Corporation tax changes and employer’s pension auto-enrolment

If you were a multimillion pound international organisation planning to transfer your HQ to Switzerland or Ireland then you will be happy with the reduction in corporation tax rates. However, if you are a medium size company or group then these are uncertain times and you had better get your skates on and accelerate any capital spending.

This article highlights reducing corporate tax rates and explains that this may be to alleviate the cost of new pension rules forcing more employers to divert money into pension savings for employees from 1 October 2012.

Corporation tax rates

The hope must be that the small company rate should come down from April 2012 as the Government starts to force employers to contribute to their employee’s pension savings (see Auto-Enrolment below)

  From Apr 2010 From April 2011 From April 2012 From April 2013 From April 2014
Main rate 28% 27% 26% 25% 24%
Small company 21% 20% ? ? ?

Annual investment limits

  From Apr 2010 From April 2011 From April 2012
Annual allowance £100,000 £100,000 £25,000

Capital allowances rates

  From Apr 2010 From April 2011 From April 2012
Pool rate 20% 20% 18%
Fixtures rate 10% 10% 8%

The reductions in capital allowances from April 2012 will hit the medium sized company and the real loser is any company or group spending at least £25,000 per annum on equipment and fixtures and with profits charged at the small company rate.

Not only will these changes impact upon your cash flow but your staff costs increase from April 2011 because of the increase in employer and employee national insurance rates by 1%.


Put simply the government wants individuals and employees to make greater contributions towards retirement and therefore from 1 October 2012 all employers will have to auto-enrol most employees into a pension scheme across a phased introduction period if the employer does not already make the minimum level of employee pension contribution. An employer will not have to auto-enrol a person if they are under 22 years old, older than the state retirement age or work abroad or earn beneath the lowest NIC threshold.

Upon completion of the phased introduction there will be a minimum contribution of 8% of qualifying earnings, of which the employer must pay a minimum of 3%. If the employer chooses to pay the minimum 3%, the worker will pay 4%, with a further 1% paid as tax relief by the government.

These minimum contribution levels will be phased in between October 2012 and October 2017.

  • October 2012 to September 2016 – total minimum of 2% of qualifying earnings with at least 1% from the employer
  • October 2016 to September 2017 – total minimum of 5% of qualifying earnings, with at least 2% from the employer
  • From October 2017, total minimum of 8% of qualifying earnings, with at least 3% from the employer

I am not aware of any similar plans for the self employed.

Life expectancy

According to the Office of National Statistics life expectancy at birth in the UK has reached its highest level on record for both males and females. If mortality rates remain the same as they were in 2006–08 a newborn baby boy could expect to live 77.4 years and a newborn baby girl 81.6 years. Based upon these mortality rates a man and a woman aged 65 in 2006-08 could expect to live until 82.4 and 85.0 years of age.

Taking into account the continued improvements in mortality assumed in the 2006-08 population projections, life expectancy for those born in 2008 is projected to be 88.6 years for males and 92.2 years for females. Similarly, life expectancy for those aged 65 in 2008 is projected to be 86.0 years for males and 88.6 years for females.

Putting this into context you can see why the Government has pushed up the retirement ages for men and woman from 60 and 65 years. One can also see why compulsory pension saving is being rolled out and corporation tax rates have started to come down.

copyright ©2010

This article is for discussion purposes only and does not represent advice on which you should act without consulting a professional as tax legislation is complex and changes frequently.

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