Capital Gains Tax
Capital Gains Tax rate remains at 10%, to the extent that any income tax basic rate band is available, and 20% thereafter. Higher rates of 18% and 28% apply for certain gains; mainly chargeable gains on residential properties with the exception of any element that qualifies for Private Residence Relief.
There are two specific types of disposal which potentially qualify for a 10% rate up to a lifetime limit for each individual:
- Business Asset Disposal Relief (BADR) (formerly known as Entrepreneurs’ Relief). This is targeted at directors and employees of companies who own at least 5% of the ordinary share capital in the company, provided other minimum criteria are also met, and the owners of unincorporated businesses.
- Investors’ Relief. The main beneficiaries of this relief are external investors in unquoted trading companies who have newly-subscribed shares.
The lifetime limit for BADR was reduced from £10 million to £1 million for BADR qualifying disposals made on or after 11 March 2020. Investors’ Relief continues to have a lifetime limit of £10 million.
The headline-grabbing super-deduction allows companies to deduct 130% of a qualifying asset’s cost from pre-tax profits without limit; a 24.7p reduction in tax liability for each £1 invested.
To qualify for the super-deduction, expenditure must be incurred:
- on or after 1 April 2021 but before 1 April 2023 (contracts entered into on or before 3 March 2021 cannot qualify); and
- on new and unused, not second-hand, plant and machinery.
Specifically excluded from the deduction is expenditure on:
- long-life assets; and
- the provision of plant and machinery for leasing.
The ‘SR allowance’ allows companies to deduct 50% of expenditure on special rate assets from pre-tax profits without limit; a 9.5p reduction in tax liability for each £1 invested.
Similarly to the super-deduction, expenditure must be incurred on or after 1 April 2021 but before 1 April 2023 on new plant and machinery other than cars, long-life assets, and leased plant and machinery.
The rate of Corporation tax will remain at 19% for the next couple of years, but will rise to 25% from 1 April 2023. This rise will only impact companies with profits in excess of £250,000, as companies whose profits remain at or below £50,000 will continue to pay 19%. A sliding scale of rates will apply on profits between £50,000 and £250,000.
Tax reforms on the horizon?
Despite having got off relatively lightly in the Chancellor’s Budget, HM Treasury unveiled a number of documents and consultations on future tax policies on March 23, dubbed ‘tax day’. Most of these consultations hinge on the administration of tax. So, whilst not specifically aimed at the automotive industry, if implemented they will have an impact on all businesses.
These include a consolation on the ‘timely payment of tax’ which is seeking views as to whether a move towards the Government’s avowed aim of bringing the payment of taxation arising out of transactions closer to the date the transaction takes place will be of any benefit to a business.
Another consultation impacting on larger businesses outlines a new policy which will require a business to notify HMRC where they have adopted an uncertain tax treatment.
We will update you as to the outcome of these consultations when the information is available.
Want to know more?
In our 2021 Automotive Outlook, we discuss the super deduction in more detail and consider what effect the temporary enhanced incentives will have on the cost of a new car dealership, along with some illustrative numbers.
The next step
The world of tax can be a challenging and ever-evolving minefield of information. Smart advice on corporate tax planning can help you achieve very substantial benefits. If you would like to speak to one of our tax specialists, please get in touch using the form below.