Budget 2021: Changes to Corporation Tax

In his Budget Speech on 3 March 2021 the Chancellor, Rishi Sunak, announced a number of changes to Corporation Tax.

First the rate of CT will remain at 19% for the next 2 financial years until 1 April 2023 when it will be increased to 25%. However, this rate will only apply to those companies with profits above an Upper Threshold of £250,000. For companies with profits below a Lower Threshold of £50,000 the rate of corporation tax will remain at 19%, then to be known as the Small Profits Rate. For companies with profits between the Lower and Upper thresholds there will be a marginal rate calculation effectively brining the rate closer to 25% as the profits approach £250,000.

Second a welcome extension to the loss relief rules, this extension will apply to a maximum £2,000,000 of unused trading losses made in 2020/21 and 2021/22 by unincorporated businesses. For companies the £2,000,000 maximum applies separately to unused trading losses, after carry-back to the preceding year, in relevant accounting periods ending between 1 April 2020 and 31 March 2021 and a separate maximum of £2,000,000 for periods ending between 1 April 2021 and 31 March 2022.

Finally, as previously announced the reduction in the temporary limit on the Annual Investment Allowance from £1,000,000 to the permanent level of £200,000 due to take effect from 1 January 2021 has now been delayed by 12 months to 1 January 2022. In his Budget Speech the Chancellor has gone further and introduced a new Super-Deduction for companies investing in qualifying plant and machinery from 1 April 2021 up to and including 31 March 2023. This will be a first year allowance of 130% for main rate assets, and 50% for assets qualifying for special rate relief.