The Chancellor delivered his 2021 Budget on 3 March 2021. Set out below is a summary of the key announcements from an international corporate tax and treasury perspective for multinational companies.
- Headline corporation tax rate - As predicted, the Chancellor announced a rise in the main rate of corporation tax, reversing the downward trend since 2010. Legislation will be introduced in Finance Bill 2021 (FB21) which will raise the headline rate from 19% to 25% from 1 April 2023. (See further in this policy paper.) The rate for small profits under £50,000 will remain at 19% and marginal relief for businesses with profits under £250,000 will be introduced so that they pay less than the main rate. (See further in this policy paper.)
International businesses should review their cross border financing and intra-group arrangements to consider the impact of this UK rate increase.
- Key corporate tax announcements - The two key announcements of significance for companies are:
- an extended three year trading loss carry back for accounting periods ending between 1 April 2020 and 31 March 2022 (subject to a group cap of £2m for each period), see further in this policy paper; and
- an enhanced temporary first year capital allowance of 130% (a 'super deduction') for expenditure on new plant and machinery from 1 April 2021 to 31 March 2023.
- Diverted profits Tax – The rate will rise to 31% from April 2023, maintaining the current differential of 6% between the Diverted Profits Tax rate and the main rate of corporation tax. (See further in this policy paper.)
- Repeal of provisions relating to the Interest and Royalties Directive - The government will legislate in Finance Bill 2021 to repeal the domestic legislation that gives effect to the EU Interest and Royalties Directive. This legislation currently provides an exemption from withholding tax on intra-group interest and royalty payments between UK and EU companies. The repeal will mean that from 1 June 2021 withholding taxes will apply to payments of annual interest and royalties made to EU companies, subject to the terms of the relevant double taxation agreement. See the draft legislation here and further in this policy paper.
Note that the draft legislation contains an anti-abuse provision which provides that this change will apply to a payment made on or after 3 March (but before 1 June) if some action has been taken with a main purpose of securing that the exemption continues to apply to it when it would not otherwise have done so.
Taxpayers should therefore consider whether the terms of the double tax treaty between the UK and the payee’s state of residence could reduce or eliminate the withholding tax liability that would otherwise arise and, if so, how to claim relief.
HMRC has set out advice on what taxpayers need to do here.
- Hybrids - The government’s policy paper on changes to the hybrid rules has been updated, indicating that the proposed hybrids legislation that was published back in November 2020 may be amended when it is published as part of FB21. We await the publication of the revised draft legislation to assess the nature and extent of these amendments.
- OECD Reporting Rules for Digital Platforms - The government will introduce a new power in Finance Bill 2021 which will enable regulations to be made to implement OECD rules that will require digital platforms to send information about the income of their sellers to both HMRC and to the seller themselves. This will help taxpayers in the sharing and gig economy get their tax right, and help HMRC to detect and tackle tax evasion when they do not. A consultation will take place in Summer 2021. See further in this policy paper.
- Further announcements relating to consultations
In addition to those mentioned above, the government launched a number of further consultations today, with more announced for publication shortly, as well as publishing some consultation responses. It also previously announced that it intends to announce some consultations on 23 March 2021, but we do not yet know what they will cover.
- R&D tax reliefs – The government will carry out a review of R&D tax reliefs, with a consultation published today. 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 has also published the summary of responses of the recent consultation on the scope of qualifying expenditures for R&D tax credits across the UK. 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.
- Review of tax administration for large businesses – The government will review large businesses’ experiences of UK tax administration, including the degree to which it provides businesses with early certainty where appropriate, ensures the efficient resolution of disputes in accordance with the law, and promotes a collaborative and constructive approach to compliance with the law.
- OECD Mandatory Disclosure Rules – The government will consult later this year on draft regulations to implement the OECD’s Mandatory Disclosure Rules, which facilitate global exchange of information on certain cross-border tax arrangements, to combat offshore tax evasion.
- Tackling promoters of tax avoidance – The government published a summary of responses following the recent consultation ‘Tackling Promoters of Tax Avoidance’. This sets out a package of measures to strengthen existing anti-avoidance regimes and tighten the rules designed to tackle promoters and enablers of tax avoidance schemes.