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Autumn Budget 2021 commentary: Corporate Tax

Reaction to the Chancellor, Rishi Sunak's, Autumn Budget on Wednesday 27 October.

Genevieve Morris: Head of Corporate Tax

Research and development

A shocking change to research and development (R&D) tax relief, limiting the benefit only to R&D activities undertaken in the UK. Whilst this may be popular with the person on the street, this will be a major blow to companies who genuinely need to utilise skills of employees based outside the UK for their R&D activities. Certainly, it’s not something he could have done pre-Brexit and steers us to the sort of changes Rishi is likely to make over the coming years.

Will this change encourage employers to bring R&D activities onshore? Unlikely, but it will reduce the tax relief UK businesses are able to claim, increasing the tax take and certainly not encouraging R&D.

Another stealth tax, dressed up as a increase in benefit.

Annual Investment Allowance (AIA)

Extending the £1 million Annual Investment Allowance (AIA) to March 2023 may sound generous, but it is unlikely to be of benefit to the vast majority of UK businesses who are already able to benefit from the 130% super deduction over the same period.  Nice one Rishi – announce a giveaway that sounds super but is unlikely to cost a lot.

Really crunch time for business is going to come from April 2023 when these reliefs are withdrawn, and corporation tax is increased to 25%.  Businesses need to make the most of the next 18 months, and hope that it gives them sufficient time to recover from the impact of the pandemic, before really tough years of high tax rates and low corporate reliefs hit, and no doubt will be here for many years to come.

Universal Credit

There is no doubt that cutting the stealth tax on people claiming Universal Credit from 63% to 55% is incredibly welcome.  It’s always been unjust and unfair that people working and claiming Universal Credit are taxed at 63% where they should be encouraged to work – but 55% is still too high.  Higher than the highest rate of Income Tax paid by the highest earners in the UK.  Is it really fair that the lowest paid and poorest are paying an effective tax rate 10% higher than the most well off?  No – that’s not right at all.

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