Budget 2017 – corporation tax

Corporation Tax

With the UK having the lowest corporate tax rate in the G20 and rates set to reduce to 19% from April this year and a further reduction to 17% in April 2020, there was no surprise at this stage that no further major announcements were made in respect of corporate tax, as current policies support the business tax road map.

However we have seen further announcements to strengthen current policies being followed.

Business Structure

In April 2016 we had the introduction of the increased 7.5% dividend rate on dividends to remove the tax gap between unincorporated and corporate business and to refrain individuals from incorporating.

Further announcements today to reduce the dividend allowance from £5,000 to £2,000 from April 2018 will further reduce the gap to ensure we see less incorporations moving forward.

 

Research and Development

The results of the Industrial Strategy green paper indicated the current R&D regime to be effective and internationally competitive as the government continues to drive forward reliefs for innovation.

Administration changes will shortly be announced which will clarify and simplify the claims procedure in addition to promoting the relief the tax credits aspect to SME businesses.

This relief is far wider reaching than most businesses perceive and with the new advanced assurance facility in place will give further comfort to businesses claiming R&D tax relief.

 

Substantial Shareholding Exemption (SSE)

Legislation will be introduced to remove the investing company requirement from the SSE rules. This will increase the number of transactions qualifying for the exemption on the sale of shares.

 

Withholding Tax on Interest

With Brexit around the corner it is not entirely unexpected that we start to see legislation to encourage investment in the UK.

To ease the position for businesses to raise finance the Double Taxation Treaty Passport scheme will extend administrative simplifications which allows access for reduced withholding tax rates on interest in UK treaties with other countries.

In addition there will be an exemption from withholding tax for interest on debt traded on a Multilateral Trading Facility which removes barriers to entry on the UK debt markets.

 

Tax Avoidance

As is custom now at each Budget we see further measures to tackle tax avoidance. Since 2010 HMRC has secured £140 billion in additional tax revenue through tackling avoidance, evasion and non- compliance with the UK’s tax gap being one of the lowest in the world.

  • Promoters of Tax Avoidance Scheme (POTAS) – New rules to ensure promoters cannot organise their business affairs to avoid the POTAS .
  • Tax Avoidance Sanctions and Deterrents – A new penalty is being introduced for a person who has enabled another party to use a tax avoidance scheme which is later defeated by HMRC.
  • Tax Treatment of Appropriations to Trading Stock – The conversion of capital losses into trading losses on appropriations will be removed from 8 March 2017. In future an election under s.161 TCGA1992 can only be made where there is a gain.

Compliance

Image Rights – HMRC will be looking at image rights paid under separate contractual arrangements from employment income, which are popular for sporting individuals. New guidance will shortly be issued to clarify the treatment.

Employers Allowance – HMRC is currently monitoring the allowance as it has come to their attention  businesses have been using avoidance schemes to avoid paying the correct amount of NICs.

 

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