Maria Kitt on the 2021 Budget


In the most extreme public financing environment since the 1930’s recessions, Rishi Sunak delivered a growth focused Budget yesterday with immediate and longer term support to a range of sectors and businesses. For innovative companies, the intended move to a 25% corporation tax regime from FY [01 April] 2023 sets us back to the late 1960’s, a time I thought was long forgotten. Against, this internationally focused companies must weigh up the advantages of ‘Infrastructure Banks’, Free Ports, high level R & D incentives & reliefs and innovation intensive funding competitions. The Budget makes seminal reading and the statistics provide a real insight into the costs & legacy of the pandemic, this can be read here….

2021 Budget – R & D Incentives – 01 April 2021 SME PAYE cap reinforced but with exceptions for subcontractors – Consultation on technical adjustments to the definition –
The government will carry out a review of R&D tax reliefs, with a consultation published alongside the Budget.33 This review will consider all elements of the two R&D tax relief schemes, with the objective of ensuring the UK remains a competitive location for cutting edge research, that the reliefs continue to be fit for purpose and that taxpayer money is effectively targeted. The government is also publishing the summary of responses of the recent consultation on the scope of qualifying expenditures for R&D tax credits across the UK.34 The government will consider bringing data and cloud computing costs into the scope of relief alongside a number of other policy options and priorities at the wider review.

Increased corporation tax rates:
FY 2023 – 25% / Small company rate 19%The small profits rate will apply to profits below the lower limit of £50,000 and profits exceeding the upper limit of £250,000 will be charged at the main rate. The thresholds that apply for determining whether a company is chargeable at the small ring fence profits rate at s279E Corporation Tax Act 2010 will be aligned with these limits.
In line with the approach taken with the former rules, the small profits rate will not apply to close investment-holding companies. The definition of a close investment-holding company will follow the definition previously found at section 34 CTA 2010.

Marginal relief provisions will also be introduced so that, where a company’s profits fall between the lower and upper limits, it will be able to claim an amount of marginal relief that bridges the gap between the lower and upper limits providing a gradual increase in the Corporation Tax rate.

The lower and upper limits will be proportionately reduced for short accounting periods and where there are associated companies.

The related 51% group company test at S279F to S269H CTA 2010 will be repealed and replaced by associated company rules. This will be the case for its application for determining whether a company is large or very large for quarterly instalment payment purposes or for determining whether a company may elect to use the small claims treatment for the Patent Box, and so on.

Broadly, a company is associated with another company at a particular time if, at that time or at any other time within the preceding 12 months:

  • one company has control of the other
  • both companies are under the control of the same person or group of persons