Legislation will be introduced in Finance Bill 2020 to repeal the previously enacted reduction to the main rate of corporation tax to 17%, thereby maintaining the current main rate of corporation tax at 19%. The reduction to 17% was previously introduced in Finance Act 2016.
Any company subject to the UK corporation tax regime, and businesses preparing financial statements which include these companies.
The government will utilise the Provisional Collection of Taxes Act 1968 to maintain the main corporation tax rate at 19%. Substantive enactment of the 19% rate for UK GAAP and IFRS purposes will occur when the resolution has been passed (which is expected to be in the week commencing 16 March).
For companies reporting under either UK GAAP or IFRS, the 19% tax rate should be used in measuring current and deferred tax calculations for any interim and full year reporting dates ending on or after the date of substantive enactment of the change. The currently enacted 17% rate should continue to be used until that point.
For entities reporting under US GAAP, the changes will apply to the current and deferred tax calculations for reporting dates (full year or interim) ending on or after the date of full enactment of Finance Bill 2020. The 17% enacted rate should therefore continue to be used until Finance Bill 2020 receives Royal Assent, which is expected to be in summer 2020.
The 19% rate will continue to be effective for periods from 1 April 2020.
Despite the reduction in the corporation tax rate for 2020 and beyond being repealed, we welcome the fact that the UK’s corporation tax rate remains the lowest in the G7 and G20.
Companies will need to consider the applicable rate to use for both interim and annual financial reporting purposes under the relevant financial reporting standard. Companies will also need to consider this measure when calculating their estimated corporation tax liability for the purpose of making instalment payments.