Corporation tax was maintained at 19 per cent in today's budget, however, the chancellor announced chances to the way companies' chargeable gains are calculated.
The corporate indexation allowance allows for the effects of inflation when calculating the chargeable gains of companies or organisations. Philip Hammond announced today that the indexation allowance will be frozen from 1 January 2018 in order to "bring the UK in line with other major economies and broaden the tax base through removing relief for inflation that is not available elsewhere in the tax system".
The abolition of the allowance means, despite falling tax rates, companies will be taxed on higher profits which is expected to raise more than £525m by 2023.
Hammond said: "Our long-term phased reduction of corporation tax has generated investment and jobs, and raised £20bn extra for our public services. We are committed to maintaining Britain’s competitive corporation tax rates.
"But there is a case now for removing the anomaly of the indexation allowance for capital gains – bringing the corporate system into line with personal capital gains tax. I will therefore freeze this allowance so that companies receive relief for inflation up to January 2018, but not thereafter."
Stella Amiss, head of tax policy at PwC, said: “The changes to the indexation allowance for business was a restriction waiting to happen, it provides a significant boost to the Treasury’s coffers, with £1.8bn earmarked against this change and little business can do to manage that cost."
Amiss added that the chancellor had sent a "strong signal" to business and investors by "holding his nerve and sticking to the commitment the government made last year to reduce the corporation tax rate to 17 per cent in 2020".
"He is right to resist the pressure and has sent out a much needed signal of consistency for investment and business in the UK, backing up his focus of making 'Britain fit for the future'," she said.