NEWS 04 July 2016

Planned Corporation Tax reduction for UK businesses

A plan to reduce UK Corporation Tax to 15% has been announced, but what is the impact on R&D tax benefits?

On Sunday 3rd July the Chancellor, George Osborne, announced his plans to reduce the Corporation Tax rate to 15% in response to the UK's vote to leave the EU.  This is an action designed to encourage businesses to remain within the UK as part of his five point plan.

In his last two budgets the Chancellor had taken steps to show that Britain was "open for business" by pledging to reduce the Corporation Tax rate to 19% in April 2017 and then again to 17% in April 2020. It is currently unclear when the new proposed 15% Corporation Tax rate will take effect from but we would expect this rate drop to take place sooner rather than later in order to discourage businesses from reconsidering their UK operations in the wake of the Brexit vote.

Whilst positive news for businesses generally, this Corporation Tax rate drop will have a direct impact on the net benefit for companies claiming R&D tax relief.  Based upon current rates, this would mean that the net benefit for a profit making SME would decrease from 26% to 19.5% and the RDEC rate for large companies would increase slightly to 9.35% from 8.8%.  The net benefit for loss-making SMEs  would remain the same at 33.35%.

It's currently unclear when this change will take effect. However, with the Chancellor stating he had no plans to hold an emergency budget, we may not hear an official announcement until the Autumn Statement at the end of the year.