Corporate & Business Taxes
In 2010 the government set out a corporate tax road map which outlined plans to back business through lower corporation tax rates and the modernisation of tax rules and administration, whilst ensuring a crack- down on avoidance and aggressive tax planning.
In this budget we have seen substantial changes announced to reform our corporate tax system.
Corporate Tax Rates
Announced previously has been the reduction in corporation rates to 19% for all companies with effect from April 2017. In this budget we saw the Chancellor further extend his policy to have one of the lowest corporation tax rates in the G20 by announcing to decrease further to 17% in 2020.
The Government also previously announced that corporation tax payment dates for businesses with profits in excess of £20m would be brought forward to make payments during the tax period in the third, sixth, ninth and twelfth month. The implementation of this regime has been delayed until April 2019 to allow businesses further time to prepare. Although these business will already be in the payment on account regime this will bring forward the tax payment date by 3 months.
Corporate Tax Losses
Currently in the UK we have a very restrictive loss system, trading losses generated are only able to be carried forward and offset against future trading profits arising from the same trade in that company. In addition if during the period the company has had a change in ownership further restrictions on the utilisation of losses can also apply. When a company is part of a group we can only surrender losses for the same period leaving losses stranded in certain companies whilst other group member are profitable unable to offset.
The Chancellor announced from April 2017 a more flexible system where businesses will be able to use carried forward losses against other business streams and not restricted to the same trading profits and group surrender in later periods. This is a welcomed change which is more suited to the current commercial environment as we see increase us of group, specifically given the recent reforms on associated companies and the uniform corporate tax rate.
As is usual in the tax world, where you see a benefit there is always a restriction. Although we see the manner in which we can utilise losses being extended we are also seeing the amount of this being restricted to 50% of the losses for profits in excess of £5 million. For the majority of businesses this should ensure the flexibility remains in place as well as full relief.
Loan to Participators
The rules on loans to participators have seen a large degree of reform over recent budgets to try to stop the abusive of the rules which apply mainly to owner-managed businesses and partnerships who are shareholders. From April 2016 we see the rate increased from 25% to 32.5% for loans, advances and arrangements made on or after 6 April 2016. This aligns the rate with the higher rate tax on dividends to ensure loans are not left outstanding.
We have seen the annual investment allowance being moved up and down regularly in budgets as the government tries to boost plant investment. Today it was announced that the £200k which has been in place since January 2016 is to remain permanently. Diverted profit tax to target contrived arrangements so that multinational enterprises pay more tax on their UK profits.
Company cars first year allowance will also be extended for a further three years to April 2021 with new co2 emission levels to be announced.
We have seen major reform in business rates in recent budgets and the Chancellor has continued with his theme to help smaller business by further extending the Small Business Rate Relief properties with a rateable value of £12,000 or under receiving 100% relief, a tapered relief will also apply to properties with a rateable value up to £15,000.
Also announced were:
- Increase the threshold for the standard business rates multiplier to a rateable of £51,000
- From April 2020 taxes for all businesses paying rates will be cut as they switch from RPI to CPI
- Increase of business rate revaluations to at least every 3 years.
- Business rate systems to be linked with HMRC digital tax accounts
Business rates cuts – extending the doubling of business rate relief to April 2017, giving 100% relief.
Commercial Stamp Duty
Previously we saw the radical reform of the residential stamp duty system to a layered system of rates. In this budget we see the commercial stamp duty rules aligned with the residential stamp duty with a slice system.
- For properties up £150,000 – 0% rate of tax
- For properties between £150,001 and £250,000 – 2% rate of tax
- Above £250,001 – 5% rate of tax
In addition we will also see a new 2% rate of stamp duty for leasehold rent transactions where the net present value is above £5 million.
As we have now come to expect in every budget we have further announcements regarding tax anti-avoidance announced. Today’s budget was no exception with several announcements:
- Interest relief – a cap is being placed on interest relief to 30% of taxable earnings in the UK or based on the net interest to earnings ratio for the worldwide group. The rule will include a threshold limit of £2 million net UK interest expense.
- Royalty payments – rules to be changed regarding the withholding tax on the royalty payments to avoid profit shifting by groups.
- Offshore property developers – new rules will be introduced which will prevent offshore structures being used by property developers who are involved in developing property in the UK. HMRC are also creating a new task force to target offshore structures to ensure tax compliance on profits and rental income from property development in the UK.
No major headlines for VAT in this budget but here are some of the items in the small print;
- VAT registration threshold to increase to £83,000 and deregistration to £81,000
- Tackling of overseas traders who trade on-line and avoid UK VAT
- Further due diligence scheme where traders store their goods in the UK.