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Corporation Tax

Banking companies
Banking companies are subject to a surcharge of 8% on their profits, i.e. above the standard rate of corporation tax, subject to an allowance of £25 million. When the main rate of corporation tax increases to 25% in 2023, the surcharge will be cut to 3% and the allowance increased to £100 million.

Re-domiciliation regime
A consultation has been announced on “re-domiciliation”, which would make it possible for companies to shift their domicile to the UK. The stated aim of such a regime would be to make the UK a more attractive destination to locate business in, with the knock-on effect that there would be an increase in demand for existing UK expertise, e.g. accounting, audit and legal services. The consultation stresses that the regime would not be a mechanism for avoiding UK taxes, and that further legislation may be required to ensure this did not become the case.

The government is seeking responses on the following matters:

– The advantages of enabling companies to re-domicile
– The level of demand that exists, among which types of companies and sectors
– The appropriate checks and entry criteria
– The merits of establishing an outward re-domiciliation regime
– Any tax implications associated with the introduction of a re-domiciliation regime

Responses should be sent by 7 January 2022.

Tax reliefs for cultural activities
Museums and Galleries tax relief is extended for a further two years. Finance Bill 2021/22 will also increase the rates of relief for theatres, orchestras and museums and galleries until 31 March 2024. This will take effect immediately, and apply as follows:


Pre-Budget rate1
27 October – 31 March 2023
1 April 2023 – 31 March 2024
Theatre tax relief
20%
45%
30%
Orchestra tax relief
25%
50%
35%
Museums and Galleries tax relief2
25%
50%
35%

1 – Rates will revert to pre-Budget level from 1 April 2024

2 – Museums and Galleries tax relief will expire after 31 March 2024

There are also some minor changes to ensure the reliefs are target correctly, set out in a policy note.

Tonnage tax
A reform of tonnage tax was announced, with the aim of making it easier for shipping companies to join the regime, as well as making the UK regime more competitive – thereby encouraging shipping companies to move here. The effective period of an election into the regime is being reduced from ten years to eight, and HMRC is being given additional discretionary powers to admit companies outside the regular window where there appears to be “good reason” to do so.

Cross-border group relief
Finance Act 2021/22 will include legislation to remove the ability for UK companies to claim group relief for losses incurred in the European Economic Area, ending the more favourable treatment compared with non-EEA companies.

Research and Development Tax Credits
R&D is to be reformed, though beyond announcing that the scope would be expanded to include modern costs, such as cloud computing, there was no detail on what exactly the reforms would be. It appears that there is concern that a significant amount of approved R&D expenditure is actually incurred offshore, meaning UK businesses don’t benefit. This is likely to be the focus of a tightening of the rules, but we won’t know for sure until further detail is released later this year.

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