Corporate tax rate change.

Corporate tax rate change.

Didn't find your answer?

Is it correctly understood that corporate tax rate will change from 19% to 25% 1 April 2023.

Do anyone know when we can expect this to be enacted?

 

Replies (24)

Please login or register to join the discussion.

RLI
By lionofludesch
29th Sep 2021 13:38

I would wait and see.

Changing its collective mind is something this current government does frequently.

It's called "agile decision making", apparently.

Thanks (1)
avatar
By fawltybasil2575
29th Sep 2021 14:13

@ accountingdude (OP).

In principle, the 25% CT rate will only be applicable (assuming no “change of heart” by the Chancellor) where the company’s profits exceed £250K. See this link to the “Policy paper” (March 2021) for a background:-

https://www.gov.uk/government/publications/corporation-tax-charge-and-ra...

Since that Policy paper, however, the Finance Act 2021 has been ENACTED – see this link to that legislation:-

https://www.legislation.gov.uk/ukpga/2021/26/contents

Refer especially to Paras 6 and 7, and Schedule 1, of that Finance Act.

Basil.

Thanks (0)
Replying to fawltybasil2575:
avatar
By Justin Bryant
29th Sep 2021 16:25

But as has been said, the marginal relief for >£50k profits is a con trick, as the real (proper) marginal tax rate >£50k is >25%.

So there is now a strong disincentive to earn >£50k p.a. in a company.

Thanks (0)
Replying to Justin Bryant:
avatar
By Tax Dragon
29th Sep 2021 16:46

Oh grumpy Mr Glasshalfempty! Is it a marginal charging rate or a marginal relieving one? And don't think that we haven't noticed that you are resurrecting your world's 'easiest tax planning' idea of not being liable to tax by the simple means of not having income or gains.

Thanks (1)
Replying to Tax Dragon:
Psycho
By Wilson Philips
29th Sep 2021 16:52

:¬)

I wonder how my staff are going to react when I tell them that I'm about to cut their tax bills in half.

Thanks (0)
Replying to Tax Dragon:
RLI
By lionofludesch
29th Sep 2021 18:03

Tax Dragon wrote:

Oh grumpy Mr Glasshalfempty! Is it a marginal charging rate or a marginal relieving one? And don't think that we haven't noticed that you are resurrecting your world's 'easiest tax planning' idea of not being liable to tax by the simple means of not having income or gains.

I've always thought these marginal clawback rates are just a little bit weird.

Thanks (0)
Replying to Tax Dragon:
avatar
By Justin Bryant
30th Sep 2021 09:02

I thought you agreed with me that the other TD was wrong about s272 TCGA 1992. If he were right, I could also devise plenty of easy SDLT planning (including for a six figure SDLT matter on my desk right now), as it's the same test per s118 FA 2003. See: https://www.taxjournal.com/articles/on-the-back-of-a-stamp-the-sdlt-mark...

https://www.gov.uk/hmrc-internal-manuals/stamp-duty-land-tax-manual/sdlt...

Thanks (0)
Replying to Justin Bryant:
avatar
By Justin Bryant
30th Sep 2021 09:41

It would also open the door to easy IHT planning, as s160 IHTA 1984 has essentially the same MV test (and therefore by analogy more or less equivalent case law) as s 272 TCGA 1992.

Thanks (0)
Replying to Justin Bryant:
Psycho
By Wilson Philips
30th Sep 2021 09:53

That discussion, if I recall correctly, was about s17, not s272 (although of course the latter is in point if, but only if, s17 (or any other provison applying MV) applies). The argument in that other discussion was, again if I recall correctly, whether s17 applies in any case where there is a disposal at less than market value - it does not (obviously).

Thanks (0)
Replying to Wilson Philips:
avatar
By Tax Dragon
30th Sep 2021 10:03

Wilson Philips wrote:

The argument in that other discussion was, again if I recall correctly, whether s17 applies in any case where there is a disposal at less than market value - it does not (obviously).

I might have said "every" to your "any", but otherwise, yes, my recollection tallies with yours. (Justin - Hugo provided an example in that other thread of a [possibly] below MV sale to which s17 would not have applied. The s17 test isn't whether it's at MV, but whether it's at arm's length. I agreed with you - or was it you agreeing with me? - that this was questionable in the case discussed in that other thread.)

What any of this has to do with the marginal rate of CT [relief] is beyond me.

Thanks (0)
Replying to Wilson Philips:
avatar
By Justin Bryant
30th Sep 2021 10:28

Well, I disagree, as s17 would be read purposively and refers "in particular" to gifts and that would be read (by a judge) to include partial gifts (AKA under market value transfers) and it's always a question of facts and as I recall the facts from that other post were that it was admitted to be essentially an under market value transfer with no corresponding quid pro quo or other proper justification which is the same as a partial gift. If there was QPQ or some other justification for the under market value transfer (in which case it would not be an under market value transfer in the 1st place under the relevant case law as the hypothetical purchaser stands in the taxpayer's shoes) then there is no issue here obviously.

If you can cite a case proving I'm talking rubbish then I will of course stand corrected. But if I were wrong then could just sell a £1m house for £1 rather than making an outright 100% gift to avoid s17 with some hand waiving arguments as to why it was nevertheless "arm's length".

Thanks (0)
Replying to Justin Bryant:
Psycho
By Wilson Philips
30th Sep 2021 10:53

I'm really quite staggered that you appear to be completely unaware of the long-held principle that a bad bargain is not necessarily a bargain other than at arms length. I'm not going to waste my time looking for a case because I don't need to. Even HMRC accept the principle.

I'll edit my post given that you have managed to do the same despite the dumb new edit block. You are wrong that if there is some QPQ then the transfer could not be under MV in any case. It is the very fact that one needs to compare the hypothetical purchaser in the open market with the actual purchaser and the actual sale.

Your £1m/£1 house example is nonsensical - but theoretically possible. As you say, each case will be looked at on the facts. The point is that not every undervalue disposal is automatically a non arm's length transaction. Consider something a little more realistic. Let's say that the house would indeed fetch £1m on the open market. But you need a quick sale, can't be bothered with getting a formal valuation, estate agency fees etc etc and you are aware of a neighbour that has just won the Lottery and has already expressed interest in your property. So you offer to sell it to him for £900k cash (because that is what you think it is worth). He says he'll pay you £850k and you accept.

Thanks (0)
Replying to Wilson Philips:
avatar
By Justin Bryant
30th Sep 2021 10:43

You have not read what I said above. Do you not know what "some other justification" means? In any event, you cannot "deliberately" make a bad bargain to escape s17 (which is what you are implying re the other post if there is no QPQ or other justification). A deliberate bad bargain is obviously a dressed up gift.

Clearly my "easy" CGT schemes would only work with deliberate bad bargains.

I'll end there, as you clearly don't know what you're talking about.

Thanks (0)
Replying to Justin Bryant:
Psycho
By Wilson Philips
30th Sep 2021 10:46

I was implying nothing of the sort. I was merely making the point that a disposal at undervalue is not necessarily a non arm's length transaction. I had reserved judgement in that other case, in absence of all relevant facts.

I agree that one cannot deliberately make a bad bargain in order to escape s17 - but a bad bargain is a bad bargain and does not automatically fall foul of s17. If you think that it it does then you are the one that needs to consider whether you know what you are talking about. (Although I would agree that your "easy" CGT schemes would "work" only with deliberate bad bargains - and by your own words would therefore fail. Back to the drawing board, I guess.)

Thanks (0)
Replying to Wilson Philips:
Psycho
By Wilson Philips
30th Sep 2021 14:28

I'll give you an even more realistic example - a real-life one.

We purchased our previous home in Scotland back in the 90's. We met with the (unconnected) sellers who were asking for offers of over £76k. At the time, houses in Scotland were typically changing hands for up to 25% in excess of the asking price so the sellers could reasonably have expected to obtain closer to, or in excess of, £90k had it been left on the market (our valuation report eventually put a value of £88k on it). However, over dinner we put our cards on the table and said that our ceiling was £80k. The sellers had just inherited a city property and were seeking a quick sale. We therefore shook hands at £80k. From a tax perspective it doesn't really matter as the sellers would (presumably) have had full PPR. But if the gain had been chargeable, I doubt very much that they would have returned a figure of anything other than the £80k, despite it being lower than the MV of £88k or thereabouts that presumably Justin would have declared on his tax return.

Thanks (0)
Replying to Justin Bryant:
avatar
By Tax Dragon
30th Sep 2021 10:47

(Response to post timed at 10:28)

We are (we always were) agreed on your first paragraph.

I now also see the main point you have been making - that a 'partial gift' is a gift. I tend to agree with you*, but I have a vague memory that tax training courses I have attended drew a distinction between a sale at undervalue and a gift. (I can't now think of where that training discussion led. If more comes back to me, I'll post back.)

*Actually, I'm upgrading that. I agree with you. [But as usual, you and Wilson are not paying attention to what the other is saying.... the old two-ears-one-mouth- maths-failing-to-adapt-to-the-age-of-the-keyboard problem that someone posted about the other day. Weirdly, you're both right. IMHO, that is.]

Thanks (0)
paddle steamer
By DJKL
29th Sep 2021 14:38

Spooky, I was just checking this morning to confirm when the change happens to see if we still have time to offload some more of our investment properties before then. (initially could not remember if it was 2022 or 2023)

Thanks (0)
avatar
By MattS
29th Sep 2021 16:00

I think the bill was enacted back in June this year

Thanks (0)
avatar
By Wanderer
29th Sep 2021 17:58

It won't happen.

March 2023 budget will include an announcement "Corporation Tax is due to increase to 25% from 1 April but (blah about the economy & fiscal astuteness) we are going to CUT that rate to 23%.

Smoke & mirrors!

Thanks (0)
avatar
By fawltybasil2575
29th Sep 2021 18:04

Justin’s first point is entirely valid inasmuch as the EFFECTIVE CT rate for profits between £50K and £250K is 26.5% (greater than the 25% CT rate payable on profits in excess of £250K).

This “increased rate” (in comparison with the 19% rate for profits up to £50K) is not as severe admittedly as in the case of the effective 60% Income Tax rate charge where the taxable income exceeds £100K, but nonetheless it is worthy of adverse comment – frankly, IMHO the Government would gain brownie points from openly admitting (via HMRC) these “effective” rates (instead of waiting for accountants and tax advisors etc. to highlight them).

@ MattS (your 16.00 post). You are correct of course re the enactment date of the Finance Act – that date was 10 June 2021 (as per the second link to that legislation per my previous post above).

Basil.

Thanks (2)
Replying to fawltybasil2575:
Psycho
By Wilson Philips
30th Sep 2021 10:04

Arithmetically, you (and Justin) are of course correct. But in the previous bad old days of marginal relief where a client complained to me about the effective marginal rate I found that they calmed down a little when I explained it in terms of overall profits for the year (rather than trying to imagine for instance that they made profits of £50k in the first 4 months of the year and £150k for the next 8). So, as profits increased, the rate of tax on all of those profits increased slowly - in this case rising from 19% to 25%. ie never actually reaching 26.5%. Headline-grabbers and sourpusses etc love to catch on to marginal effective rates to suit their agenda - the reality is that no company will ever pay corporation tax at 26.5% (unless of course that becomes an actual rate of tax).

Thanks (0)
Replying to Wilson Philips:
RLI
By lionofludesch
30th Sep 2021 10:28

Wilson Philips wrote:

Arithmetically, you (and Justin) are of course correct. But in the previous bad old days of marginal relief where a client complained to me about the effective marginal rate I found that they calmed down a little when I explained it in terms of overall profits for the year (rather than trying to imagine for instance that they made profits of £50k in the first 4 months of the year and £150k for the next 8). So, as profits increased, the rate of tax on all of those profits increased slowly - in this case rising from 19% to 25%. ie never actually reaching 26.5%. Headline-grabbers and sourpusses etc love to catch on to marginal effective rates to suit their agenda - the reality is that no company will ever pay corporation tax at 26.5% (unless of course that becomes an actual rate of tax).

Sure.

But it's not how we used to calculate income tax before assorted clawbacks became the fashion.

Nor is it common in other countries. I was talking to a German fella once who told me he thought it was crazy.

Thanks (0)
Replying to lionofludesch:
avatar
By Tax Dragon
30th Sep 2021 14:39

(Response to post timed at 10:28)

It's not crazy at all. It's the perfect progressive tax system. The obvious alternative - tax bands à la income tax - wouldn't help small companies and instead would mean that large companies pay less tax. (Presumably £50,000 x 6% = £3,000 less tax. Neither here nor there really, but certainly not crazy to charge BigCo plc the extra £3k.)

Thanks (0)
Replying to Tax Dragon:
Psycho
By Wilson Philips
30th Sep 2021 14:56

I'm not sure that I follow your logic, but thanks for getting the thread back on track ;¬)

Thanks (0)