Autumn Budget 2021: Corporation tax increase

There were very few changes to corporation tax. The Annual Investment Allowance has been extended to 31 March 2023, and certain details of the Research and Development (R&D) Tax Relief has been amended. Increases to the rates of tax were announced in the March 2023 Budget and no further announcement has been made. The rate of tax on overdrawn director’s loan accounts will also increase.

Corporation Tax Rates

With effect from 1 April 2023, the main rate of corporation tax will be increased from 19% to 25% for profits over £250,000. A small profits rate of 19% will be charged on profits of up to £50,000. Profits between £50,000 and £250,000 will incur tax at a marginal rate of 26.5%. Thereafter, the rate is 25%. These thresholds are reduced where there are multiple companies under common control.

Section 455 Tax on Overdrawn Directors’ Loan Accounts

Companies must currently pay “Section 455” tax at 32.5% on an overdrawn director’s loan account that is still outstanding nine months after the end of the accounting period in which it is made. The tax applies to shareholders (typically directors) in closely controlled companies.

The section 455 tax will increase from 32.5% to 33.75% on loans advanced from 1 April 2022. The increase will not affect earlier loans.

Quarterly Instalment Payments

From 1 April 2023, the 51% group company test will be replaced by the more complex associated companies test for quarterly instalment payments. This is likely to bring more companies into the scope of this regime as it will affect companies under the common control of a person, even if they are not in a corporate group.

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