There were two key changes to company taxation effecting rates of tax and loss reliefs.
Company tax rates
The government announced that they will continue with their plan to reduce Corporation Tax. It was announced that the rate will be reduced to 17% from 1 April 2020. The current rate is 20% and that will fall to 19% for the Financial Years beginning on 1 April 2017, 1 April 2018 and 1 April 2019. The 17% rate will start for the Financial Year beginning on 1 April 2020.
This will mean the UK will have the lowest rate of company tax in the G20. US president-elect Donald Trump has stated he wants a 15% rate of company tax. But, the UK Treasury believe the UK would still offer a more competitive regime when extra taxes are factored in.
But, this is not a tax cut for most small businesses that trade as a company because of the extra tax on dividends.
At the moment, a company is restricted in the type of profit which a brought forward loss can be used against. The profit and loss carried need to be the same trade. The change will mean that losses arising on or after 1 April 2017 will be useable against future profits from other income activities, provided the loss is not a capital loss.
This flexibility of the use of corporation tax losses is a welcome change to the tax system, which should reduce the amount of losses that become ‘trapped’ in companies that are unable to offset them.
Image from Flickr by Aaron Harmon.