Budget 2021: Capital Gains Tax and Corporation Tax on Businesses

Year Published: 2021

Many experts had predicted that Chancellor, Rishi Sunak, would use the Budget as an opportunity to announce significant personal tax rises to address the dire state of the public finances following 12 months of Government intervention in the COVID-19 pandemic. However, personal tax rises were not forthcoming, though an increase to corporation tax was announced.

Capital Gains Tax Frozen

Capital Gains Tax (CGT) had been viewed as ‘easy pickings’ with business owners and investors concerned that CGT rates could be brought more closely in line with income tax rates. It was also feared that any CGT reform announced would herald the end of Business Asset Disposal Relief (formerly known as Entrepreneurs’ Relief). These concerns meant that it became a race against time for sellers to ensure that they completed any planned disposals before the Budget in order to avoid the risk of incurring significantly higher tax liability.

Ultimately, these fears were not realised, and business owners and investors were able to breathe a sigh of relief for the time being. The Chancellor instead announced measures which are intended to stimulate the economy and business investment. Personal allowances and tax thresholds for CGT will remain frozen from April 2021 to April 2026 and this will have a much lesser impact than increased CGT rates would have had.

Despite the reprieve, this is not to say that in future the Government will not look to raise additional tax revenue from CGT, and recommendations have already been made by the Office of Tax Simplification with that in mind.

Corporation Tax to Increase from 2023

While tax rises aimed at business owners and investors did not materialise, significant changes were announced for companies including an increase in corporation tax. From April 2023, the main rate of corporation tax will increase from the current 19% to 25% on profits over £250,000. It is forecasted that this increase will almost double corporation tax receipts by 2025.

Tax rates for companies with profits of £50,000 or less will be maintained at the current 19% rate, and businesses with profits between £50,000 and £250,000 will be able to claim relief so they do not pay the main rate.

Other Measures to Support Businesses

In the meantime, existing measures have been extended, and new measures announced, to support businesses through the pandemic. These include:

  • Recovery Loan Scheme – this is open to all business under which the Government guarantees 80% of eligible loans between £25,000 and £10 million.
  • Restart grants – up to £6,000 per premises (for non-essential retail) and £18,000 (for other sectors, including hospitality and leisure) to support safe re-opening of businesses.
  • VAT reduction for tourism and hospitality – the temporary 5% VAT rate for goods and services supplied by the tourism and hospitality sectors will be extended to the end of September 2021.
  • Extension to carry back of trade losses – the current one-year trading loss carry back will be extended to three years for losses made by companies in accounting period ending between 1 April 2020 and 31 March 2022. The temporary extension to trading loss carry back will similarly apply to unincorporated businesses.
  • Super Deduction – this is a temporary increased tax relief for businesses who invest in certain qualifying capital assets such as new plant and machinery. This means that up to 130% is available on most new plant and machinery investments, which would usually have only qualified for 18% relief.

For further information regarding the increase in corporation tax may affect your business, or for any advice on any Corporate related matter, please contact Matthew Canfield on 01244 30 5984 or email [email protected].

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