Who is likely to be affected?
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.
This measure supports the government’s objective of a more competitive corporate tax system to provide the right conditions for business investment and growth.
Background to the measure
At Summer Budget 2015, the government announced a reduction in the CT rate from 20% to 19% for the Financial Years beginning 1 April 2017, 1 April 2018 and 1 April 2019, with a further reduction from 19% to 18% for the Financial Year beginning 1 April 2020.
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.
This measure will benefit over a million companies, large and small. It will ensure the UK has the lowest tax rate in the G20. Updated CGE government analysis shows that the cuts announced since 2010 could increase GDP by between 0.6% and 1.1% in the long run. The costing includes a behavioural response to account for changes in the incentives for multinational companies to invest and to shift profits in and out of the UK. An adjustment has also been made to account for the increased incentive to incorporate as a result of this measure.
Source: Government of UK