How can I prepare for the pending rise in Corporation Tax?
The rise in the main rate of corporation tax to 25% was first announced in March 2021, reversing a trend of lowering rates which had been in progress since 2008. The rise from the current 19% is significant and, whilst still modest in the context of others in the G7, is something that businesses should be planning for.As the rate is not set to change until 1 April 2023, there is the possibility of a change in intent from the Government.With a more extensive Budget expected in the Autumn, this could amend the 25% rate increase.
However, in the meantime, how can you plan for it?
• Consider your capital investment plans. Many manufacturing businesses are continually upgrading and renewing plant and facilities. There are currently significant capital allowances incentives for new capital investment and this will need to be considered in the context of obtaining corporation tax relief sooner versus potential for relief at a higher rate of corporation tax from 1 April 2023.
• Review your intellectual property. As well as patenting end-products, the manufacturing process itself can also be patented.The patent box rate for qualifying profits will remain at 10% so the increased main rate will make this even more valuable.This leads to two considerations: a) are there patents which are being exploited already which haven’t yet been claimed? b) Is there any scope to patent existing intellectual property to allow a patent box claim?
• Revisit your international group. Once established, international structures are rarely revisited but this is a good opportunity to consider if the activities in each country and consequent transfer pricing policy remain appropriate. For manufacturing groups with presence in multiple jurisdictions, there could be benefits in considering where activities are carried out and where the value is created.
• Finally, ensure R&D claims are up to date. R&D relief continues to be valuable with effective relief of up to 32.5p per £1 of spend for SMEs from 1 April 2023 and 9.75p per £1 of spend under the RDEC scheme
"The UK has an extensive, tax driven business environment. UK Plc is open for business. The number of tax incentivised reliefs should be thoroughly explored by all businesses to reduce their overall tax liability."