As anticipated ahead of the Budget announcement, the Chancellor accelerated the annual reduction in the main Corporation Tax rate from 26% to 24% in April 2012, with further reductions scheduled to take it down to 22% by April 2014.
The main rate CT rate will drop to 23% for the 2013-14 financial year, with a further drop to 22% the following year.
In his Budget speech, George Osborne heralded this sequence as “the biggest sustained reduction in business tax rates for a generation” and vowed that it would put the UK “within sight of a 20% rate of business tax that would align basic rate income tax, the small companies rate and the Corporation Tax rate”.
Despite pleas from small business lobbyists for further reductions, the Chancellor is clearly keen to claim this goal as part of his tax simplification programme, but is taking a cautious approach until the economy recovers, or he can present it as a business-friendly policy commitment ahead of the next general election.
To prevent banks from benefiting from the accelerated CT reductions, the Chancellor announced an increase in the bank levy rate to 0.105% from next January.
Further corporate tax reforms, several of which were set out in draft legislation last December, include:
- A second wave of streamlined Controlled Foreign Company (CFC) rules
- The “Patent Box” 10% Corporation Tax rate applicable to patent income from April 2013
- Enhanced R&D tax credits including an “above the line” and repayable credit for loss making companies
- Extension of film tax credits to video game, animation and high-end television productions.
BDO senior tax partner Stephen Herring commented that the Treasury’s long-term corporate tax roadmap was reaching fruition. “These reforms will be broadly welcomed by international businesses and a number of important sectors such as those engaged in high technology research,” he said.
About John Stokdyk
John Stokdyk is the global editor of AccountingWEB UK and AccountingWEB.com.