate will be reduced by a further 1% to 18% for the financial year beginning 1 April 2020.
The government is introducing new payment dates for companies with annual taxable profits of £20m or more. Where a company is a member of a group, the £20m million threshold will be divided by the number of companies in the group.
Companies that fall into this category will be required to pay CT in quarterly instalments in the third, sixth, ninth and twelfth months of their accounting period. The measure will apply to accounting periods starting on or after 1 April 2017. The government will publish legislation in draft in the autumn.
Additional changes include restricting CT relief for business goodwill amortisation. This will affect all acquisitions and disposals on or after 8 July 2015.
Chris Sanger, head of tax policy at EY, said: ‘Businesses were left with mixed messages from today's budget. The promise of cuts in corporation tax rate from 2017/18 was tempered by large business being the biggest funder of the Chancellors' budget through the requirement to pay taxes three months earlier.
‘This measure alone gave the Chancellor almost £4.5bn in 2017-18 and echoes the change that Gordon Brown introduced in his first Budget, back in 1997.’
In its impact note, the Treasury estimates the cut in CT will lower the tax bills of 1.1m businesses. The cost to the Exchequer is put at £10m in 2016-17; £605m in 2017-18; £1.6bn in 2018-19; £1.87bn in 2019-20; and £2.475bn in 2020-21.
The Budget also saw the Chancellor announce plans to introduce a supplementary tax on banking sector profit of 8% from 1 January 2016. The tax will apply to banks’ CT profit before the use of any existing carried-forward losses. The tax will not apply to the first £25m of profit within a group.
However, the government is to reduce the full bank levy rate from 0.21% to 0.18% in 2016, 0.17% in 2017, 0.16% in 2018, 0.15% in 2019, 0.14% in 2020 and 0.10% in 2021. The government will also legislate to change the tax base to UK operations from 1 January 2021.
Dana Ward, head of financial services tax at Grant Thornton, said: ‘The Chancellor's announcement on the reduction of the bank levy will no doubt be welcomed by major banks, including HSBC, and UK business generally.
‘The proposals to introduce a surcharge on profits is much more aligned with OECD fiscal policy of levying tax where profits are generated, rather than levying tax on a balance sheet basis which, frankly, acts as a disincentive to major banks doing business in the UK.’
