United Kingdom

Corporate - Significant developments

Last reviewed - 27 July 2022

Budget, Consultations, and Spring Statement

The United Kingdom (UK) Chancellor presented his second Budget of the year on 27 October 2021, along with a response to the latest economic forecasts and a Comprehensive Spending Review. Subsequently, the Finance (No.2) Bill was published in early November 2021. Royal assent of the Bill, which became Finance Act 2022, was granted on 24 February 2022. 

On 30 November 2021, Her Majesty's Revenue and Customs (HMRC) published a number of papers and consultations relating to tax policy development under the collective title 'Tax Administration and Maintenance'. As the name suggests, there was a strong focus on administration, but there were also some substantive tax announcements, such as future changes being announced to the research and development (R&D) tax relief and transfer pricing regimes.

On 23 March 2022, the UK Chancellor of the Exchequer delivered his Spring Statement. It contained a number of tax announcements (for instance, on R&D tax relief reform). In addition, the Chancellor published a 'Tax Plan' designed to strengthen the UK economy during the remainder of the Parliament. The three-part plan will help families with the cost of living, support growth in the economy, and ensure that the proceeds of growth are shared fairly.

Changes that have taken effect in the past year

Reforms that took effect in the past year include:

  • The period for which trading losses can be carried back against the total profits of a company was temporarily extended from 12 months to 3 years. This extension applied to trading losses that were generated in accounting periods ended between 1 April 2020 and 31 March 2022. Whilst the amount of trading losses that could be carried back up to 12 months remained unlimited, there was a cap on the amount of losses that could be carried back beyond 12 months (this cap was, broadly, 2 million pounds sterling [GBP] for all trading losses generated in accounting periods ended between 1 April 2020 and 31 March 2021, with a separate GBP 2 million cap for losses generated in accounting periods ended between 1 April 2021 and 31 March 2022).
  • In the March 2021 Budget and following a bidding process, the Chancellor announced the creation of eight new Freeports in England with discussions to continue with the devolved administrations to ensure delivery of Freeports in Scotland, Wales, and Northern Ireland as soon as possible. The Freeports will contain areas where businesses will benefit from more generous tax reliefs, customs benefits, and wider government support, bringing investment, trade, and jobs to regenerate regions across the country that need it most.

  • A new pay-as-you-earn (PAYE) cap on small and medium-sized enterprise (SME) R&D claims was introduced. 
  • Generous temporary reliefs were introduced in the 2021 Budget in respect of main pool and special rate pool expenditure, including the super-deduction, which provides a 130% first year allowance for expenditure that qualifies for main pool plant and machinery.
  • Starting from 1 April 2022, large businesses (corporates and partnerships) need to disclose to HMRC ‘uncertain tax treatments' (UTTs) in partnership, corporation tax, VAT, and PAYE returns due to be filed on or after that date.
  • Following Brexit, group relief for non-UK losses of European Economic Area (EEA) resident companies arising in accounting periods beginning on or after 26 October 2021 is no longer available (subject to special provisions where there are straddling accounting periods).  
  • Legislation was introduced in Finance Act 2022 to amend the loss relief rules to ensure that the legislation continued to work as intended for companies adopting International Financial Reporting Standard (IFRS) 16. The amendments were intended to address the fact that changes to the way leases are accounted for under IFRS 16 meant that companies in financial distress were denied the exemption from the loss restriction for carried-forward losses that are set against profits arising from lease renegotiations. The changes have retrospective effect from 1 January 2019.
  • Finance Act 2022 also included amendments to the Diverted Profits Tax (DPT) rules.
  • A UK residential property development sector tax (RPDT) has been introduced with effect from 1 April 2022. It applies to a company or corporate group that holds or has held interests in land/property as trading stock in the course of a trade and is subject to corporation tax on trading profits from residential property development activity. The tax applies at a rate of 4% to annual profits exceeding GBP 25 million (on a group basis, where relevant).

Changes enacted but not yet in force

Changes enacted but not yet in force include:

  • From 1 April 2023, an increase from 19% to 25% in the main rate of corporation tax and the introduction of a 19% small profits rate of corporation tax for companies whose profits do not exceed GBP 50,000.
  • For companies in the banking sector, Finance Act 2022 enacted measures to reduce the rate of the supplementary corporation tax charge from 8% to 3% on profits above GBP 100 million from 1 April 2023.

Consultations and proposals - ongoing

The most significant proposals, which include announced proposals and those in draft legislation, and those subject to consultations include:

Measures focused on domestic matters

  • A range of specific and narrow anti-avoidance rules.
  • Further reforms regarding collection of taxes, application of penalties, and related issues focused on tax evasion.
  • The Office of Tax Simplification (OTS) has undertaken a capital gains tax review. Its first report outlining their proposals for the simplification of capital gains tax was published in November 2020. It is not clear when the government will make any decisions in respect of this. A second report on simplifying key practical, technical, and administrative capital gains tax issues was published in May 2021. Following this report, some small changes have been made.
  • On 30 November 2021, following a consultation process, the government announced its response to the review of large businesses’ experiences of UK tax administration.
  • The government has consulted further on a wide-ranging reform of R&D tax relief.
  • In May 2022, HM Treasury issued a policy paper for discussion and response on the reform of the UK’s capital allowance regime. Response is due by 1 July 2022. 
  • A consultation was also launched on 30 November 2021 on the implementation of regulations to replace the existing European Union (EU) Mandatory Disclosure Rules (MDR). The government envisages that the draft regulations, which broadly follow the Organisation for Economic Co-operation and Development (OECD) model, will come into force in the summer of 2022. 
  • On 26 May 2022, a new 25% Energy Profits Levy (EPL) on the profits of oil and gas companies was announced by the UK government, with effect for profits arising after that date. The EPL is temporary and is expected to expire on 31 December 2025. The government will introduce a Bill to legislate for the EPL in early July 2022, so we may see changes to the current proposals when it is enacted.

Measures focused on international matters

  • One of the main areas of tax reform being progressed by the UK government relates to redefining the corporate tax base, including aspects of the OECD base erosion and profit shifting (BEPS) project. In particular, the UK government has recently consulted on the implementation of the model rules that have been released by the OECD in relation to Pillar 2, which will establish a global minimum tax regime applicable to both public and privately held multinational groups with consolidated revenue over GBP 750 million. Following that consultation, the government has announced that the UK’s Pillar 2 rules will begin to apply to accounting periods beginning on or after 31 December 2023 and that draft legislation will be published in the summer of 2022.
  • Following a consultation, the UK government has announced that it intends to introduce a re-domiciliation regime, which will make it possible for companies to move their domicile to and relocate to the United Kingdom. It is yet to be confirmed whether the new rules will also permit re-domiciliations of UK incorporated companies to other territories. This policy will require legislation to be enacted, but the government has stated that more detailed analysis and engagement is needed before that is possible and has not yet given a timeline for the completion of this task.
  • The government will consult shortly on an online sales tax. The consultation will explore the arguments for and against the introduction of an online sales tax.