Mini-Budget: Corporation tax frozen and incentives extended
by Rebecca Cave – Tax Writer, Taxwriter Ltd
To simplify the tax system the Chancellor has retained the 19% rate of corporation tax and scrapped the off-payroll working rules, both from April 2023.
Chancellor Kwarteng is in favour of simplifying the tax system and he believes this can be achieved by ordering all tax policy officials in the Treasury to focus on simplifying the tax code. As this task will now be taken ‘in house’, he is abolishing the Office for Tax Simplification.
To be completely fair, this ‘mini-Budget’ included two massive simplifications for businesses, both of which will apply from April 2023:
- Removal of the off-payroll working rules for private and public sector
- Scrapping two new corporation tax rates plus marginal relief.
Off-payroll working scrapped
From 6 April 2023, we will be back to the IR35 rules largely as they were introduced from 6 April 2000. The off-payroll working variants for the public sector (from 6 April 2017) and for large private sector organisations (from 6 April 2021) will be scrapped.
To be clear, the IR35 provisions will still exist. However, it will be up to the directors of intermediary companies to decide whether there would be an employment relationship between the worker and the engager, if all the intermediaries in the chain were ignored.
This is a surprising move as the off-payroll rules were introduced in 2017 and 2021 because HMRC was unable to adequately police the original version of IR35, and the cost of non-compliance was estimated to be £1.2bn per year. The chancellor said compliance will be kept under review, but the costings provided in table 4.2 of his Growth Plan 2022 indicate that the revenue lost per year from this change will be £1.1 bn in 2023/24 rising to £2bn in 2026/27.
Corporation tax frozen
As widely expected, Chancellor Kwarteng confirmed that the scheduled increase in the main rate of corporation tax (CT) to 25% will not be brought in from 1 April 2023. The current main rate of CT will remain at 19% at all profit levels.
Just over a year ago, in the March 2021 Budget, Chancellor Rishi Sunak proposed increasing the CT rates so companies with annual profits of over £250,000 would pay tax at 25%. Those with annual profits of less than £50,000 would continue to pay CT at 19%, but marginal relief would apply between £50,000 and £250,000, giving an effective tax rate of 26.5% on those profits.
Keeping corporation tax at 19% for all companies will simplify this structure, but the tax law will have to be changed to keep the rate at 19%, as the 2023 increase has already been legislated for in FA 2021, s 6.
According to Chancellor Kwarteng, this tax policy reversal will encourage private sector investment in the UK and a Treasury Factsheet provided a list of four research papers that support this theory. However, the Institute for Public Policy Research (IPPR) argues there is no correlation between corporate investment and lower tax corporate rates in other OECD countries.
Investment incentives
The Enterprise Investment Scheme (EIS), which provides tax incentives for individuals to subscribe for shares in unquoted trading companies, was due to end in 2025. This scheme will now be extended for an undefined period.
The similar seed enterprise investment scheme (SEIS) which provides tax relief for investment in small trading companies is not due to expire, but the annual investment caps (£100,000 per investor, £150,000 per company) will be increased from April 2023.
The Annual Investment Allowance (AIA) provides a 100% tax deduction for up to £1m of plant and machinery purchased in a year. This cap was due to reduce to £200,000 on 1 April 2023, but will now be kept at £1m indefinitely, or until another Chancellor has a different idea.
The rates of super deductions will be adjusted from 1 April 2023 to take into account the corporation tax rate being maintained at 19%.
Shares for employees
Under the company share option plan scheme (CSOP) employees can be granted share options with a market value not exceeding £30,000. The chancellor has proposed doubling this cap to £60,000 from April 2023.
Stability and growth
When entrepreneurs are asked what would help them grow their business, most will mention stability in tax and economic policies in order to provide certainty when planning. Three chancellors and three changes in NIC rates and thresholds within a year does not provide certainty or stability.
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