Autumn budget 2021: changes to corporate tax regime announced

The banking surcharge will be reduced to 3% from April 2023. The profits allowance, which effectively acts as a threshold for when the surcharge becomes payable is also increasing, from £25 million to £100m. The surcharge is payable by banks in addition to corporation tax. A review of the surcharge was first announced at the spring budget in March.

Eloise Walker, a corporate tax expert at Pinsent Masons, the law firm behind Out-Law, said that the “financial services sector will be disappointed by the decision not to abolish the surcharge entirely”.

“Given it’s a good money-spinner for the government, the decision is unsurprising,” she said. “Banks will in fact see a rate increase as the drop from 8% to 3% is being offset by the increase in corporation tax rates to 25% to give an overall 1% rise to 28%. However, smaller banks – especially start-ups in the sector – will welcome the allowance increase that is to encourage growth of new entrants.”

The availability of the increased annual investment allowance (AIA) of £1m has been extended again to March 2023. The temporary extension of the AIA, from £200,000 to £1m, was due to end on 31 December 2021. The AIA provides tax relief in the form of a deduction of 100% of the cost of qualifying capital expenditure on plant and machinery.

Walker said that smaller companies will welcome the extension of the higher AIA, as it will give them a further 15 months to benefit. “This is especially so given the increasing pressures on business from the continuing Covid-19 situation and its adverse effects on market conditions now other Covid-specific reliefs have been withdrawn,” she said.

A new corporate UK re-domiciliation regime, with the intention of supporting companies seeking to relocate to the UK, was also announced. Proposals for the new regime were detailed in a consultation document jointly published by the Department for Business, Energy and Industrial Strategy, HMRC and HM Treasury. Broadly, the consultation seeks views on: the advantages of allowing companies to re-domicile; the level of demand for re-domiciliation; the appropriate checks and entry criteria for corporates, and; the possible tax implications.

“You might have thought given the initial tenor of the consultation that the  section on taxation would be all about tax incentives to encourage de-domiciliation,” Walker said. “Nothing could be further from the detail, which focuses on, and only on, protecting UK revenues. One can already feel a depressing wave of new anti-avoidance rules coming in to deal with theoretical exposures.”

The possibility of a new online sales tax was also confirmed by the government in the budget papers, with a consultation to “explore the arguments for an against” the new tax due to be published shortly.

Walker said it was “curious” that plans to introduce an online sales tax were not further advanced, “given that HMRC and the Treasury have already been consulting behind the scenes with certain industry bodies on the possibility of an online sales tax for some time”.

She said: “It is to be hoped that the upcoming consultation will be a true consultation of the public at large and not – as has been a case in other consultations over the last few years – a token consultation to tick the box before fully formulated proposals are put forward shortly after the ‘public consultation’ closes.”

A consultation on options to simplify the VAT treatment of fund management fees is also expected to be published shortly, following confirmation by the chancellor.