Main rate of corporation tax at 19% in 2020 and charge and main rate for 2021

Who is likely to be affected

Unincorporated companies and associations that pay corporation tax (CT).

General description of the measure

The measure sets the main corporate tax rate at 19% for the financial year beginning April 1, 2020. This keeps the rate at 19% instead of reducing it to 17% from April 1, 2020.

The corporation tax charge and main rate will also be set at 19% for the year beginning April 1, 2021.

Political objective

This measure supports the Government’s aim of increasing revenue while maintaining the competitive rate of UK corporation tax.

Context of the measure

In the 2015 summer budget, the government announced a reduction in the corporate tax rate from 20% to 19% for the years beginning April 1, 2017, April 1, 2018 and April 1, 2019, with a further reduction from 19% to 18% for the fiscal year beginning April 1, 2020.

In Budget 2016, the government announced a further reduction of 1% to 17% for the fiscal year beginning April 1, 2020.

Detailed proposal

Effective date

The main corporation tax rate for the 2020 financial year will be in effect from April 1, 2020 to March 31, 2021.

The charge and the main rate of corporation tax for the financial year 2021 will be in effect from April 1, 2021 to March 31, 2022.

Current law

A main rate of 18% for the financial year 2020 has been set by Article 7 of the Finance Act (No 2) 2015 for all non-closing profits. This rate was changed to 17% by article 46 of the 2016 finance law.

The corporate tax charge for the 2020 financial year was set by article 2 of the 2019 finance law.

Proposed revisions

Legislation will be introduced in the 2020 Finance Bill to change the main corporate tax rate for all non-closing profits to 19% for the 2020 financial year. companies and the main rate will also be set at 19% for any ring closing profits for the 2021 financial year.

Summary of impacts

Impact on Treasury (£m)

2019 to 2020 2020 to 2021 2021 to 2022 2022 to 2023 2023 to 2024 2024 to 2025
+930 +4,635 +6,120 +6,680 +7,075 +7,500

These figures are presented in table 2.1 of the 2020 budget and have been certified by the Office for Budget Responsibility (OBR). More details can be found in the policy costing paper released alongside the 2020 budget.

Economic impact

the OBR have adjusted their economic forecasts to reflect this measure, as reported in the Economic and Fiscal Outlook.

A behavioral adjustment was made to take account of changes in the incentives for multinational companies to shift profits in and out of the UK. An adjustment has also been made to take into account the reduced incentive to incorporate as a result of this measure.

Impact on individuals, households and families

There is no direct impact on individuals as it only concerns businesses.

The measure should not affect the formation, stability or breakdown of the family.

Equalities impacts

This measure is not expected to have an impact on groups sharing protected characteristics.

Impact on businesses, including civil society organizations

This measure should have a negligible impact on the administrative costs of more than 1.5 million companies whose corporation tax will not be reduced thanks to the maintenance of the rate at 19%.

Some businesses subject to the quarterly instalment regime may have made underpayments due to the calculation of their corporation tax charge by reference to the 17% rate. One-time costs will include familiarization with the rate change and could include updating systems to reflect the new rate, as well as interest charges on underpayments.

There should be no ongoing administrative costs.

The customer experience should remain broadly the same, because the change for businesses is a rate change.

However, for companies that have made underpayments due to the calculation of their corporation tax charge by reference to the 17% rate, this could have a negative impact on their customer experience. To support these businesses, we aim to provide advice as soon as possible to let you know the correct rate.

There should be no impact on civil society organizations.

Operational impact (£million) (HMRC)

Implementation is likely to have only a minor operational impact, but will require some changes to HMRC’s IT systems and online filing products.

Additional costs to HMRC of implementing this change are expected to be around £0.5m.

Other impacts

Other impacts were taken into account and none were identified.

Monitoring and evaluation

This measure will be tracked using information collected from corporation tax receipts.

Additional tips

If you have any questions about this change, please contact Eva Upali on telephone 03000 542 465 or email: [email protected]

Luisa D. Fuller