Corporation tax – The Government has re-confirmed its commitment to lowering the UK corporation tax rates and ensuring the UK remains competitive. The reduction to 17% rate by 2020 announced in previous budgets is still the present and ensures the UK remains has the lowest rate of corporate tax in the G20.
Research & Development – In order to address the lack of productivity projections the Government has focused attention on the technology side to boost figures moving forward. The current Research and Development tax credit for SME businesses is 11%, which is being increased to 12% from January 2018.
The tax credit is the value HMRC will give you for surrendering the R&D tax relief in exchange for cash. This provides valuable cashflow to companies engaged in R&D although the value is less than the amount of relief you can get if the company has taxable profits, against which the relief could be offset. There were no changes announced to the current 130% additional relief a SME can claim.
In addition, the Government announced various measures to access finance for innovative firms including various measures with the British Business Bank and doubling the annual allowance for individuals under Enterprise Investment Scheme. This will ensure finance is available to move forward with technology.
Business Rates – Various measures where announced to further reforms to business rates over the next 5 years including;
- Switch to CPI as a measure of inflation from RPI
- ‘Staircase tax’ affected businesses can request valuation to be based on previous practices
- Continuing the £1,000 business rate discount for public houses with a rateable value of up to £100,000
- Increasing the period valuations are performed, from every 5 years to 3 years.
This will be welcomed reform for SME for which business rates are a significant cost.
Capital Gains Tax – Indexation relief is currently still available to uplift cost value for inflation when calculating the capital gain. From January 2018 this will be frozen so no further uplift from this date will be available. Not only does this bring us in line with other major economies but also follows the personal tax position on capital gains for which indexation was removed from April 1998.
Non-Resident Companies – Currently non-resident companies holding property in the UK are assessed on the rental profits under income tax rules. From April 2020 this will change to corporation tax rules and in addition the capital gains on disposal of property will align with corporate tax rules and be assessed to corporation tax.
The Government has been under pressure for sometime to change these rules for Companies and align them with normal corporate rules, so it is of no surprise that we see this change coming through.
Withholding Tax Royalties – With effect from April 2019 withholding tax will be extended to royalty payments made to low tax jurisdictions. With the extended coverage of royalties use in the media to reduce profits, the Government has been under increasing pressure to react whilst globally tax avoidance can be addressed.
Substantial Shareholding Exemption – Legislation has been extended to cover where a UK company incorporates a foreign branch in exchange for shares in an overseas company.
VAT – Government confirmed the VAT registration threshold will remain at £85,000 for the next two years.