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Tax Day commentary

Heather Self (Corporate Tax Partner) provides commentary and analysis on the consultations announced by HM Treasury on Tax Day.

The big announcements for companies on Budget Day were the increase in the rate of Corporation Tax to 25% from 2023 and the “super deduction” of 130% for capital expenditure incurred between 1 April 2021 and 31 March 2023. There was also a welcome increase in the loss carry back period to 3 years, for accounting periods ending between 1 April 2020 and 31 March 2022.

The further consultations on Tax Day (23 March) were more about the framework of the tax system than changes with immediate impact, although the revised consultation on uncertain tax positions will need to be considered carefully by large businesses – some of the questions asked have a flavour of “have you stopped beating your wife?” about them.

The cashflow implications of a possible loss carry back claim, the super deduction and the proposed increase in rate may not be obvious. Would a business prefer to get tax back from 2018 at 19%, or to carry losses forward to get relief at 25% in 2023? This will depend on how urgent the need for cash is, the business’s cost of capital and how soon they expect to be able to use losses.

A super deduction of 130% of expenditure at a tax rate of 19% is worth 24.7% of the total amount spent – well worth it for those with large projects, but for smaller businesses £1m of annual investment allowance at 25% is worth about the same amount, although with a risk that the investment allowance may not be maintained at its current level beyond 2022.

The main impact is going to be large infrastructure projects being pulled forward by 12 to 18 months – good for starting to stimulate the economy, but almost entirely a timing difference rather than a permanent boost. And the cost, at around £25bn over the next two tax years, seems very high just to prime the pump.

Would you like to know more?

For more information on how the Budget impacts you, either as a business or an individual, or how the further consultations announced on Tax Day could impact you, please get in touch with your usual Blick Rothenberg contact or Heather Self, using the details on this page.

You can also visit our Budget Hub, where you can find our commentary and a range of tools to help you better understand how the Budget may affect you.