Over the two years the Government are making some changes to corporation tax which include:

• A temporary relaxation in the rules on carry-back trading losses arising in accounting periods ending between 1 April 2020 and 31 March 2022, extending the period for which trading losses can be carried back against previous losses to 3 years with losses being carried back against later years first. 
• A  new 'super deduction' for expenditure on plant and machinery where qualifying expenditure is incurred between 1 April 2021 and 31 March 2023. A deduction of 130% on some expenditure can be claimed rather than the usual capital allowances writing down rates.
• An upcoming increase in the rate of corporation tax to 25% from 1 April 2023.

Businesses may want to evaluate whether pending capital investment decisions and commitments are affected by the super deduction, and whether the increased flexibility on use of losses brings them any benefits.  The increased rate of corporation tax should be taken into account in financial modelling over the medium term (and may also affect the accounting treatment of deferred tax assets).

The Free Zones (Customs, Excise and Value Added Tax) Regulations 2021 establish the Customs duty, excise duty and VAT rules that will apply for VAT free zones. Free zones are located within a Freeport and are secure customs zones where different customs, VAT and excise rules apply but business can be carried out inside the UK’s land border. The regulations will affect the goods being traded, authorisations for those wishing to trade those goods, requirements for certain activities to take place in the free zones and requirements on exit of a free zone.

Businesses trading or moving goods from or to the UK that want to store or process goods in a free zone will be affected and should be aware of the rules and how to comply.

The relevant National Insurance Contribution rates for the 2022-2023 tax year will be temporarily increased by 1.25%.

This temporary increase will be replaced, from 6 April 2023, with a new Health and Social Care Levy on a permanent basis.

Businesses should be aware of these new rates to ensure compliance and should take the additional costs into account in budgeting for employment costs.

The rate of Diverted Profits Tax will be increased from the current rate of 25% to 31% from 1 April 2023. This is to ensure the current differential between the Diverted Profits Tax rate and the Corporation Tax rate is maintained.

Businesses should be aware of this change and prepare for a change in what they may be liable to pay.

The Plastic Packaging Tax will be introduced in 2022 with the aim to incentivise the use of recycled plastic in packaging.

The tax will affect UK manufacturers of plastic packaging, importers of plastic packaging, business customers of manufacturers and importers of plastic packaging, and consumers who buy plastic packaging or goods in plastic packaging in the UK. There is an exemption for producers and importers of plastic packaging with small amounts of plastic (under 30%) to prevent disproportionate administrative burdens for to the tax liability.

Businesses that create or use the relevant products to which this tax will apply to should be aware of the potentially liability they may have. Businesses should also be aware of that the cost of products may rise if more tax is payable which could affect their consumers.

The International Community have agreed proposals to set the minimum global rate for corporation tax to be at least 15%. This is to try and tackle issues relating to the taxation of large multinational businesses (by partially taxing revenue at source, in market jurisdictions). It could lead to the development of a two tier pillar system.

Multinationals in particular will want to stay up to date with the ongoing discussions between governments about reform to tax systems, and may want to review existing or planned investments in light of changes as these are announced.

Since Brexit, the Trade and Cooperation Agreement (TCA) governs the new relationship. There has been limited immediate change but future developments and applications may arise in the future. Some changes include: 

• The UK now has third party status, which means it is defined as a non-EU country for tax treatments. 
• VAT changes to the UK system to ensure it will be equivalent to the EU system.
• The UK has lost the benefits conferred benefits from the EU Parent-Subsidiary Directive and the Interest and Royalties Directive may cause changes to the withholding tax treatment of interest, royalties and dividends paid between the UK and some EU group companies.
• The TCA has a commitment to transparency in relation to good tax governance.

Businesses should monitor any potential developments that arise from Brexit. 

The Government is reforming the penalties payable for late submission and late payment of tax. The new penalties will affect those who fail to meet the requirements to provide returns and other information requested by HMRC on time. Taxpayers will no longer receive an automatic financial penalty if they fail to meet a submission obligation and instead a points based system is being introduced. For VAT the changes are being introduced in 2022 and for Income Tax Self-Assessment (ITSA) customers with business income over £10,000 this will come into force from the tax year beginning April 2024, and for all other ITSA customers, from the tax year beginning April 2025.

Businesses should understand how the new points based system works and ensure they know exactly when their tax obligations fall due.