Fiscal Event: An update on what has changed
Both the corporate tax rate freeze and abolition of the additional rate of income tax announced in the ‘Growth Plan’ will now be reversed.
Both the corporate tax rate freeze and abolition of the additional rate of income tax...
The ‘Growth Plan’, set out by the then Chancellor, Kwasi Kwarteng, on 23 September 2022, included a number of substantial tax announcements but two of these have now been reversed. On 14 October the Prime Minister announced a return to the previously planned increase in the corporation tax rate to 25 percent from April 2023. This followed an earlier announcement of the reversal of the planned abolition of the 45 percent top rate of income tax from 6 April 2023. Jeremy Hunt has also been appointed as the new Chancellor and it has just been announced that he “will make a statement later today, bringing forward measures from the Medium-Term Fiscal Plan that will support fiscal sustainability”.
Additional rate of income tax
The first change was announced on 3 October 2022 when it was confirmed that the Government would not be proceeding with the abolition of the 45p income tax rate. Further details on this, including a summary of what will now change and what will not, can be found in a recent KPMG Global Mobility Services Flash Alert written at the time of the announcement.
Corporation tax rate
The Government has also announced that it will no longer proceed with the planned cancellation of the corporation tax rate increase. Instead, the previously planned increase of the rate to 25 percent will go ahead on 1 April 2023. The 19 percent rate will continue to apply to companies with profits of not more than £50,000, with marginal relief for profits of up to £250,000 as originally planned.
At the time the Government announced the freeze in the corporation tax rate at 19 percent they also announced that the planned cut in the banking surcharge from 8 to 3 percent would not go ahead as from a policy perspective the two changes were broadly intended to be offsetting. Although it would seem likely that the surcharge reduction will go ahead as originally planned under former Chancellor, Rishi Sunak, Friday’s announcement simply said that the “Chancellor will confirm the position on the Bank Surcharge in the Medium-Term Fiscal Plan”.
As the original ‘Growth Plan’ proposals to keep the corporation tax rate at 19 percent and cancel the surcharge reduction were never ‘substantively enacted’ (for IFRS and UK GAAP) or ‘enacted’ (for US GAAP), companies can continue with their original approach in dealing with the increase in rate to 25 percent for deferred tax accounting purposes.
What happens now?
At the time of writing no other changes to the tax announcements made during the Fiscal Event on 23 September were set out, but with the appointment of a new Chancellor it is possible further tax changes will be forthcoming. The Prime Minister did, however, confirm that a ‘Medium-Term Fiscal Plan’ and the publication of an Office for Budget Responsibility (OBR) forecast will be going ahead at the end of October as previously planned.