In 2010 the government committed to the ‘business tax road map’ to provide certainty to businesses, which following Brexit has an increased significance to encourage investment being placed and remaining in the UK. The Chancellor has continued with this policy in his first Autumn Statement. The rates of corporation tax had previously been announced to fall to 17% by 2020 and this is upheld and still forecast still to be one of the lowest in the G20.
No significant new announcements were made for businesses in this statement only a reinforcement of those previously announced and we are still awaiting clarity on some of these measures.
Corporation Tax Interest Deduction
Following a consultation, new rules are being imposed to limit the corporation tax deduction received by large corporates in the UK from April 2017. Where the group has net interest expense of more than £2 million and exceed 30% of the UK taxable earnings with the net interest to earnings ratio in the UK above the worldwide group these new rules will apply. Further details as to the exact nature of these rules are to follow.
Reform of Loss Relief
As announced in the Budget 2016 the corporate loss relief is being reformed. In the UK we have a restrictive loss relief system where losses are only eligible to be carried forward and offset against profits arising from the same trade. This can be further restrictive where we also have a change in ownership within a specified period. It was proposed to lift the restrictions to allow loss relief to be applied against all income but also to be able to perform group relief in later periods as currently restricted to the same period for loss relief against profits generated.
As we reported in March, where you see a benefit there is always a sting in the tail! This was the restriction of loss relief to 50% where profits are in excess of £5 million.
Non Resident Company Profits
Further consultation is being considered to ensure all profits earned in the UK are brought into UK tax. At present if a non UK resident company carries on a trade in the UK through a permanent establishment it is liable to corporation tax on the profits directly attributable to the permanent establishment.
Tax avoidance measures are now virtually guaranteed at be announced at every Budget and Autumn Statement as the government continue to apply pressure in this area. Whilst previously we have seen direct measures focused UK tax payers we now see the attention shift to international tax and ensuring the UK tax is received for activity conducted in the UK. Further modernisation of the UK tax system is expected for multi nationals as the government and other leading G20 countries seek to catch up businesses worldwide tax arrangements.
Disguised Remuneration Schemes
The government had previously announced measures to tackle these schemes used by employers and their employees. Measures will now be extended to deny corporation tax relief unless the tax and national insurance is paid within a specified period.
These rules are now also to be extended to the self-employed.