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Business Tax

 

The corporation tax rates are as follows:

 

 

The main corporation tax rate will be cut by 1% a year over the next three years to 23%.

 

SAVER: You may save tax by trading through a company

Profits retained in a company may be taxed at only 20% - compared with up to 50% income tax plus NIC.

 

Associated companies
The relevant profit limits for corporation tax are reduced proportionately where a company is associated with other companies. The associated company provisions are simplified from April 2011. Under the revised provisions, companies will be associated with each other where:

- They are commonly controlled by attributing the rights of ‘connected individuals’, and
- Substantial commercial interdependence exists between the companies.

Capital allowances
From April 2012, short life assets treatment will be available for plant likely to be sold or scrapped within eight years. This will increase the range of assets for which a short life asset election can be made.

 

As already announced, from April 2012, the annual investment allowance (AIA) expenditure limit will reduce to £25,000 and the annual writing down allowance (WDA) will be 18% (8% for special rate pool expenditure).

 

The 100% enhanced capital allowances (ECAs) scheme will be revised in the near future to include the most energy efficient plant. ECAs may be introduced on eligible expenditure in new enterprise zones where there is a ‘strong focus’ on high value manufacturing.

 

THINK AHEAD: Get the timing right for your investment in new business equipment
At present, businesses of any size will generally benefit from immediate tax relief on the first £100,000 a year that is spent on most types of equipment. However, this allowance will fall to £25,000 from April 2012. So it could be worth bringing forward major investments.

 

Accounting for leases
The current tax treatment of leases will continue despite the recent changes made to generally accepted accounting principles (GAAP) for lease transactions.

Research and development (R&D) tax relief
Companies can claim enhanced allowances on their R&D spend. The rate of relief for small and medium-sized enterprises (SMEs) increases to 200% from April 2011 and to 225% from April 2012 subject to State Aid approval. Other proposed R&D changes which are likely to be enacted next year include:

• Abolishing the rule limiting R&D tax credits to the company’s PAYE and NIC payments for the relevant period;
• Removing the £10,000 minimum expenditure rule for all companies; and
• Modifying the large companies’ R&D relief for contracted work.

 

Vaccines research relief for SMEs will be reduced to 20% from April 2011 and will be abolished from April 2012.

 

Corporate groups

As previously announced, from 9 December 2010 the anti-avoidance rules dealing with pre-entry (capital) losses, value-shifting and depreciatory transactions will be relaxed and revised to give more clarity.

 

Degrouping charges will cease to apply in cases where the sale of the relevant group company is also exempted from tax (typically, where the substantial shareholdings exemption applies). This measure will take effect from Royal Assent. From 23 March 2011, anti-avoidance rules will aim to prevent the artificial exploitation of the ‘associated companies’ degrouping charge exemption.

International aspects
For accounting periods starting after 31 December 2010, various ‘interim’ changes have been made to the controlled foreign company (CFC) regime. New CFC rules are expected in 2012, which will include a finance company partial exemption. Broadly, qualifying overseas group financing activities will pay 25% of the main UK corporation tax rate. From April 2011, the UK’s transfer pricing rules will be revised to incorporate the latest version of the OECD transfer pricing guidelines.

 

From Royal Assent, UK groups will be able to elect for their foreign branch profits to be permanently exempted from UK tax. This election will be irrevocable and will cover all future periods – notably any branch losses would not be relieved.

 

A ‘patent box’ regime will be introduced from April 2013, as previously announced. This will enable UK-based companies to enjoy a reduced 10% corporation tax rate on their patent income.

 

The Finance Bill 2012 is expected to include simplifying measures to the debt cap rules.

 

Modernisation of investment trust companies tax regime
The Finance Bill 2011 will implement a modernised tax regime for investment trust companies.

 

SAVER: Sharing with your spouse

If you run a company or business, make sure that your spouse/partner is appropriately paid and pensioned for any work and that they share in the profits if possible.

 

Other measures
Bank levy - increases to the levy have been announced.

Time to pay initiative - the Business Payment Support Service will continue to support businesses in temporary financial difficulty.

Review of small business tax and IR35 - the Office of Tax Simplification will be examining these areas with a view to easing compliance burdens. However, the Government has decided to retain IR35

 

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This summary has been prepared very rapidly and is for general information only.

The proposals are in any event subject to amendment before the Finance Act is passed.

It is recommended you seek competent professional advice before taking any action on the basis of the contents of this publication.