Business tax and investment incentives
Corporation tax
Corporation tax rates and bands are as follows:
| Financial Year to | 31 March 2012 | 31 March 2011 |
|---|---|---|
| Taxable profits | ||
| First £300,000 | 20% | 21% |
| Next £1,200,000 | 28.75% | 29.75% |
| Over £1,500,000 | 27% | 28% |
The main rate of corporation tax will be reduced to 27% for the financial year commencing 1 April 2011 (FY 2011). There will be further reductions (by 1% per annum) to take the rate down to 24% by 1 April 2014. The small profits rate will be reduced to 20% for FY 2011.
Capital allowances
The current and proposed annual writing down allowances are as set out below:
Corporation tax (CT)
| Allowance | Year ended 31 March 2010 | Years ending 31 March 2011 & 2012 | Year ending 31 March 2013- Proposed change |
|---|---|---|---|
| Plant & Machinery | 20% | 20% | 18% |
| Long life assets etc | 10% | 10% | 8% |
| Annual Investment Allowance* | £50,000 | £100,000 | £25,000 |
Income tax (IT)
| Allowance | 2009/10 | 2010/11 & 2011/12 | 2012/13 – Proposed change |
|---|---|---|---|
| Plant & Machinery | 20% | 20% | 18% |
| Long life assets etc | 10% | 10% | 8% |
| Annual Investment Allowance* | £50,000 | £100,000 | £25,000 |
For chargeable periods that span 1 April (CT) or 6 April (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.
Corporation tax reform
The following announcements for future changes have been made, either in the Emergency Budget or in the course of ongoing consultations carried over from the previous Government, with potential changes to legislation arising in future Finance Acts after the consultation has concluded:
- Changes to the UK controlled foreign company (CFC) regime, which aim to better target artificial diversions of UK profit to offshore jurisdictions. This review will provide interim reform in the 2011 Finance Act. In addition, the review will consider the taxation of overseas branches. More detail should be released over the summer.
- Changes to the capital gains rules for companies, to simplify legislation relating to capital losses; value shifting and depreciatory transactions; and degrouping charges on intra-group transfers of assets. It is proposed that reform will be introduced in the 2011 Finance Act.
- Simplification of the associated company rules for the purposes of the small companies' rate of corporation tax. The Government believes that strict interpretation of the legislation can bring companies into association (potentially increasing the effective tax rate) due to the attribution of rights in determining who controls a company. The proposal is to reduce the impact of this by linking companies only where it is appropriate to do so. The initial consultation period is now closed, and the Government plans to introduce any changes from 1 April 2011.
- A consultation on the introduction of a ‘Patent box' which will apply a 10% corporation tax rate on income arising from patents granted after 2013.
In addition, a more general review of the corporation tax system, with the aim of widespread reform, will commence in the Autumn.
As any consultations and future legislative changes that may be suggested are by their very nature uncertain, great care should accordingly be taken in considering the impact that any possible changes could have on your business.
Small businesses
The Government also proposes a review of IR35 and small business tax. Further details will be released after the Budget.
Business finance
A new Enterprise Capital Fund of £37.5 million will be introduced to provide additional equity finance for small businesses.
The Enterprise Finance Guarantee will be increased to provide £200 million in additional lending for small businesses until 31 March 2011.
Anti-avoidance
Two specific provisions are proposed to prevent corporation tax avoidance. Both measures will take effect from 22 June 2010
- Measures to ensure that Corporate Investors in Authorised Investment Funds cannot artificially create, inflate, or obtain a repayment of deemed tax credits associated with distributions from the fund.
- Measures to prevent tax avoidance schemes which seek to prevent profits arising on financial assets, due to them being derecognised for accounts purposes.
Zero Carbon Goods vehicles
As originally announced in the March 2010 Budget, a 100% first year allowance will be introduced for business expenditure on new and unused (not second hand) zero-emission vehicles. The vehicles will need to be of a design primarily suited to the conveyance of goods or burden. For corporation tax the expenditure must be incurred on or after 1 April 2010 and before 1 April 2015, and for income tax it must be incurred on or after 6 April 2010 and before 6 April 2015.
To comply with EC state aid rules, there are some restrictions which prevent businesses operating in certain sectors from benefiting from the relief, and also to cap the amount of relief at €85m per business.
Capital distributions to companies
Finance Act 2009 introduced a measure (generally referred to as the Foreign Income Exemption) which in most cases, exempted distributions received by UK companies, paid by companies located either in the UK or overseas, from the charge to corporation tax. The legislation as originally passed prevented distributions of a capital nature from qualifying for the exemption.
The Chancellor confirmed that changes originally proposed in the March 2010 Budget will be enacted in the Autumn Finance Bill, which will make it clear that only certain specified distributions of a capital nature will be treated as capital, and hence other distributions will fall within the exemption. The legislation will have retrospective effect, to 1 July 2009, although companies can elect for the change not to apply retrospectively.
Share schemes
As originally proposed earlier in the year, a measure will be included, effective from the date of Royal Assent, relaxing the trading requirements for companies offering Enterprise Management Incentive (EMI) options to employees. Whereas current legislation requires a single company granting options to carry on a ‘qualifying trade' wholly or mainly in the UK or for a parent company granting options to have at least one company in the group satisfying that requirement, the new measure will only require the company to have a permanent establishment in the UK or, in the case of a group of companies, at least one company in the group carrying on a qualifying trade with a permanent establishment in the UK. This change is to ensure that EMI share options comply with EU state aid rules.
The Government also reiterated an intention to take action to tackle tax avoidance through the use of trust and other vehicles to reward employees.
PAYE schemes and security
The March 2010 Budget proposed that legislation would be introduced in Finance Bill 2010 to allow HMRC to require a financial security from employers where amounts due under PAYE or NIC obligations are seriously at risk. This was likely to affect those employers who have a history of serious non-compliance in terms of paying late or not paying. The amount of security would be set by HMRC in light of the potential tax liability.
In this Budget, the Government has indicated that a consultation will now take place before any such powers are introduced.
Real Estate Investment Trusts (REITs)
UK REITs will be allowed to issue stock dividends in lieu of cash dividends in meeting the requirement to distribute 90% of the profits from the property rental business of the REIT. The legislation will have effect for property income distributions made on or after Royal Assent.
This measure was originally proposed in the March 2010 Budget but dropped before the first Finance Act was passed
Film tax relief: multi year claims
Legislation is to be introduced to correct an anomaly which can affect film production companies making films where there is some overseas expenditure and where the production spans two or more accounting periods. In any accounting period after the first period, the losses that may be surrendered for tax credit will be calculated by reference to the lesser of:
- the available qualifying expenditure; and
- the loss for the period, plus any unsurrendered loss brought forward.
The amended legislation will have effect for accounting periods ending on or after 9 December 2009.
Tax incentive for British Video Games industry
The proposal for a new tax incentive for the UK video games industry, initially announced in the March 2010 Budget, has been abandoned.
Carers
The Chancellor has confirmed the Government's intention to legislate a number of changes previously announced, affecting:
- special guardians' orders and certain kinship carers – measures to ensure that payments to qualifying guardians will be exempt from income tax
- shared lives carers, including adult placement carers, staying put carers and certain kinship carers – to allow qualifying shared lives carers to claim the same income tax relief as foster carers. The new relief will be known as the qualifying care relief
- individuals who set aside part of their house exclusively for use under a local authority adult placement scheme – to ensure that entitlement to private residence relief (PRR) is preserved where an adult placement carer uses part of their home exclusively for the purposes of their business as a carer; and
- foster carers and shared lives carers – to correct technical anomalies in the special capital allowances rules for foster carers, to ensure that the rules operate as intended when individuals start, or finish, qualifying or electing for foster-care relief.
