Today we’re going to cover two stories to provide you with a Corporation Tax update. The first is an expected rise in Corporation Tax rates, which is likely to be announced in next month’s budget. The second covers the government’s consultation on Making Tax Digital (MTD), which will affect Corporation Tax from 2026.
Tax rise in the 2021 Budget?
Given the huge amount of extra spending on coronavirus relief packages, many people expect Chancellor Rishi Sunak to use his 3rd March Budget to claw back additional income. According to a number of media outlets – such as City AM, the Telegraph and the Independent – Sunak has Corporation Tax in his sights. Currently, the Corporation Tax rate is 19%. Most sources claim that this will rise to 23p in the pound, although some suggest it may increase to 24%. At a 23% rate, the increase could raise £3 billion in its first year.
Larger companies would be wise to plan ahead for such a significant rise, particularly by revisiting their current tax planning. Some smaller businesses – particularly those operated by sole traders – may find it less worthwhile to trade as a limited company. Once we know for sure how big the Corporation Tax increase is, it will be worth talking to your THP account manager to discuss your options.
Corporation Tax update part 2: Making Tax Digital
Last autumn, HMRC launched its consultation on Making Tax Digital for Corporation Tax. This consultation closes at 11.45pm on 5th March 2021. You can respond to it online or by emailing firstname.lastname@example.org.
The key changes proposed by HMRC mean that businesses will have to:
- Maintain digital records of income and expenditure
- Provide quarterly summary updates using MTD compatible software
- Make an annual Corporation Tax return using compatible software
The consultation also considers whether to bring the Corporation Tax filing date forward. The idea is to align returns with the production of a company’s annual accounts.
If the MTD proposals are adopted, there will be a few exemptions. These will principally apply to charities, community amateur sports clubs and not-for-profit organisations.
While you don’t need to do anything just now, it’s worth thinking ahead to how your business will comply with MTD. There will be a voluntary pilot scheme beginning in April 2024 and all businesses will be required to comply with MTD for Corporation Tax from 2026.
Indeed, there’s a lot to be said for moving to MTD compliant accounting software if you haven’t already. Most THP clients already use cloud accounting software such as Xero and FreeAgent and we can help your business make the switch. If you’d like to discuss your options, get in touch with your account manager today.
About Karen Jones
Having worked for one of the world’s largest accountancy firms, Karen Jones uses her tax knowledge and skills to help clients obtain substantial reductions to their tax liabilities.
With an expanding portfolio of tax clients, Karen enjoys the variety her work brings her and particularly likes working with new businesses and people. With a growing number of tax clients, she frequently faces a variety of challenges and relishes the experience she gains as she solves them.
Karen likes the THP ethos: “I like the way the team has a professional, but friendly and down-to-earth approach – it creates a productive atmosphere that benefits everyone.”
Karen’s specialist skills:
- Personal Taxation
- Tax Efficient Planning
- Trust Administration