Measures for Business
A wide range of tax and other measures affecting businesses were announced by the Chancellor.
Business Payment Support Service
The 2008 Pre-Budget Report introduced the Business Payment Support Service, designed to help viable businesses facing temporary financial difficulties to spread tax payments over an agreed timetable. According to the Government, over 160,000 businesses have taken advantage of the service, collectively employing more than 1.2 million people, spreading over £4 billion of tax. Of this, more than £3 billion has already been repaid.
HM Revenue and Customs will continue to offer this service as part of its time to pay arrangements. All requests will continue to be assessed on the same basis as when the service was introduced.
Business rates
In March 2009, the Government announced that businesses could spread payment of the April 2009 inflation up-rating to business rates over three years, helping ratepayers for an estimated 1.8 million properties in Britain. The Government also temporarily increased the threshold at which empty properties are liable for business rates to £15,000, exempting an estimated 70% of empty properties. On 18 September 2009, the Government removed the requirement for businesses receiving small business rate relief to reapply for relief at revaluation.
The Government is maintaining for a further year the temporary increase in the threshold at which an empty property becomes liable for business rates. For the financial year 2010/11, empty properties with a rateable value of less than £18,000 will be exempt from business rates. This higher threshold reflects the effects of business rates revaluation and is still expected to apply to 70% of empty properties.
Small companies' rate of corporation tax
The Government is deferring, for an extra year, the planned increase in the small companies' rate of corporation tax. The rate will remain at 21% during 2010/11.
Patent Box
The Chancellor announced the intention to introduce a ‘Patent Box', a reduced rate of corporation tax applying to income from patents from April 2013, designed to strengthen the incentives to invest in innovative industries.
He also announced that, following consultation, there will be a 10% corporation tax rate on income which stems from patents in the UK.
Research & Development (R&D) tax credits
Since the introduction of the R&D tax credit schemes, according to the Government, over 36,000 claims have been made for R&D tax credits with over £3 billion of relief claimed, supporting over £32 billion of research and development activity by companies.
The Chancellor has now announced the removal of the condition that any intellectual property (IP) deriving from the research and development must be owned by the company making the claim. This measure is designed to allow companies to benefit from the R&D tax credit for Small and Medium Enterprises without distorting their commercial arrangements in relation to IP. It will have effect for any qualifying expenditure incurred in an accounting period ending on or after 9 December 2009.
Company cars and vans
A new 0% band will apply for company cars propelled solely by electricity, from 6 April 2010 and effective for five years. From the same date, and also applying for five years, will be a reduction to nil of the flat rate charge on company vans propelled solely by electricity.
The new bands will apply for both income tax (employees) and national insurance contributions (NICs) (employer contributions).
The fuel benefit multiplier, governing the tax paid by employees and the NICs paid by employers where free private fuel is provided, will be increased from 6 April 2010 to £18,000 (currently £16,900). Where fuel is provided for private travel in company vans the flat rate charge will be increased from the same date to £550.
The Chancellor also announced a 100% first year capital allowance for electric vans. The allowance will be available for business expenditure on new, unused electric vans incurred on or after 1 April 2010 (corporation tax) or 6 April 2010 (income tax).
The graduated table of company car tax bands will be extended down to a new 10% band (for cars with CO2 emissions up to 99g/km) and all thresholds moved down by 5g/km with effect from 6 April 2012.
Worldwide debt cap
Rules have already been introduced which take effect from 1 January 2010, which will restrict the ability of UK companies in large worldwide groups to obtain relief for interest paid on debt in the UK, where the UK element of the debt cost exceeds the cost for the worldwide group.
The Chancellor announced refinements to those rules, which correct certain anomalies in the legislation as initially enacted. Broadly speaking, the changes should only affect those companies which were already included in the regime.
Overseas taxation
In the 2009 Budget, as a result of the introduction of the Foreign Income Exemption, it was announced that the Controlled Foreign Company rules would be reviewed to prevent abuse and be better targeted. Following a consultation and review carried out since then, the Government has announced that a document will be issued in the New Year setting out how the new regime will operate.
The Government has given no clear indication that it will change the treatment of foreign branch profits, which remain taxable in the UK despite the introduction of the exemption for dividend income, although it has indicated that it is aware that this is an important issue for business, and will review the position.
Accounting standards - IAS 39
The International Accounting Standards Board (IASB) has proposed changes to IAS 39, which governs the recognition and measurement of financial instruments, which include loans and derivatives. It is likely that the equivalent UK accounting standard, FRS 26, will also be amended in due course.
Financial instruments are taxed as Loan Relationships, which generally follow the accounting treatment. Legislation will be introduced in the 2010 Finance Bill to give the power to amend this principle to ensure that the Loan Relationship rules continue to operate ‘fairly and efficiently'. As yet, no such provisions have been identified.
For an analysis of the current status of IAS 39, please refer to the recent article in the November issue of our capital markets newsletter, by John Perry of our Financial Services division.
