The Chancellor has today confirmed the widely predicted cancellation of the increase in the main rate of Corporation Tax that was due to take effect from 1 April 2023.

A previous Chancellor had announced that the rate was to be increased from 19% to 25%, a change which was included in the Finance Act 2021.

The increased rate would have meant the return of two rates of Corporation Tax, as the 19% rate would have been retained for small profits, and the associated return of marginal relief calculations for profits between the small profits limit and the upper profits limit at which the main rate applies.

Aside from simplifying future Corporation Tax calculations the reversal will also have a significant impact on financial statements as deferred tax provisions have had to be included at 25% since the Finance Act 2021 was enacted.

In conjunction with the proposed increase in the main rate of Corporation Tax the then Chancellor also introduced enhanced capital allowances at a rate of 130% for the two years to 31 March 2023. This effectively gave tax relief at 25% for capital investment in those two years in advance of the increase.

The enhanced capital allowances are still expected to cease on 31 March 2023, but the Chancellor has also announced that the Annual Investment Allowance, which gives 100% relief for capital expenditure within the allowance, will remain at £1m permanently.