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Budget 2021: Business taxes

Big business bears brunt of corporation tax hike

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Small firms will escape the hit

Corporation tax is to rise to 25% but only from April 2023 and only for big companies.

Firms with profits over £250,000 will be hit with the higher rate which, the Chancellor said, is still the lowest among the G7 nations.

The small firms rate for businesses with profits below £50,000 remains at 19% and there is taper between these ranges.

Further tax incentives were announced to encourage investment will be welcomed.

Companies making losses will benefit from being able to carry them forward for longer.

Business rates are being cut, though only until the end of June in England. The Scottish Government has already extended the business rates holiday for whole of the next financial year.

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Aileen Scott, head of tax at Azets in Scotland, the UK’s largest regional accountancy and business advisors to SMEs and top 10 accountancy firm, said: “For SMEs, the freeze on corporation tax is welcome, however there is a complexity around the tax regime with the increases to 25% set to appear in 2023.

“The measures announced today, gives a cash boost and enhancement in the short term, however it does seem to be introducing more complexity in the long run, such as the potential for inflation.

“The enhanced tax deduction for capital expenditure brings a dilemma for companies as to whether to delay investment and save tax at 25% or bring it forward and benefit now.  It will be interesting to see the impact the rate increase will have on the behaviour of company owners, as for example, bonuses may become more tax efficient than dividends.”   

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Mark Pryce, head of R&D at Azets in Scotland, added: “Tax Relief in the UK for research and development becomes more attractive with corporation tax rates rising to 25% as it makes the R&D tax relief more beneficial. 

“Using current data available, this will impact and help more than half the SME R&D claims made. Not only does this mean good news for companies currently claiming but hopefully will attract new claimant companies. 

“Moving against this is the cap on tax rebates on offer to loss-making SME’s who surrender their R&D credits to the Government in return for cash. There will be a maximum tax rebate on offer by reference to the company’s PAYE and NIC bill”.

Entrepreneurs relieved

Growth strategist Craig Alexander Rattray said the Budget was generally benign for entrepreneurs.

“Whilst the extension to the “furlough” and SEIS schemes will be welcomed, many business owners will be extremely relieved that the Chancellor has decided against making more changes to the Capital Gains Tax regime, which is the correct decision.

“Mr Sunak brought in a widely criticised immediate change to the Capital Gains Tax regime in last March’s Budget.  The introduction of Business Asset Disposal Relief reduced the lifetime limit (previously Entrepreneurs’ Relief) at the 10% band from £10 million to £1 million, effectively meaning a reduction from £20 million to £2 million for a married couple, and it was widely anticipated that he may make additional changes to equalise capital rates and income rates thereby raiding entrepreneurs of more well-earned historic gains.

“Fortunately, he has ignored this and other recommendations from the Office of Tax Simplification contained in its 135-page report produced in November.

“These have been left for another day, giving entrepreneurs time to take advantage of the current rules in place before the inevitable changes take place.

“Despite increasing corporation tax rates to 25% from 2023, the UK will still have the lowest rate in the G7. 

“The introduction of a Small Profits Rate will also limit those who pay this higher rate with companies with profits of £50,000 or less paying the current 19% and only those with profits of £250,000 or more paying the full rate of 25% which the Chancellor estimates will include only 10% of companies.

“I applaud the Chancellor for his fine balancing act and believe that he has been reasonably fair to the owner managed business community.”

Budget 2021 reports here



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