UK corporation tax changes
The Budget on 23 March 2011 announced new phased reductions in the main UK corporation tax rate. The rate is now proposed to be 23% (was to be 24%) by 1 April 2014. The first reduction to 26% (was to be 27%) takes effect from 1 April 2011.
Tax rate changes (under both UK GAAP and IFRS) are taken into account if they are substantively enacted at the balance sheet date. In the UK this means inclusion in a Bill passed by the House of Commons awaiting only passage through the House of Lords and Royal Assent or in a resolution passed under the Provisional Collection of Taxes Act (PCTA) 1968.
The first reduction to 27% was enacted in June 2010 within the 2010 Finance Act. The additional reduction to 26% was included in a resolution passed under the PCTA 1968 on 29 March 2011.
For accounting periods ending after 29 March 2011, deferred tax will be measured based on the new 26% rate. For periods ending before this date, deferred tax continues to be measured based on 27%.
The reduction to 25%, effective from 1 April 2012, will be included in the 2011 Finance Bill. This is expected to be substantively enacted in June or July 2011.
As the 25% rate is not yet substantively enacted it is not taken into account when calculating deferred tax balances. The remaining reductions to 23% are expected in future Finance Bills.
Disclosure should nevertheless be made of the expected effect, if material, of the future reductions to 23%.
If you have any queries, please speak to your KPMG tax contact.