Budget Report 24 March 2010

Business and Investment Incentives

Corporation tax rates

Corporation tax rates and bands are as follows:

 

	FINANCIAL YEAR TO 31 MARCH 2011	FINANCIAL YEAR TO 31 MARCH 2010
Taxable profits
First £300,000	21%	21%
Next £1,200,000	29.75%	29.75%
On profit over £1,500,000	28%	28%
Tax credit on dividends	10%	10%
Marginal relief fraction	7/400	7/400

Capital allowances

The Chancellor announced a doubling of the present £50,000 annual investment allowance for expenditure on plant and machinery. The new limit is £100,000 per annum and applies to expenditure incurred on or after 1 April 2010 for companies and 6 April 2010 for businesses subject to income tax. For accounting periods spanning these dates the entitlements will be time apportioned.

Anti avoidance provisions have also been announced to counter any scheme which attempts to claim property loss relief against general income to the extent that the loss is attributable to annual investment allowances. This measure will apply to arrangements entered into on or after 24 March 2010 where tax avoidance arrangements have been implemented.

There are changes to the list of technologies qualifying for enhanced capital allowances on the basis of a requirement for them to be environmentally beneficial. The annual review of the list has resulted in two new sub-technologies being added: permanent magnet synchronous motors and biomass fired warm air heaters. On the other hand compact heat exchangers and liquid pressure amplification will be removed. The criteria for water efficient taps and showers will be tightened. These changes will take effect from the date of the Treasury order following publication of the new lists later this year.

 

A 100 per cent first year allowance is introduced for new and unused zero-emission goods vehicles. This will be effective for expenditure incurred on or after 1 April 2010 for companies and 6 April 2010 for businesses subject to income tax and will cover a period of five years from those dates.

Business rates

To provide help with the fixed costs of starting and running a small business, the Government will fund a temporary increase in the level of small business rate relief, so that eligible small businesses occupying properties with rateable values up to £6,000 will pay no business rates for one year from October 2010. Additionally, small businesses benefiting from the rate relief taper (rateable values up to £12,000) will receive significant reductions. It is estimated that over half a million businesses across England will benefit.

Close companies

Under the existing loan relationship rules close companies that make loans to participators have been able to claim a tax allowable expense against corporation tax when such loans are written off or waived, provided they satisfied certain anti avoidance tests. A measure is introduced with effect from 24 March 2010 preventing close companies obtaining a corporation tax deduction in respect of such write offs after this date.

Time to pay

HM Revenue and Customs will continue to offer Time to Pay for all viable businesses having difficulty in meeting their tax obligations.

Consortium relief

The Government announced that it will amend the consortium relief rules so that EU and EEA resident companies engaged in UK consortia will be allowed to pass on the losses of those consortia to their UK resident subsidiaries. In addition, the Government plans to strengthen the rules designed to ensure that consortium relief is given only in proper proportion to the member company's involvement in the consortium.

Changes in accounting standards

As a consequence of the major changes to accounting standards in the pipeline and in particular the anticipated change in International Financial Reporting Standards regarding financial instruments, the Chancellor has paved the way for the necessary changes in the loan relationship rules by putting forward legislation to be incorporated into the Finance Bill 2010 which will allow the corporation tax legislation to be amended by regulations under a statutory instrument. This will enable the necessary changes to be enacted more easily and quickly.

Share ownership schemes

The final changes to the Venture Capital Trust (VCT) and Enterprise Investment Scheme (EIS) rules agreed with the European Commission in order to qualify as approved “State aids” are now being implemented. The changes to VCT rules are that the qualifying shares now need to be traded on any EU regulated market as opposed to the UK official list. Also the existing legislation requires that at least 30 per cent of the VCT's qualifying holdings is represented by eligible shares as defined in ITA section 285(3) and this will be increased to 70 per cent.

For both EIS and VCT legislation will be introduced to exclude companies where they would be treated as an “enterprise in difficulty” as defined by the European Commission’s Rescue and Restructuring Guidelines. The requirement for the qualifying trade to be carried out wholly or mainly in the UK will be replaced by a much less onerous condition of having a permanent establishment in the UK. The permanent establishment rule will similarly apply to Enterprise Management Incentive share schemes.

All of the above measures will have effect from the date of Royal Assent to a Finance Act in the next Parliament.

An anti avoidance measure has also been announced to prevent companies obtaining a corporation tax deduction by paying money to share incentive plan (SIP) trustees for them to purchase shares from director-shareholders but with no real benefit accruing to the employees as a result. This measure takes effect for arrangements made on or after 24 March 2010.

There is also a new anti avoidance measure regarding company share option plans (CSOP). HM Revenue & Customs have become aware of so called “geared growth” schemes where employees are able to receive additional rewards over the statutory £30,000 limit. This was achieved by granting options over shares which were in a company controlled by a listed company. The anti avoidance provision takes effect from 24 March 2010 onwards in order to deny CSOP treatment for any shares in a company controlled by a listed company.

Employer supported childcare

Employers providing childcare benefits through salary sacrifice schemes have been excluding employees from the scheme where the salary sacrifice would take the employee below the national minimum wage. Technically this would invalidate the scheme as it would not therefore be open to all employees and thus a chargeable benefit would arise on those employees taking advantage of the scheme. This rule will now be relaxed to permit such situations and the relaxation will be retrospective to the tax year 2005/06 onwards, when the tax free benefit was introduced.

Sale of lessor companies

Draft legislation was published in the 2009 Pre Budget Report which offered companies an alternative treatment to the initial “sale of lessor companies” legislation enacted in Finance Act 2006. The draft legislation has now been discussed with interested parties and a number of refinements have been negotiated that will now be included in the Finance Bill 2010. The changes include the preservation of capital allowance entitlement in some circumstances, dealing fairly with lessor companies which are controlled foreign companies or lease ships into tonnage tax. It will also address a flaw in relation to companies owned by a consortium. The measure initially was brought in 9 December 2009 but the proposed changes will have effect on 24 March 2010.

Capital distributions

There has been uncertainty over the treatment of certain distributions received by UK companies as to whether they were capital or income. The Finance Act 2009 exempted most foreign distributions received by UK companies from corporation tax unless they were capital in nature. However doubts remained about difficult borderline cases. The new legislation will simplify this area by treating all distributions as income unless they have been specifically excluded from income. The legislation will have retrospective effect to the date when the Finance Act 2009 rules took effect.

Relief for interest “worldwide cap”

The worldwide interest cap rules were introduced last year to limit the total UK deduction for interest expense to the total interest paid worldwide. The Treasury announced that changes would be made to the rules following a consultation with business. This has resulted in a number of proposed changes including the treatment of securitisation companies, the transfer of corporation tax liabilities arising from these rules within a group involved in capital market arrangements and various other changes affecting the “gateway test”, groups controlled by limited liability partnerships and distributions made by industrial and provident societies.

These changes apply to periods of account of the worldwide group beginning on or after 1 January 2010 and will be included in a Finance Bill in the new Parliament.

 

HM Revenue and Customs powers – deterrents and safeguards: security for payment of PAYE

HM Revenue and Customs are to be given powers to require a financial security from employers where amounts due under PAYE or NICs are considered to be “seriously at risk.” Furthermore it is HM Revenue & Customs who will have the power to determine the amount of the security based on their view of the potential tax liability.

These measures are intended to be applied to those employers with a history of serious non-compliance in terms of payment. The safeguard mirrors the current powers with regard to VAT.
 

These measures will introduce a criminal offence in the event of failure to provide a security which is punishable with a fine of up to £5,000.
 

These measures are expected to be applied as from 6 April 2011.

Offshore tax evasion

Increased penalties are expected to apply from 1 April 2011 for individuals and businesses with financial interests outside the UK who are found to have failed in their obligations to declare the full extent of their [offshore] income tax and capital gains tax liabilities. These penalties will be tax-geared. Where the non-compliance arises in a jurisdiction which has agreed to exchange information with the UK, but does not automatically share that information, the penalty percentages will be 1.5 times those laid out in the penalties legislation, and where the jurisdiction has no agreement to share information with the UK the penalty will be twice the rate laid down in the existing legislation.

Modernisation and compliance checks

With effect from 1 April 2012 there are increased requirements allied to the HM Revenue & Customs compliance framework. These measures will update the compliance checking framework for excise duties, including:

• Modernising information and inspection powers; and
• Aligning the record keeping rules and the time limits for assessments and claims with changes made to other taxes and duties.

© 2012 McAllen and Co | Business and investment incentives

Sitemap | Locations | Web Design by Mistera