United Kingdom

Key Measure: Corporate Tax: Further reduction in main rate of corporation tax 

KPMG Budget 2013


Description of Measure


It has been announced that the main rate of corporation tax will now fall by a further 1% on 1 April 2015, to 20%. The Finance Act 2012 includes a provision for a 1% reduction to 23% on 1 April 2013. A further 2% reduction to 21% at 1 April 2014 will be legislated in Finance Bill 2013. The additional reduction to 20% on 1 April 2015 will also be included in Finance Bill 2013.

The small profits rate of tax will remain at 20% for the financial year commencing 1 April 2013 and onwards. This will mean that the small profits and main rate will be unified in April 2015, thereby abolishing the need for marginal relief on profits between £300,000 and £1,500,000, which fell between the small and main profit limits previously. Legislation to unify the main and small profits rates will be in Finance Bill 2014.

The main and small profits corporation tax rates for ring fence profits (those arising from oil extraction and oil rights in the UK and the UK continental shelf) will remain at 30% and 19% respectively.

The unification of the main and small profits rate will simplify the system by which taxes on company profits are calculated and the UK will also have the joint lowest rate of corporation tax in the G20. The reduction will be welcomed by companies with larger profits, although it will have no impact on smaller businesses with profits below £300,000.

Companies will need to consider the tax accounting implications of the rate changes: 


  • The proposed rate reduction from 23% to 21% to apply from 1 April 2014 will NOT be substantively enacted for IFRS and UK GAAP purposes until Finance Act 2013 passes through the House of Commons. The further proposed reduction to 20% from 1 April 2015 will also NOT be substantively enacted until Finance Act 2013 passes through the House of Commons.
  • For US GAAP purposes these incremental rate reductions will NOT be enacted until the 2013 Finance Act receives Royal Assent.


The Chancellor has also announced changes to the rate of the bank levy which is charged on a bank’s chargeable equity and liabilities. The rate applied to short term liabilities will be increased from 0.105% to 0.130% from 1 January 2013, whilst the reduced rate for chargeable equity and long term liabilities will increase from 0.0525% to 0.065%. From 1 January 2014 these rates will increase again to 0.142% and 0.071% respectively. It is stated that the rate changes are aimed to ensure that banks do not benefit from the additional reduction in corporate tax rates. The Government has also stated that the increase is intended to ensure that the expected total revenues generated by the Bank Levy remain at £2.5bn per annum. However, as OBR forecasts suggest the bank levy will raise £2.9bn from 2014 the latest increase appears to be targeted at increasing bank levy receipts rather than replacing a shortfall in projected revenues. These further successive increases in the rate of the bank levy will be a concern for banks operating in the UK.

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Corporation tax rate:

Stephen Hemmings

020 7311 4071



Tax Accounting Implications:

Mark Couch

0121 232 3640



Bank levy:

Andrew Seagren

020 7311 6184