What’s happening with corporation tax in 2020?Published on 3rd December 2019 2019-12-03T10:42:14+00:00 - Last update on 13th January 2020 2020-01-13T13:08:01+00:00
Thanks to the upheavals of Brexit, 2019 has been a year without a budget – but with a December general election and a possible change of government as well as, almost certainly, a Brexit in some shape or form, there should be changes aplenty during the course of 2020.
How these will affect your clients remains anyone’s guess, but there are some suggestions that Corporation Tax may be due for some significant changes.
A rate cut cancellation – or increase?
Corporation Tax rates have fallen on a regular basis. 1970s when they reached 52% they have steadily fallen to the current low of 19%, and were scheduled to drop again to just 17% from April 2020.
Sadly for clients (and for your own business) this is no longer on the cards. Perhaps to maintain some room for financial maneuverer in what could be a challenging time, the Conservative party manifesto now states that the rate will stay at 19%.
Labour would go further and reverse recent cuts in CT rates, aiming to take the rate back to 26% - its 2011 level - although this would at least be phased in over the next three tax years. To make this a little more palatable for small and medium-sized businesses - your SME clients - they would reintroduce a small companies rate, aiming at 21% in April 2022. Labour’s manifesto also speaks of a review of corporate tax reliefs with a clear target of reducing them by £4.3bn.
The R&D cap is coming back
April 2020 is scheduled to see the return of the cap - abolished in 2012 - on the repayable credit available under the Research and Development Expenditure Credit (RDEC). This is a reaction to HMRC's discovery of fraudulent attempts to claim payable tax credits by using companies or structures with little employment or R&D activity in the UK.
The aim is to plug a £300 million drain on the treasury and means that the amount of payable tax credit that a loss-making company can receive in any year through the scheme will be capped at three times the company’s total PAYE and NICs liability. Some measures have been suggested to limit the adverse impact of this change on legitimate businesses, including a minimum threshold. £10,000 is the figure being used as an example in the most recent consultation document.
This may be particularly important if you have clients such as start-ups or owner-managed companies using dividends who claim under the SME scheme and have low PAYE and NICs bills.
Large company R&D relief may also be changing. The Conservatives have stated that they would raise the relief available under the scheme from 12% to 13% and look into widening its scope, while the Labour manifesto speaks of phasing out both RDEC and the patent box entirely.
Overseas corporate landlords
From 6 April 2020, non-UK resident companies will be chargeable to Corporation Tax rather than to income tax on their UK property income. This could mean some headaches for you if your clients are among those affected. They will not only be faced with some very different tax obligations and costs, they will also come into the remit of some complex rules such as those restricting interest deductions and the use of carried forward losses. The requirement to file CT returns and use iXBRL (Inline eXtensible Business Reporting Language) format tagging is likely to add to your workload. Many customers will not need any knowledge of XBRL, or what needs to be tagged, which could mean some extra complications when these clients come to have Company Tax returns filed online. Although if you use commercial software most of the XBRL tags will be inserted behind the scenes.
Getting help with the costs
The changes to corporation tax will mean increased costs for your clients, and possibly some increased coss for you and your practice as you update and automate to make the most of the opportunities – and deal with the extra challenges of MTD.
At Rangewell, we can provide solutions both for your clients and for yourself.
For accountancy practices, we can offer a range of finance solutions which will let you re-equip and update your practice. Asset Finance and other loans can provide the funds you need to move your business forward and to grow, with new equipment and a larger team, or to market your services to a wider audience.
For your clients, if a large corporation tax bill comes as an unpleasant surprise, we can find ways to help your clients spread the cost over the entire accounting period and, if necessary, arrange for funds to be paid directly to HMRC. The cost of this type of loan can be surprisingly reasonable with the right choice of lender and, at Rangewell, we are able to search the entire market to find the most competitive rates.
We also work closely with accountants up and down the country to help them find all the financial solutions their clients need. We have a team that can talk your language and provide expert knowledge on all types of lending.
Not only can we work with you to identify all the different types of business funding that may be suitable, we know the lenders who can offer the most competitive rates, and those who may be the most appropriate for specialist funding.
What's more, our services are free for you to call on as an accountant partner, plus we make no charge to your clients - and we may be able to pass commission from lenders onto your practice.
It means that you have another valuable service that you can provide for your clients - one which could help you make your practice even more successful simply by doing more for your clients.
To find out more about working in partnership with Rangewell to find better answers to your clients' corporation tax and other funding needs, contact us today. Our service is free.
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