Category: Corporation Tax

On one hand HMRC has increased rate of corporation tax increased to 25% applying to profits over £250,000 but on the other side gave a huge incentive to companies by giving relief to claim the super-deduction tax break.

The new super deduction tax break, which will allow companies to deduct 130% of the cost of any qualifying investment from their taxable profits, is available on most new plant and machinery investments that ordinarily qualify for 18% main rate writing down allowances. This means that for every £1 a company invests they can reduce their Corporation Tax bill by up to 24.7p. The new temporary tax relief applies on qualifying capital asset investments from 1 April 2021 until 31 March 2023.

https://www.gov.uk/government/publications/new-temporary-tax-reliefs-on-qualifying-capital-asset-investments-from-1-april-2021/new-temporary-tax-reliefs-on-qualifying-capital-asset-investments-from-1-april-2021

The super-deduction is designed to help companies finance expansion in the wake of the coronavirus pandemic and help to drive growth. This change makes the Capital Allowance regime more internationally competitive, lifting the net present value of the UK’s plant and machinery allowances from 30th in the OECD to 1st.

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Commenting on the introduction of the super-deduction, the Chancellor of the Exchequer Rishi Sunak said:

‘The super-deduction is the biggest two-year business tax cut in modern British history – driving our economy by helping businesses to invest, grow and support our Plan for Jobs. I urge firms across the UK to invest in our recovery by taking advantage of this great opportunity.’

An enhanced first year allowance of 50% on qualifying special rate assets has also been introduced for expenditure within the same period. This includes most new plant and machinery investments that ordinarily qualify for 6% special rate writing down allowances.

The measures have effect in relation to qualifying expenditure from 1 April 2021 and excludes expenditure incurred on contracts entered into prior to Budget day on 3 March 2021.

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HM Treasury has opened a consultation on ‘Making Tax Digital for Corporation Tax‘ inviting views on how the principles of Making Tax Digital (MTD) could be implemented for Corporation Tax this will be for the entities within the charge to Corporation Tax.

For business it would mean higher compliance cost but at the same time businesses will have real-time information available to them.

https://www.gov.uk/government/publications/making-tax-digital/overview-of-making-tax-digital

The regime MTD already started in April 2019 for VAT purposes only. MTD for Income Tax is expected to be introduced from 6 April 2023.

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The consultation provides some additional information on the planned rollout of MTD for Corporation Tax. Following the end of the consultation, the government will continue to refine the MTD for Corporation Tax requirements by working collaboratively with stakeholders and will then provide entities with an opportunity to take part in a pilot.

This was based on the success of testing the MTD for VAT service and allowed HMRC to identify issues based on real people’s experiences of the service. HMRC initially introduced a limited, small-scale pilot for MTD for Income Tax, before building in additional functionality and scaling up the numbers of eligible participants and expects to follow a similar pattern for Making Tax Digital for Corporation Tax.

The pilot will present HMRC with opportunities to check the proposed design of the system and learn lessons. The consultation states that the proposed date to commence the voluntary pilot for MTD for Corporation Tax is April 2024, with mandation to follow from 2026 at the earliest.

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Corporation Tax is payable when a company makes a profit; the current corporation tax rate for limited company is currently 19%.

However, if the company suffers a trading loss; they may be eligible for relief to adjust a trading loss.

https://www.gov.uk/guidance/corporation-tax-calculating-and-claiming-a-loss

Please have a look at our Corporation tax page.

There are various options available to a limited company to deal with trading loss:

Adjust against other profits:

Trading losses can first be offset against other profits in the same year. These can include interest received and capital gains and the loss must be offset in full before considering any other types of offset.

Adjust against to group profits:

Excess losses can be surrendered to group companies which have profits in the same year, in order to reduce or eliminate their corporation tax liabilities.

Carry losses back to the earlier years:

Once a company has exhausted all the above means and there are still some losses remaining, these can be carried back and offset against total profits made by the loss-making company in the previous 12 months.

Carry forward:

Any unused losses are then automatically carried forward to offset against trading profits of future years, until they are extinguished.

Terminal loss relief:

If a company ceases to trade, it can claim a trading loss incurred in the final 12 months be carried back and offset against total profits (not just trading profits) of the last 3 years. Carried back losses are claimed against later years’ profits before earlier years’, until they are extinguished.

The companies need to be aware that anti-avoidance rules in pace for Trading losses and anti-avoidance

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Patent Box to reduces Corporation Tax on profits for companies; this relief is one of the least claimed reliefs by limited companies. HMRC has published official statistics on the number of companies claiming tax relief under the UK Patent Box. The Patent Box allows qualifying companies to apply a lower 10% Corporation Tax rate on profits arising from patent exploitation. The benefit was phased in from 1 April 2016 with the full benefit of the Patent Box available from 1 April 2017. The newly published statistics include figures for 2017-18 together with partial figures for 2018-19.

https://www.gov.uk/guidance/corporation-tax-the-patent-box

The statistics show that in 2017-18, 1,305 companies applied the lower Corporation Tax rate (on a phased basis) to profits attributable to patents and other qualifying intellectual property claiming relief of £1,101m. In 2018-19, 1,230 companies have so far claimed relief under the Patent Box of £992m. These figures are expected to be revised upwards when more data becomes available.

28% of the companies were classified as large but together they claimed the vast majority (over 92%) of the total relief. Most of the claims were made by the manufacturing sector but there were also claims from other industries including those defined as falling under the ‘Wholesale and Retail’ and ‘Scientific and Technical’ sectors.

It allows companies to apply a lower rate of Corporation Tax to profits earned from its patented inventions. Companies must elect into the Patent Box to apply the lower rate of Corporation Tax which is 10%.

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For companies with taxable profits of up to £1.5 million the payment of any Corporation Tax is due 9 months and 1 day after the end of your accounting period. The accounting period is usually the financial year of your business but can be different especially in the first year of business.

This deadline means that companies with the popular year end date of 31 December 2019 should have paid any liabilities for that year at the beginning on or before 1 October 2020. Interest is charged from the day after the tax should have been paid until payment has been made.

HMRC have not extended the date for Corporation Tax Payments and payment remains due 9 months and 1 day after your accounting year end. However, you can apply to HMRC to pay on an instalment basis or defer payment if your finances have been badly affected by coronavirus. If you have missed your payment date, we would recommend contacting HMRC as soon as possible. We can assist you with this process if required.

There are special rules for companies with taxable profits over £1.5m. These companies are defined as ‘large’ for Corporation Tax purposes and are required to pay tax due in instalments.

Corporation Tax and related payments must be made electronically. You cannot pay Corporation Tax by post.

If your business suffers a trade loss, Corporation Tax relief may be available. The loss can be utilised to seek Corporation Tax reduction by offsetting it against other business gains or profits in the same accounting period.

https://www.gov.uk/guidance/CT-calculating-and-claiming-a-loss

Where the amount of a trading loss exceeds the profits of the same accounting period, the company may claim to carry back the excess against the profits of preceding accounting periods. The preceding accounting periods are those falling wholly or partly within the preceding period.

Losses may only be carried back against profits of a preceding accounting period if the company was carrying on the trade (in which the loss was incurred) at some time in that accounting period.

Any claim for trading losses forms part of the Company Tax Return. The trading profit or loss for CT purposes is worked out by making the usual tax adjustments to the figure of profit or loss shown in the company’s or organisation’s financial accounts.

If a company ceases to carry on a trade, the preceding period is three years preceding the accounting period in which the loss is incurred. Accounting periods must be taken in order, most recent first.

Next Step:

If you are looking to know how best to utilise the business losses for tax purposes, please feel free to Book a free consultation now.

A wide variety of grants or subsidies are available to businesses and can be received in addition to the ordinary business income. It is important to identify these and to establish whether they are capital or revenue in nature so that they are dealt with correctly for tax purposes.

Amounts received towards revenue expenditure, such as staff costs, are normally trading receipts and should be included as income or netted off against the relevant expense. Funding which meets capital expenditure is normally treated as a capital receipt. Grants that may be capital in nature include those paid to acquire capital assets, machinery or to facilitate the cessation of a trade or part of a trade.

Some grants may not be for a specific purpose. These are termed undifferentiated receipts. An undifferentiated receipt should be regarded as revenue; however, there is an exception for specific grants paid by Highlands and Islands Enterprise.

Grants are generally taxable income, the same as any other income arising in your trade. If the grant is for expenditure that appears in your profit and loss account and you can defer the grant income (as above) then you may not have a tax liability on the income as it will be matched with its intended expenditure.