Companies and unincorporated associations which pay Corporation Tax (CT).
General description of the measure
The measure reduces the CT main rate to 17% for the Financial Year beginning 1 April 2020. This is an additional 1% cut on top of the previously announced CT main rate cuts which reduced the CT main rate to 18% from 1 April 2020.
The measure assists with the government’s objective of a corporate tax system that is more competitive, providing the right conditions for business investment and growth
Background to the measure
It was announced at Summer Budget 2015 that a reduction in the CT rate from 20% to 19% for the Financial Years beginning 1st April 2017, 1st April 2018, and 1st April 2019, with an additional reduction from 19% to 18% for the Financial Year beginning 1st April 2020.
The CT main rate for Financial Year 2020 will go into effect from 1st April 2020 to 31st March 2021.
A main rate of 18% for the Financial Year 2020 was set by section 7 of Finance (No. 2) Act 2015 for all non-ring fence profits.
Legislation will be introduced in Finance Bill 2016 to reduce the main rate of CT for all non-ring fence profits to 17% for Financial Year 2020.
The measure benefits over a million large and small companies, ensuring the UK has the lowest tax rate in the G20. Updated analysis from the CGE government shows that the cuts announced since 2010 could potentially increase GDP by between 0.6% and 1.1% in the long run.
The costing includes a behavioral response that accounts for the changes in incentives for multinational companies to invest and shift profits in and out of the UK. There is also an adjustment made to account for the increased incentive to incorporate due to this measure.
Impact on individuals, households and families
It is not expected to impact on individuals, household or family formation, stability or breakdown.
Changes to CT rates do not have equalities impacts as they affect corporate entities.
Impact on business including civil society organisations
There is expected to be negligible impact on the administrative burdens of businesses and civil society organisations because of this measure.
The measure lowers the tax bills of 1.1 million businesses which pay corporation tax. Any affected businesses will incur negligible one-off costs in order to familiarise themselves with the rate change, and also for some companies to update their administrative systems.
Operational impact (£m) (HM Revenue and Customs (HMRC) or other)
It is likely that implementation will only have minor operational impact, but will necessitate changes to HRMC IT systems and online filing products.
Competition assessment: a lower CT main rate makes the UK more attractive as a destination to locate.
Other impacts have been considered and none have been identified.
Monitoring and evaluation
This measure will be kept under review through communication with affected taxpayer groups and the monitoring of CT receipts.
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