Autumn Budget: Understanding the UK Corporate Tax Roadmap Ahead
Understanding UK Corporate Tax
The UK government recently introduced a Corporate Tax Roadmap which highlights several key commitments that not only help maintain the UK’s competitive edge but also offer businesses insights into upcoming tax changes they need to prepare for. Below, we’ll break down the essential points of the roadmap, including tax rate changes, capital allowances, R&D provisions, and the significant upcoming increase in employers' National Insurance Contributions (NICs). By understanding these updates, businesses can better prepare for the changes and what to expect over the coming years.
Corporate Tax Rate and Small Profits Rate: Stability for Businesses
A primary component of the roadmap is the decision to keep the main corporation tax rate steady at 25%. For businesses making smaller profits, the small profits rate will remain at 19%, offering relief to smaller enterprises. This consistency is designed to help companies plan with confidence, knowing that there will be no major fluctuations in tax rates in the near term.
Capital Allowances: Supporting Investments and Growth
The budget addresses capital allowances, ensuring businesses can continue to invest in assets and equipment with the benefit of full expensing. Here’s what remains in place:
Full Expensing: Companies can fully deduct qualifying capital expenditures, which means they can immediately write off the costs of investments in certain assets.
£1 Million Annual Investment Allowance: This benefit will remain available, allowing businesses to make capital investments up to £1 million with immediate tax deductions.
These allowances help support businesses as they invest in growth, equipment, and technology. Maintaining these provisions ensures that companies have a tax-friendly way to expand operations and boost productivity.
Stability in R&D and Patent Box Reliefs
The UK’s R&D and patent box regimes, which offer tax relief on qualifying research and intellectual property income, remain in place. This stability is especially important for innovative companies that rely on these incentives to fund R&D activities and protect patents.
The government is also launching consultations to examine potential tax treatment adjustments for pre-development costs, as well as reviewing the effectiveness of land remediation relief.
International Tax Rules Modernisation: Aligning with Global Standards
There was mention of publishing a technical consultation on draft legislation to modernise UK international tax rules, covering transfer pricing, permanent establishment, and diverted profits tax, with a potential focus on removing UK-to-UK transfer pricing and adjusting transfer pricing legislation further.
The Significant Change: Employers' NICs Increase Starting April 2025
One of the most impactful changes in the roadmap is the increase in employers' National Insurance Contributions (NICs), scheduled for April 2025. Here’s what businesses need to know:
New Rate: The NIC rate for employers will increase from 13.8% to 15%.
Lowered Threshold: The threshold for employer NICs will drop from £9,100 to £5,000. This change means more of a business’s payroll costs will be subject to NICs.
To offset the financial burden on smaller businesses, the government is raising the employment allowance from £5,000 to £10,500. Previously, this allowance was limited to businesses with NIC bills under £100,000, but this cap will now be removed, making it accessible to all employers. While this increase in NICs is expected to generate £25 billion annually for the government, the adjustment in the employment allowance aims to ease the impact on small businesses and encourage continued hiring and growth.
Updates on R&D Intensive Scheme (RDIS)
The budget made clarifications on the R&D Intensive Scheme (RDIS), a tax relief program designed to encourage significant investment in research and development. Initially, the Finance Act 2024 excluded certain R&D expenditure from counting toward the R&D intensity threshold, which determines a company’s eligibility for RDIS. However, recent budget documentation confirmed that Research & Development Expenditure Credit (RDEC) qualified spending will indeed be included in the intensity calculation, effective from April 1, 2023.
For businesses aiming to qualify under the Enhanced R&D Intensive Support (ERIS), the required threshold for R&D intensity will be reduced from 40% to 30% starting April 1, 2024. This reduction makes it easier for companies to qualify as R&D intensive, thus expanding access to these valuable tax incentives.
How We Can Help
Understanding the complexities of the UK’s corporate tax landscape can be challenging, especially with evolving regulations and detailed thresholds. Our tax team, made up of experts from some of the world’s top financial firms, provides the same high level of insight without the high fees often associated with big consultancies.
If you need guidance on how these changes could affect your business, or if you’d like help with tax planning or R&D claims, feel free to reach out. We offer complimentary consultations to ensure you understand the options available and are prepared for the road ahead.
For expert advice, contact us at info@agfinancehub.com.
