Corporation Tax main rate falls to lowest level in history, QIP changes for large companies and Annual Investment Allowance permanently increased to £200k

Wed 08 Jul 2015

The Chancellor announced in the Summer Budget that the rate of corporation tax will eventually fall to 18%.

However, companies and groups with taxable profits of £20m or more will need to pay their quarterly instalments of corporation tax in the accounting period the profit arises in.

Finally, the Annual Investment Allowance, due to fall to £25k on 1 January 2016, has been permanently increased to £200k.

Companies can look forward to further reductions in the corporation tax rate. As recently as 2010, the main rate of corporation tax was 28%. The Coalition Government gradually reduced the rate to the current rate of 20% (and removed the small companies’ rate). The Chancellor announced further reductions in the rate of corporation tax to 19% from 1 April 2017 and again to 18% from 1 April 2020, providing certainty on the rate through the duration of this Parliament and encouraging business investment and growth.

However, companies with taxable profits of £20m or more will now be required to make Quarterly Instalment Payments of tax in the year the corresponding profits arise. Currently, the Quarterly Instalment Payments regime requires companies to estimate and pay over one quarter of their tax liability in the 7th, 10th, 13th and 16th months after the start of the accounting period. The changes will mean that companies of a certain level of profitability will be required to pay one quarter of their tax liability in the 3rd, 6th, 9th and 12th months of their accounting year. Companies with taxable profits of between £1.5m and £20m will follow the existing Quarterly Instalment Payments regime (with both the £1.5m and £20m limits divided by the number of associated companies in groups in the way we are used to). The new measure will apply to accounting periods starting on or after 1 April 2017.

Finally, the Chancellor pledged in the March Budget that the Annual Investment Allowance would increase from the £25k currently legislated to come into effect on 1 January 2016. In the Summer Budget, he delivered on that promise, raising the Annual Investment Allowance to £200k, in line with the Allowance currently in effect, from 1 January 2016 and maintaining the Allowance at that level thereafter in order to encourage investment in plant and machinery.

For further information please contact Prasam Patel at prasam.patel@mazars.co.uk