Business taxation
- Corporation tax rates
- Capital allowances
- Extension of trading loss carry back for businesses
- Taxation of foreign profits and dividends
- Corporate intangible assets
- Loan relationships and connected companies
- Venture capital schemes
- Groups
- Losses denominated in foreign currency
- Anti avoidance provisions
- New regime for business cars
- The vehicle scrappage scheme
Corporation tax rates
The main rate of corporation tax will be set at 28% with effect from 1 April 2010. The rate for 'ring fenced' profits arising from oil rights in the UK and Continental Shelf will remain at 30%.
The small companies' rate will remain at 21% from 1 April 2009 onwards (19% for ring fence profits). Marginal rates will apply for profits between £300,000 and £1,500,000 with the small companies relief fraction being set at 7/400 (11/400 for ring fenced profits).
Capital allowances
The Chancellor has announced a new temporary rate of first year allowance on plant and machinery of 40% for expenditure incurred by companies between 1 April 2009 and 31 March 2010 (Unincorporated business 6 April 2009 to 5 April 2010). This will apply only to assets included in the main capital allowance pool - cars and assets use for leasing being excluded.
The annual investment allowance of £50,000 remains unchanged.
The list of environmentally beneficial technologies qualifying for 100% capital allowances will be revised in 2009 prior to the summer Parliamentary recess. The main change will be to add uninterruptible power supplies to the list.
Extension of trading loss carry back for businesses
As announced in the Pre-Budget Report the Chancellor has given some relief to businesses suffering from the effects of the recession by allowing current losses to be carried back against profits of the previous three years with consequent tax repayments resulting. The measure will have effect on and after 22 April 2009 for company accounting periods ending in the period 24 November 2008 to 23 November 2010 and for the two tax years 6 April 2008 through to 5 April 2010 for unincorporated businesses. The additional relief is capped, however, to target the measure at smaller businesses.
Taxation of foreign profits and dividends
This is an important measure for companies receiving foreign dividends as it brings the treatment of foreign dividends received by UK companies into line with the receipt of dividends from other UK companies. Foreign dividends have until now been subject to UK corporation tax whereas UK dividends are exempt. This measure exempts foreign dividends from UK corporation tax and will be particularly important to UK holding companies with foreign subsidiary or associated companies. This will apply to distributions received on or after 1 July 2009.
The other measures in this package include a cap on finance expenses paid by UK members of a group limiting it to the consolidated gross finance expense of the group. This takes effect for accounting periods beginning on or after 1 January 2010. Consequentially the controlled foreign company 'superior and non-local' exemptions and 'acceptable distribution policy' exemption will be removed. The changes to the CFC regime have effect for accounting periods starting on or after 1 July 2009 with provisions for straddling periods. The exemption for non-local and superior holding companies may be available until 1 July 2011.
The package also replaces the Treasury Consent Rules for pre-transaction clearances with a post-transaction reporting requirement this will be effective for transactions on or after 1 January 2010.
Legislation will also be introduced in the Finance Bill 2009 to ensure that the reduction in the main rate of corporation tax to 28% does not unjustly restrict the amount of double tax relief available to companies in receipt of foreign dividends. This measure will have retrospective effect from the financial year beginning 1 April 2008 onwards.
An anti-avoidance provision has been announced to prevent companies claiming double tax relief where there has been a repayment of foreign tax suffered to a person other than the claimant. Companies will now be obliged to notify HM Revenue & Customs and amend their claims for double tax relief accordingly. This takes effect on 22 April 2009).
Corporate intangible assets
The Budget measures include clarification of certain aspects of the 'regime' applicable to goodwill and other internally generated assets. The Finance Bill 2009 will confirm that the definition of goodwill includes internally-generated goodwill and also clarify whether this should be treated as created before or after 1 April 2002. The legislation will take effect from 22 April 2009 and will be treated as always having had effect.
Loan relationships and connected companies
There are two changes to the rules regarding the taxation of loan relationships between connected companies and these will mostly affect companies in groups. The first change will give symmetry of treatment for the debtors and creditors within a group in that the write off of a debt between connected companies will have no tax effect for either party: this takes effect on 22 April 2009. The second change allows interest to be allowable as a deduction on an accruals basis to a connected company which is outside of the loan relationship rules so long as the creditor company is not resident in a 'tax haven'. This change takes effect for accounting periods beginning on or after 1 April 2009.
Venture capital schemes
This Budget sees a number of improvements to the various schemes. For Enterprise Investment Schemes there is a relaxation of time limits for the employment of the money invested (effective 22 April 2009) and also the removal of the link to other shares of the same class issued at the same time as qualifying shares (effective for shares issued on or after 22 April 2009).There is also an extension of the period for carry back of relief and the ability to carry back the full amount subscribed subject only to the overriding limit which will be effective for tax years commencing 6 April 2009 onwards. An anomaly has also been cleared up which arose on an investor's capital gains tax position in the event of a share for share exchange (effective for new holdings issued on or after 22 April 2009.
There is a relaxation of the time limits for investment of sums raised by Corporate Venturing schemes (effective 22 April 2009) and the Venture Capital Trust schemes (effective for funds raised on or after 22 April 2009).
Groups
Groups of companies will in future find it easier to match capital gains and losses within a group without having to transfer the assets around the group prior to a disposal. Previously, a joint election could be made which deemed that the asset was transferred from one group company to another. For losses or gains arising on or after Royal Assent to the Finance Bill the joint election will have the effect of deeming a transfer of the gain or loss rather than the asset. This change will remove restrictions on the type of asset and the circumstances under which the gain or loss arises.
Groups which include subsidiaries with preference shares issued to external investors will not lose the ability to claim group relief. This will be of particular importance to subsidiaries registered with the FSA which have been recapitalised using preference shares as Tier 1 regulatory capital. This will become effective for accounting periods commenced on or after 1 January 2008.
Losses denominated in foreign currency
Companies which incur a loss for tax purposes computed in foreign currency and then use that loss to offset a profit in a different accounting period must now use the same conversion rates for the loss and profit offset. This was first announced on 18 December 2008 and will apply to accounting periods commencing on or after 29 December 2007 unless an election is made for deferment until the first accounting period beginning on or after Royal Assent to the Finance Bill 2009.
Anti avoidance provisions
In common with all recent budgets this year's announcements include a long list of various anti avoidance measures the most notable being those below.
Two schemes have been reported to HM Revenue & Customs which are now being tackled. The first concerns intra-group finance arrangement under a bond which is highly likely to convert into shares of the issuing company. The scheme involved obtaining a deduction for the accrued interest on the bond which exceeded the amount accounted for as received by the creditor.
Under the second scheme a company would derecognise a derivative contract carried at fair value resulting in profits falling out of account for tax purposes. Both these schemes are rendered ineffective for debits and credits on or after 22 April 2009.
Draft legislation had been published on 13 November 2008 to deal with tax avoidance in respect of plant and machinery leasing. This ensures that sale and leaseback arrangements do not result in more relief than would have been due if the lessee had obtained its own finance. It also dealt with tax avoidance by lessors granting long leases and obtaining an excessive amount of relief at the end of the leasing period. These measures will take effect from 13 November 2008. There are also new definitions of sale and leaseback arrangements which take effect on 22 April 2009.
Schemes which abuse the foreign exchange matching rules by matching gains or losses on borrowings or derivatives will also be blocked for accounting periods beginning on or after 22 April 2009.
Returns from arrangements which produce 'disguised interest' will be treated as interest and taxed accordingly for corporation tax purposes (effective for arrangements entered into on or after 22 April 2009.) The Finance Bill will also introduce a measure to deal with the 'payment of manufactured interest'. This measure was first announced on 27 January 2009 following a High Court decision.
The tax treatment of such payments will follow the accounting treatment applicable under UK Generally accepted Accounting Practice (effective for payments made on or after 27 January 2009).
New regime for business cars
The 2008 Budget announced the abolition of 'expensive cars' for the purposes of capital allowances and its replacement by an emissions based system. The details of the proposals were announced in December 2008. The Government confirmed the changes on 1 April 2009 and published revised draft legislation. The new rules will generally be effective for expenditure (or leases) on or after 1 April 2009 for companies and 6 April 2009 for unincorporated businesses. The regime provides for capital allowances to be given according to the C02 emissions of the car.
The vehicle scrappage scheme
A discount of £2,000 will be offered to consumers buying a new vehicle when selling a vehicle more than 10 years old which they have owned for more than 12 months. The scheme will end by the start of March 2010, or when funding for the scheme has been used if earlier.
