The first tax increase has been announced

As if to confirm the sidelining of his Chancellor, the Prime Minister has announced a corporation tax increase from 2020.

In a presentation to the CBI conference in London on Monday, Boris Johnson announced that a Conservative Government would ‘postpone’ next year’s reduction in corporation tax from 19% to 17%. The Prime Minister said the postponement would produce an extra £6bn of revenue. As the Office for Budget Responsibility’s (OBR’s) March 2019 forecast for 2020/21 onshore corporation tax receipts was £56.8bn, against £56.7bn in the current fiscal year, the £6bn figure looks about right.

In March 2016 the then Chancellor, George Osborne, announced that he would cut the main corporation tax rate planned for 2020 from 18% to 17%. This was subsequently legislated for in s46 of the Finance Act 2016, so when the Prime Minister says ‘postpone’, he is being somewhat creative: a legislative reversal will be required.

The choice of what amounts to an increase in corporation tax is safe ground for the Conservatives, given Labour has said it would raise the rate to 26%, while the Liberals have proposed a rise to 20%.

However, by announcing the change so late in the day, the Prime Minister has created an interesting issue for the biggest UK companies. ‘Large companies’ (those with profits over £1.5m) have to pay corporation tax in four instalments, starting in the seventh month of the accounting period. And for accounting periods beginning after 31 March 2019, ‘very large companies’ (those with profits over £20m) now have to pay corporation tax in four instalments starting in the third month after the beginning of the accounting period. These instalments are based on the company’s estimate of the tax liability for the year in question.

Thus, any such company that has a year end after 31 March 2020 will have calculated quarterly tax payments assuming a rate for the period after March 2020 of 17%. The net result now will be catch-up payments arriving in the Exchequer’s coffers in 2019/20 and then higher estimated payments for all companies from 2020/21.

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Source: https://www.techlink.co.uk/