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Corporation tax is charged on the profits made by companies, public corporations and unincorporated associations such as industrial and provident societies, clubs and trade associations. The tax is charged at a flat rate of 19%. Dividends paid out are taxed as income in the hands of shareholders at special dividend rates.

In his Spring 2021 Budget statement on 3 March 2021, the Chancellor, Rishi Sunak, announced a major reform to the corporate tax regime:

  • an increase in the rate of tax from 19% to 25% to apply to companies with profits over £250,000, from April 2023.
  • the introduction of a separate rate for companies with profits under £50,000, set at 19%, with a tapered rate to apply for businesses with profits above this threshold but under £250,000.
  • a new ‘super-deduction’ to allow companies to claim a 130% first-year capital allowance for investment in qualifying new plant and machinery assets, to apply from 1 April 2021 until 31 March 2023, and a 50% first-year allowance for qualifying special rate assets.
  • a temporary two-year extension in ‘loss carry-back’ which allows companies to offset losses in the current year against taxable profits in the past year – from one year to three years.

The scale of these reforms is considerable. The 2021 Budget report estimated the new rates of corporation tax would raise £11.9 billion in 2023/24, rising to £17.2 billion in 2025/26. Prior to this the two reforms to capital allowances were forecast to cost £12.3 billion in 2021/22, rising to £12.7 billion the following year. Total CT receipts are currently forecast to rise from £52.0 billion in 2021/22 to £91.5 billion by 2026/27.

On 27 October 2021 the Chancellor presented the Autumn Budget and Spending Review. The Chancellor did not announce any major revisions to the corporate tax reforms set out in the Spring Budget. However, he confirmed that the Annual Investment Allowance (AIA) – which allows business to fully offset expenditure in plant and machinery up to a set annual limit – would remain at £1m at least until 31 March 2023. The AIA was increased from £200,000 to £1m in January 2019, and this £1m limit was due to end on 31 December 2021. It is estimated that extending the lifetime of the £1m AIA, aligning its end with the end of the super deduction, will cost £240m in 2022/23.

This paper discusses the details of this package of corporate tax measures, and the responses there have been to it to date. A second Commons Library briefing looks at reforms made to the corporate tax regime since 2010: Corporate tax reform (2010-2020), Commons Library briefing CBP5945, 7 July 2021.

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