Last year, Chancellor Rishi Sunak proposed an increase in corporation tax rates, meaning that companies with annual profits of over £250,000 would pay tax at 25%. Companies with yearly profits lower than £50,000 would continue paying a 19% tax rate, but a marginal tax rate of 26.5% would apply to profits between £50,000 and £250,000.
However, the new Chancellor, Kwasi Kwarteng, has reversed this decision and instead set a 19% corporation tax rate for all profit levels. This will not only help to simplify calculations but will also benefit companies with higher profits.
Currently, companies can claim a super deduction of 130% of the total cost of new equipment, providing it is purchased before April 2023. As this deduction was introduced to encourage companies to invest before the tax rate increased to 25%, it will likely be modified or scrapped.
As an alternative, companies will be encouraged to claim under the annual investment allowance (AIA). This gives 100% relief for the cost of any qualifying equipment, regardless of whether it was purchased new or second-hand. It covers purchases up to £1m annually and will be kept at this level indefinitely.