Measures for business
A wide range of tax and other measures affecting businesses were announced by the Chancellor, with the stated aim of assisting businesses in the difficult economic climate.
Small companies' rate (SCR)
The Government had planned to increase the small companies' rate of corporation tax from 21% to 22% from 1 April 2009. However, this has now been deferred until 1 April 2010.
Legislation will be introduced in the 2009 Finance Bill to maintain the SCR for all profits, apart from “ring fence” profits, at 21% from 1 April 2009 and effectively maintain the marginal rate (used to ‘smooth' the difference between the main rate of corporation tax and the SCR) at 29.75%. Profits limits will remain the same.
Extension of trading loss carry back
The period for which current trading losses from businesses can be carried back against previous profits is to be extended from the current one year entitlement, to a period of three years, with losses being carried back against later years first.
The amount of losses that can be carried back to the preceding year is unlimited. After carry back to the preceding year, a maximum of £50,000 in aggregate of the balance of unused losses is then available for carry back to the earlier two years.
This is a temporary measure for one year only. A company may make a loss relief claim under the new rules when it makes its return for an accounting period ending in the period 24 November 2008 to 23 November 2009.
Unincorporated businesses may make a loss claim under the new rules as soon as they have calculated their losses for their basis period for the 2008/09 tax year.
HMRC will make repayments arising from loss relief claims received under the new rules on or after Budget Day 2009.
Capital allowances for cars
From April 2009 the special rules that restrict capital allowances to £3,000 on cars costing more than £12,000 will be replaced. The new rules will come into effect on 1 April 2009 for companies and 6 April 2009 for unincorporated businesses.
From these dates qualifying expenditure will be allocated to one of the two general plant and machinery pools, subject to the level of CO2 emissions. Cars with CO2 emissions in excess of 160g/km will be dealt with in a separate pool and will attract a 10% writing down allowance. The rate of writing down allowance for the main pool will be 20%.
Cars with an element of private use will continue to be dealt with as separate assets but the rate of writing down allowance will be based on the car's CO2 emissions from April 2009.
The rules restricting the amount of lease rental payments allowable for tax purposes on cars costing more than £12,000 will also be changed from April 2009. The restriction will only apply to cars with a CO2 emission of over 160g/km and will be a flat rate disallowance of 15% of the relevant lease payments.
Subject to State Aid approval, which has been deferred at present, it remains the Government's intention that expenditure on cars leased to those in receipt of certain disability allowances will be included in the 20% pool regardless of the level of CO2 emissions.
Finance for SMEs
The Chancellor announced various measures designed to help SMEs with working capital and investment needs.
Early in 2009, the Government will launch a Small Business Finance Scheme - a new temporary guarantee scheme to enable up to £1 billion of new Government supported lending by banks.
The Export Credits Guarantee Department, in conjunction with the banks, will introduce a temporary guarantee scheme to support a £1 billion facility providing smaller exporters with better access to short-term working capital. The Government will also make available a capital fund of £50 million to convert SMEs' debt into equity.
Earlier in November 2008, Advantage West Midlands, a Regional Development Agency (RDA), launched a transition fund for viable SMEs facing financial difficulties. Other RDAs will launch similar loan funds, now totalling £25 million, to help businesses over the next six months.
The Government has said that it ‘welcomes the commitment' of UK lenders to approach the European Investment Bank (EIB) to access funds. Following negotiations between UK banks and the EIB, £1 billion of EIB funds will be available to SMEs in the UK by the end of 2008.
Early in 2009, the Government will launch, in conjunction with Business Link, a new portal to direct credit-worthy SMEs who are experiencing problems accessing credit to the appropriate scheme.
Empty Property Rate Relief
The Government is temporarily increasing the threshold at which an empty property becomes liable for business rates. For the financial year 2009/10, empty properties with a rateable value of less than £15,000 will be exempt from business rates exempting an estimated 70% of empty properties.
Interest-free payment schedule for backdated business rates bills
To reduce the cash flow impact on businesses, the Government will legislate to give more time to pay certain backdated business rates bills issued before 31 March 2010. Businesses facing such bills will be able to pay their liability for previous years in equal interest-free instalments over eight years, rather than immediately. Beneficiaries will include several occupiers of ports who have been affected by recent rating reviews.
Income shifting
The controversial proposed legislation designed to prevent ‘income shifting' will not now be introduced in April 2009.
However, the Government has restated that it ‘firmly believes it is unfair' to allow a minority of individuals to benefit financially from shifting part of their income to someone else who is subject to a lower rate of tax.
Taxation of foreign profits
The Government will bring forward a package of reforms to the taxation of foreign profits, with the object of making the UK a ‘more attractive location' for multinational businesses. Measures will include an exemption from tax for most foreign dividends received on ordinary shares and most non ordinary shares by large and medium sized groups, regardless of the level of shareholding. A Targeted Anti-Avoidance Rule will apply to prevent activity designed to exploit the dividend exemptions. The exemption will be accompanied by a cap on tax relief for interest so that UK companies cannot claim relief on borrowings in excess of worldwide group borrowings, together with consequential changes to other anti-avoidance provisions including the Controlled Foreign Company (CFC) rules. The Government will also continue to examine options for reform of the CFC rules. Any reform will aim to improve the way the CFC rules achieve their objective of taxing profits diverted from the UK. It is intended that the new CFC rules should not tax profits genuinely earned in overseas subsidiaries. Changes to the CFC rules are for the 2010 Finance Bill. For the 2009 Finance Bill it has been announced that the existing CFC “acceptable distribution policy” and “exempt activities holding company” exemptions will be repealed , with a 24 month transitional period to allow groups to unwind holding company structures. The existing Treasury Consent rules and notification requirements will be repealed and replaced by a quarterly reporting requirement for high risk transactions with a de minimis limit of £100million.
Lloyd's corporate underwriters
Corporate members of Lloyd's are to benefit from tax relief on claims equalisation reserves. The relief will, so far as possible, mirror the current relief available to general insurance companies which enables them to create a tax deductible reserve in their accounts and smooth their tax liabilities over time. It is understood that the relief will be available on profits treated as arising in the year ended 31 December 2008. Individual members of Lloyd's have been able to achieve a similar result with special reserve funds.
The Government will also review the case for extending the relief for both general insurers and Lloyd's beyond 2012, when claims equalisation reserves are no longer to be recognised for solvency purposes.
Simplification of anti-avoidance rules: employment-related securities
As part of the Finance Bill 2009 changes will be introduced to the rules on employment-related securities to ensure that income tax charges do not apply where shares paid for by instalments or issued nil or partly paid are sold without any overall profit arising. In addition a change will be made to ensure that tax charges do not arise where employment-related shares are subject to a scrip or bonus issue and there is no overall change in value to the enlarged shareholding.
Corporate debt - connected companies
Changes have been announced to the loan relationship rules. A change is proposed to the rules on release of trade debts between connected companies so that a non-deductible release is treated as non-taxable in the connected debtor company. In addition the rule that defers tax relief on late paid loan relationship interest between connected parties is to be subject to consultation on how best to provide certainty to its operation.
New Business Payment Support Service
HMRC has introduced a new Business Payment Support Service, which is designed to assist those businesses whose cash flow has been adversely affected by the economic downturn.
The service allows business owners who are concerned about making their tax, national insurance and other payments, to contact HMRC to discuss a range of payment options tailored to their business needs.
The scheme includes a Business Payment Support Line for new enquiries, which is available on 0845 302 1435, and is open from 8am to 8pm Monday to Friday, and 8am to 4pm at weekends.
