On 11 July 2023, the United Kingdom (UK) Finance (No.2) Act 2023 was enacted, that incorporates provisions to adopt the Organization for Economic Co-operation and Development (OECD) Base Erosion and Profit Shifting (BEPS) Pillar Two income inclusion rule (IIR) within the UK. This legislation includes two components: the multinational top-up tax (MTUT) and the domestic top-up tax (DTT). Both components will apply to large multinational enterprises (MNEs) for accounting periods beginning on or after 31 December 2023. Some of the key tax measures are summarized below:

Corporation Tax Rates

The Finance Act 2023 sets the main corporate tax rate at 25% and the small profits tax rate at 19% for the financial year beginning 1 April 2024. However, these rates were already scheduled to apply from 1 April 2023 as outlined in the Finance Act 2021.

Multinational top-up tax (OECD Pillar 2)

The government introduced the Multinational Top-up Tax and Domestic Top-up Tax in Finance (No.2) Act 2023. These taxes are the UK’s adoption of the income inclusion rule and domestic minimum top-up tax rule as referenced in the Pillar 2 Global Anti-Base Erosion rules (Globe rules).

The undertaxed profits rule ensures that any top-up taxes that are not paid under another jurisdiction’s Pillar 2 rules are brought into charge in the UK.

The other amendments ensure that UK legislation remains consistent with the agreed model rules, commentary and administrative guidance that have been agreed by the G20 — OECD inclusive framework. These measures apply to large multinational enterprises (MNEs) with over EUR 750 million in global revenues and will take effect in relation to accounting periods beginning on or after 31 December 2023.

Full Expensing (FE)

• This lets taxpayers deduct 100% of the cost of certain plant and machinery from their profits before tax. It is effective from 1 April 2023 to 31 March 2026.
• It applies to spending on main rate equipment, which includes but is not limited to, warehousing equipment such as forklift trucks, tools such as ladders and drills, construction equipment such as bulldozers and excavators, machines such as computers and printers, vehicles such as tractors, lorries and vans, office equipment such as chairs and desks, and some fixtures such as kitchen and bathroom fittings and fire alarm systems.
• FE means that companies can deduct 100% of the cost from their profits straight away – rather than more slowly over the life of the asset.
• Similar to the super-deduction, FE also results in a 25p tax saving for every £1 invested (19% x 130% super-deduction rate = 25%).
• Before the super-deduction and with the 19% Corporation Tax rate, companies investing £10 million in main rate assets received a £342,000 tax saving in year 1. Under full expensing, on a £10 million investment, a company will receive a £2.5 million tax saving in year 1.
• As part of his commitment to maintain a stable economy, the Chancellor’s long-term ambition is to make full expensing permanent.

The 50% first-year allowance (FYA)

• This lets taxpayers deduct 50% of the cost of other plant and machinery, known as special rate assets, from their profits during the year of purchase. This includes long life assets such as solar panels and thermal insulation on buildings.
• The 50% FYA was introduced alongside the super-deduction and was due to end on 31 March 2023. We are extending it by three years to 31 March 2026. For each year following the first year, 6% of the remaining cost will be written off via Writing Down Allowances (WDAs).
• 50% FYA allows for faster relief than under the default WDAs-only regime, which is worth 6% each year, including year one.
• As part of his commitment to maintain a stable economy, the Chancellor’s long-term ambition is to make 50% FYA permanent.