Business tax and investment incentives
Corporation tax
Corporation tax rates and bands are as follows:
| Financial Year to | 31/03/2012 | 31/03/2013 | 31/03/2014 | 31/03/2015 |
|---|---|---|---|---|
| Taxable profits | ||||
| First £300,000 | 20% | 20% | 20% | 20% |
| Next £1,200,000 | 27.5% | 26.25% | 25% | 23.75% |
| Over £1,500,000 | 26% | 25% | 24% | 23% |
Associated companies
A new measure amends corporation tax small profits rate legislation. It will ensure that companies are not held to be associated through an attribution of rights (solely by virtue of relationships between individuals), but only where the level of commercial interdependence between the companies themselves makes it appropriate to do so.
The tax effect on companies which are held to be associated is to lower the profit threshold at which they fall within the main rate of corporation tax, in proportion to the number of associated companies.
Patents
A reduced 10% rate of corporation tax for profits arising from patents will come into effect from 1 April 2013.
Capital allowances
The current and proposed annual writing down allowances are as set out below:
Corporation tax (CT)
| Allowance | Years ending 31 March 2011 & 2012 | Year ending 31 March 2013 - Proposed change |
|---|---|---|
| Plant & Machinery | 20% | 18% |
| Long life assets etc | 10% | 8% |
| Annual Investment Allowance* | £100,000 | £25,000 |
Income tax (IT)
| Allowance | 2010/11 & 2011/12 | 2012/13 - Proposed change |
|---|---|---|
| Plant & Machinery | 20% | 18% |
| Long life assets etc | 10% | 8% |
| Annual Investment Allowance* | £100,000 | £25,000 |
For chargeable periods that span 1 April 2012 (CT) or 6 April 2012 (IT) a hybrid rate will have effect for unrelieved expenditure in the plant & machinery or long life asset pools. The hybrid rate will be arrived at by calculating the proportion of days in a period falling before the change date and the corresponding period after that date.
Oil & gas ring fence activities (UK and UK continental shelf situs oil & gas) will retain their existing capital allowance treatment.
*The annual investment allowance (AIA) applies to give businesses 100% relief on qualifying capital expenditure of up to the annual allowance in each financial year. Rules are in place to ensure that connected businesses share the allowance each year, in a way they determine for themselves. The AIA cannot be claimed against expenditure on cars.
Enhanced capital allowances
The list of capital assets that qualify for enhanced capital allowances (100% first year allowance) will be revised in the Summer 2011 to include certain energy efficient hand dryers.
The Government will consider introducing enhanced capital allowances to support enterprise zones in assisted areas, where there is a strong focus on high value manufacturing.
Short life assets
Businesses will be able to make a short life asset election on qualifying plant and machinery from 1 April (CT) or 6 April 2011 (IT) if they expect to sell or scrap it within an eight year cut off period. Previously, the cut off period was four years. The extension may benefit those businesses that incur expenditure on qualifying plant and machinery in excess of the annual investment allowance, as a short life pool election allows businesses to recognise a balancing allowance where assets are sold at a loss.
Research and development (R&D)
From 1 April 2011 the current 75% uplift for qualifying R&D expenditure incurred by small and medium enterprises (SMEs) will be increased to 100%. This increase in the relief is subject to state aid approval from the EU. Assuming approval is forthcoming, R&D expenditure incurred from that date will attract a total deduction against profits of 200%.
Subject to state aid approval, Finance Bill 2012 will increase this deduction by a further 25% giving a total deduction of 225% from 1 April 2012.
To ensure the UK remains within state aid rules, the enhanced deduction available under the vaccine research relief will be reduced to 20% on qualifying expenditure from 1 April 2011.
Further changes to R&D relief will be introduced in Finance Act 2012, primarily to simplify the position for SMEs as follows:
- changes which will allow SMEs to claim the 125% R&D relief on vaccine research, rather than vaccine research relief;
- the current rule limiting the availability of R&D tax credits (where losses created by qualifying R&D expenditure are surrendered for a repayable tax credit) to the total PAYE and National Insurance paid in the period will be abolished;
- the £10,000 minimum expenditure condition will be abolished for all companies; and
- changes will also be made to the rules governing the provision for relief for work done by subcontractors under the large company scheme.
Controlled foreign companies (CFCs)
The proposed reforms to the UK Controlled Foreign Company provisions to be introduced on an interim basis are as follows:
- exemption for commercially justified activities that both business and HMRC agree do not erode the UK tax base; and
- the introduction of other measures that will help UK businesses wishing to undertake overseas acquisitions and reorganisations and non-UK businesses that want to invest or locate in the UK.
These reforms are a first step to a full reform of the UK CFC rules in 2012.
The Finance Bill 2011 interim provisions will:
- introduce an exemption for certain intra-group trading transactions where there is little connection with the UK and therefore little likelihood that UK profits have been artificially diverted;
- introduce an exemption for CFCs with a main business of intellectual property (IP) exploitation where the IP and the CFC have minimal connection with the UK;
- introduce a statutory exemption which runs for three years for foreign subsidiaries that, as a consequence of a reorganisation or change to UK ownership, come within the scope of the UK CFC regime. These provisions extend to previously UK headed groups if they return to the UK;
- introduce an alternative to the current de minimis exemption which will increase the limit to £200,000 profits per annum and replace the need to calculate chargeable tax profits with an accounts based measure; and
- extend the transitional rules for superior and non-local holding companies until July 2012.
Foreign branches
Legislation will be introduced to allow a UK resident company to make an irrevocable election for all of its foreign branches, located anywhere in the world, to be exempt from UK corporation tax on their profits. If an election is made, no relief will be available for foreign branch losses. This will have effect for accounting periods commencing on or after Royal Assent.
Corporation tax – capital gains simplification
There were several pre-announced changes to the corporate capital gains rules that will be legislated in Finance Act 2011:
- changes to the rules regarding the utilisation of capital losses following the introduction of a company with capital losses to a new group. The aim of the new rules is to make it easier to integrate the new company without losing relief for losses previously incurred;
- revised value-shifting rules, which restrict the scope of the rules to affect only those companies which have entered into tax motivated arrangements which aim to secure a reduction in the corporation tax charge; and
- amended degrouping charge rules, which will prevent degrouping charges from applying where assets leave a group in circumstances where the substantial shareholdings exemption applies, or would have applied if a trading company were disposed of.
Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCTs)
The enterprise investment scheme provides tax incentives to investors in small companies. Qualifying investors obtain income tax relief on amounts subscribed for newly issued shares, and a general capital gains tax exemption on disposal of those shares, if certain conditions are met.
From 6 April 2011, the level of income tax relief that can be obtained by investors increases from 20% to 30%, subject to a maximum of the income tax paid by the investor in the year.
The Government plans to increase the scope of the EIS scheme, and proposes an increase in the size of companies that can qualify for EIS investment. Similar changes will apply to venture capital trust limits. The changes are:
- the size of companies that will qualify for investment will increase from April 2012 to companies with gross assets lower than £15m, and employee numbers under 250;
- companies will be able to raise up to £10m through EIS or VCT, compared to £2m currently; and
- the limit on the level of qualifying investment for an individual into EIS companies in a tax year will increase from £500,000 to £1m.
These proposed 2012 changes are subject to receiving EU state aid approval.
Companies whose trade consists wholly or substantially in the receipt of Feed-In Tariffs (FITs) or similar subsidies will only be eligible for the two schemes where commercial electricity generation commences before 6 April 2012. Shares issued before 23 March 2011 will not be affected.
Lloyd's and other insurance taxation
The Government is continuing consultation with a view to introducing legislation in the 2012 Finance Act in respect of two matters:
- The review of the basis of taxation for life insurance companies following the introduction of Solvency II, to give a stable basis of taxation that falls more into line with other companies.
- The status of claims equalisation reserves (CER) for both general insurance companies and Lloyd's corporate members following the introduction of Solvency II, and Phase II of IFRS 4. The consultation will consider whether there is a case for retaining the CER and, if this is not proven, to establish transitional measures for withdrawing the relief.
Finally, the Government will consult with the Lloyd's market regarding proposals to amend the timing of tax deductions for member level stop-loss premiums.
Business rates
The Government will offer up to a 100% business rate discount for five years to businesses located in any of the 21 new Enterprise Zones.
The small business rate relief ‘holiday' will be extended by one year from 1 October 2011.
Oil & Gas taxation proposals
Supplementary charge
From 24 March 2011 the supplementary charge on profits subject to UK Corporation Tax activities within the UK and UK continental shelf (UKCS) will be increased from 20% currently to 32%.
As part of the fair fuel stabiliser, if in future years the oil price falls below a set trigger price, the supplementary charge will be reduced back towards 20%. The trigger suggested is US$75 per barrel. This figure is subject to consultation with relevant parties.
The rate at which relief for decommissioning expenses is given will be changed by Finance Bill 2012 to deny relief against the increase in the supplementary charge.
Intangible fixed assets (IFA)
For oil and gas companies operating in the UK or UKCS the IFA rules will apply so that from 23 March 2011 the IFA rules will not apply to goodwill and any intangible asset which relates to or derives from or is connected with an oil licence or an interest in an oil licence.
