Corporate and Business Taxes

Detailed Budget Measures

Corporation Tax Rate Reduction

Legislation will be introduced in Finance Bill 2013 to reduce the main rate of corporation tax for non-ring fence profits to:

Finance Bill 2013 also sets the small profit rate at 20 per cent for the financial year commencing 1 April 2013. Finance Bill 2013 will also set the marginal rate fraction and rate for ring fenced profits. All corporation tax rates are set out in OOTLAR.

For more details see the Tax Information and Impact Note.

Industry Comment:

Corporation tax is about completion of the Coalition Government’s Corporate Tax road-map. The main rate of corporation tax will be cut to 20% from 1 April 2015; this, together with the 21% rate from 2014, will be included in Finance Bill 2013 and enacted by the end of July.  There’s an important simplification dividend as well, since it will no longer be necessary to calculate the number of associated companies and perform marginal rate calculations. 

Bill Dodwell, Head of Tax Policy at Deloitte.

R&D tax credits reform: Above the line

As previously announced and as detailed in the feature article "Corporation tax - the year ahead" in CCH Tax News issue 99, an above the line (ATL) R&D credit is being introduced for non-SMEs for qualifying expenditure incurred on or after 1 April 2013. The Chancellor has announced that the ATL credit will be introduced at 10 per cent, instead of the previously announced 9.1 per cent.

CCH Comment:

This is good news as it will increase the amount of credit a large company receives in respect of its R&D expenditure. Industry had lobbied for a double-digit rate and the Government has listened. This also means that large companies will be better off claiming under the new above the line system compared to under the existing super-deduction rules.

Stephen Relf, Senior Tax Writer.

Industry comment:

Above-the-line R&D tax credits go ahead at 10%, as does the 10% Patent Box and the various creative industries tax reliefs.  EU approval is still awaited for video games relief as the Commission perhaps struggles to identify a ‘culturally British’ video game. 

Bill Dodwell, Head of Tax Policy at Deloitte.

National Insurance: £2,000 employment allowance

The Government will introduce an allowance of £2,000 per year for all businesses and charities to be offset against their employer Class 1 secondary NICs liability from April 2014. The allowance will be claimed as part of the normal payroll process through RTI. The Government will engage with stakeholders on the implementation of the measure after the Budget and is seeking to introduce legislation later in the year.

CCH Comment:

This measure should be good news for small employers, with almost a third no longer needing to pay any Employers national insurance and it will hopefully incentivise such employers to take on more employees. It is unlikely to affect the employment decisions of larger employers, but by not restricting the allowance to small employers it should be easier and cheaper to administer. The legislation is likely to include anti-avoidance measures to prevent potential abuse such as businesses restructuring to gain multiple allowances.   

Meg Wilson, Tax Writer.

Industry Comment:

National Insurance is all about a new £2,000 relief which will be offered to all employers from April 2014.  98% of the benefit will go to small employers and 450,000 employers will escape employer NIC completely.  In 2016, the end of the second state pension and the start of the uprated single state pension will liberate £2.2 billion of NI rebates, which will support the introduction of the new social care support package and the new childcare tax relief. 

Bill Dodwell, Head of Tax Policy at Deloitte.

Despite managing down expectations in advance, the Chancellor brought out a few business friendly measures. Top of the list is a cut in the National Insurance contributions (NIC) 'job tax' with all companies getting a £2,000 cut on employers' NIC. There is support for the AIM market with the removal of stamp duty and some capital gains tax improvements for entrepreneurial businesses and employee share ownership. Overall, there was an attempt to stimulate growth but there's a deep hole to climb out of.

Francesca Lagerberg, Partner and Head of Tax at Grant Thornton.

Stamp Duty Reserve Tax - Abolition of Schedule 19

Legislation will be introduced in the Finance Bill 2014 to abolish the stamp duty reserve tax charge on unit trusts and open-ended investment companies in Schedule 19 to the Finance Act 1999.

Many of the funds managed here are based overseas and Schedule 19 has been consistently cited by the industry as one of the chief obstacles to establishing new funds in the UK.

This measure aims to improve the competitiveness of the UK as a location for fund domicile covering regulation, marketing and tax, with abolition of the charge as of 1 April 2014.

CCH Comment:

The 0.5% stamp charge is a cost incurred by UK-domiciled funds, and scrapping it will bring the UK into line with the Dublin market, which has been a stiff competitor for funds business. The UK funds industry has been lobbying for abolition, and will undoubtedly be very pleased at the news.

Mark Cawthron, Tax Writer.

Industry Comment:

The decision to abolish the Schedule 19 Stamp Duty Reserve Tax regime with effect from 1 April 2014 is a major headline grabber for the UK funds industry and signals that the Treasury is committed to enhancing the marketability of UK funds.

The UK industry has been lobbying for the abolition of this tax for many years.  The measure itself raises little tax but instead can cast a shadow over UK funds, making them look less competitive than funds in other EU jurisdictions.

The step was a natural progression after exclusion of the new contractual schemes from Schedule 19 (subject to meeting anti-avoidance legislation).  The announcement also comes as the European funds industry tries to model the impact of a proposed EU Financial Transaction Tax and it is hoped that the UK’s move will encourage European counterparts to consider suitable exemptions. 

Nathan Hall, Investment Management Tax Partner at KPMG.

Seed enterprise investment scheme (SEIS): reinvestment relief

Legislation will be introduced in Finance Bill 2013 to extend the capital gains tax (CGT) relief for reinvesting gains in SEIS shares to gains accruing in 2013-14 when those gains are reinvested during 2013-14 or 2014-15; the relief will apply to half the qualifying re-invested amount.

For more details see the Tax Information and Impact Note.

CCH Comment:

This scaled-down version of the Enterprise Investment Scheme was introduced in the Finance Act 2012 and will only apply until April 2017. It gives a tax reduction equal to 50 per cent of an investment in qualifying companies of up to £100,000 per tax year. The scheme also granted a capital gains exemption for disposals in 2012-13 where the proceeds were reinvested under Seed EIS. It is perhaps not surprising that the Chancellor has announced an extension of this exemption to 2013-14. No doubt if the economy still fails to respond, it will be extended again.

The opportunity has also been taken to correct a technical error by which a company would be unable to qualify under the scheme if it had been formed by company registration agents.

Stephen Relf, Senior Tax Writer.

Industry Comment:

We have seen a great deal of interest in SEIS and the broader Enterprise Investment Scheme, encouraging investment in smaller businesses. Extending the timeframe in which gains can be reinvested and still be exempt from capital gains tax gives added flexibility and encourages further reinvestment in young businesses.

Katharine Arthur, Tax Partner at MHA MacIntyre Hudson.

Seed enterprise investment scheme (SEIS): income tax relief

Legislation will be introduced in Finance Bill 2013 to prevent a company from being disqualified from SEIS where it was established by a corporate formation agent before sale to its ultimate owners. This will apply in respect of shares issued on or after 6 April 2013.

For more details see the Tax Information and Impact Note.

Tax simplification for small businesses

As announced in Budget 2012, legislation will be introduced in Finance Bill 2013 to allow two simpler income tax schemes for small unincorporated businesses. Following consultation, the legislation has been revised to:

For more details see the Tax Information and Impact Note.

Process simplification for the self-employed

The Government will consult on options to simplify the administrative process for the self-employed by using Self Assessment to collect Class 2 NICs alongside income tax and Class 4 NICs. Following consultation, the Government will decide whether to make changes to the way Class 2 NICs is collected and plans for legislative change if required will follow.

Corporation tax deductions for employee share acquisitions

Legislation will be introduced in Finance Bill 2013 to clarify the rules that determine the availability of corporation tax deductions in connection with share options or awards granted to employees. This legislation will have effect from 20 March 2013 in relation to company accounting periods ending on or after that date.

For more details see the Tax Information and Impact Note.

Review of Partnerships

The Office of Tax Simplification will carry out a review of ways to simplify the taxation of partnerships. The OTS will carry out an initial scoping exercise to identify which areas most complex for taxpayers and will provide more details in due course.

Capital allowances: low emission vehicles

Legislation will be introduced in Finance Bill 2015 to extend the 100 per cent allowance (FYA) for expenditure incurred on cars with low carbon dioxide emissions and electrically propelled cars for an additional three years to 31 March 2018.

Foreign currency assets and corporate chargeable gains

It was announced at Budget 2012 that relevant companies would be required to compute their chargeable gains and losses on disposals of shares in their functional currency. This will be extended to cover disposals of ships, aircraft and interests in shares. The measure will be included in Finance Bill 2013 and will take effect shortly after Royal Assent.

Decommissioning: increasing tax certainty for oil and gas investment in the UKCS

The Government will be able to enter into contracts with oil and gas companies to guarantee the basis on which tax relief for decommissioning will be available. Legislation will be included in Finance Bill 2013 to enable the Government to meet its obligations under those contracts. This legislation was published in draft in December 2012 but a number of small changes will be made to ensure that the legislation operates as intended. The Finance Bill is due to be published on the 28th of March.

Corporation tax: deferring payment of exit charges

Companies which cease to be resident in the UK as a consequence of the transfer of their place of management to another EU or EEA Member State will be able to opt for deferred payment arrangements in respect of exit charges. It has been announced that this will extend to the corporation tax attributable to the revaluation of trading stock. Further, a UK permanent establishment of an EU/EEA-resident company will be able to defer payment of corporation tax attributable to unrealised gains on assets which cease to be held for the purposes of a UK trade. Legislation giving effect to these changes will be included in Finance Bill 2013 and will take effect from 11 December 2012.

Controlled foreign companies (CFC) regime

A new regime for CFCs was introduced by Finance Act 2012 and it applies for accounting periods beginning on or after 1 January 2013. Finance Bill 2013 will include legislation to counter two tax planning opportunities and to make a number of small changes to ensure the rules work as intended. The amendments will have effect from 1 January 2013 in line with the commencement date for the new CFC rules.

Investment trust companies (ITCs)

Legislation will be introduced in Finance Bill 2013 to remove an unintended consequence of changes to the tax rules for ITCs. This measure will ensure that ancillary activities will not prevent a company from being capable of being approved as an ITC. It will have effect for accounting periods commencing on or after 1 January 2012.

In addition, secondary legislation to provide an exception to the income distribution requirement for ITCs will be published for consultation in spring 2013. The changes are expected to take effect for accounting periods commencing on or after 1 July 2013.

Offshore funds amendments

Secondary legislation will be introduced to address certain technical issues in the operation of the Offshore Funds (Tax) Regulations 2009. The changes will ensure that UK investors in offshore funds are taxed in a similar way to investors in equivalent UK funds. The majority of the changes are expected to take effect by 30 June 2013.

Shale gas: tax incentives to encourage investment

The Government will consult on tax measures to encourage the exploration and production of shale gas with a view to including legislation in Finance Bill 2014.

Consultation on tax support to the visual effects industry

The Government will consult on options to provide tax relief to the visual effects industry. It is not clear what form this will take although it may be that it is drafted along similar lines to the new reliefs for the creative sector to be introduced by Finance Bill 2013 (see the feature article "Corporation tax - the year ahead" in CCH Tax News.

Review of loan relationships and derivative contracts

The Government will consult on modernising the legislation governing the taxation of loan relationships and derivative contracts with a view to providing simpler and fairer tax treatment, minimising the scope for abuse, reducing uncertainty and improving structural and legislative clarity as well as reducing administrative burdens.