March 23, 2016
The Budget may have been overshadowed by the Disability row and the Sugar Tax but for businesses these are the facts. If you would like more information then please get in touch and we’d be delighted to help.
Corporation tax rates
The main rate is currently 20% and this continues for the Financial Year beginning on 1 April 2016. Corporation tax main rates will then be reduced as below:
- 19% for the Financial Years beginning on 1 April 2017, 1 April 2018 and 1 April 2019
- 17% for the Financial Year beginning on 1 April 2020.
Corporate tax loss relief
There will be two reforms introduced to corporate tax losses from April 2017:
Losses arising on/after 1 April 2017 will be usable, when carried forward, against profits from other income streams or other companies within a group.
From 1 April 2017, companies will only be able to use losses carried forward against up to 50% of profits above £5 million. For groups, the £5 million allowance will apply to the group.
Capital allowances on business cars
The current 100% first year allowance (FYA) will be extended on businesses purchasing low emission cars to April 2021. These vehicles include cars where the CO2 emissions of < 75 gm/km and this will fall to <50 gm/km from April 2018.
The CO2 emission threshold on the main rate of capital allowances for business cars will come down from 130 gm/km to 110 gm/km as of April 2018.
Corporation tax payment dates
In the Summer Budget 2015, the government said it would bring forward corporation tax payment dates for companies with profits > £20 million. This has nows been deferred by two years and will now apply to accounting periods commencing on or after 1 April 2019.
Loans to participators
The 25% rate of tax charged on loans to participators (plus other arrangements by close companies) will increase to 32.5%. This applies to loans made and benefits conferred on or after 6 April 2016. This mirrors the dividend upper rate. The government said that this will prevent individuals from taking loans or making other arrangements to extract value from their company (rather than remuneration or dividends) and thus gaining a tax advantage.
Enterprise Zones – enhanced capital allowances
The period in which businesses investing in new plant and machinery in ECA sites in Enterprise Zones can qualify for 100% capital allowances has been extended to eight years.
Removal of statutory renewals allowance
The statutory renewals allowance will be withdrawn, this provided businesses with tax relief for the cost of replacing tools. The changes make sure that tax relief for expenditure incurred on replacement tools will be obtained under the same rules as those which apply to other capital equipment. Businesses can still claim tax relief under the normal capital allowance regime or, in the case of residential landlords, for the cost of replacing domestic items such as furnishings and appliances. This comes into effect for expenditure on or after 6 April 2016 for income tax purposes and from 1 April 2016 for corporation tax.
Company distributions
New legislation will be introduced with effect from 6 April 2016 to:
- Amend the Transactions in Securities legislation, these are designed to prevent tax advantages in certain circumstances. The amendments include liquidations which now potentially come within the scope of the legislation
- Introduce a new Targeted Anti-Avoidance Rule, which would prevent some distributions in a liquidation being taxed as capital applying where certain conditions are met and there is an intention to gain a tax advantage.
- In some circumstances shareholders of close companies can receive a payment from the company which is taxed as a capital gain instead of as dividend income. If Entrepreneurs’ Relief is available the gain will be subject to only 10% tax. The government is clearly concerned that the new dividend tax rates (introduced from 6 April 2016) will only encourage shareholders to convert to capital what might otherwise be taxed as income.
Abolition of Class 2 National Insurance Contributions (NIC)
The government will abolish Class 2 NIC from April 2018. The government will also respond to the recent consultation on state benefit entitlement for the self-employed. This will aim to set out how the self-employed will access contributory benefits after Class 2 is abolished.
Property and trading income allowances
From April 2017, there will be the introduction of a new £1,000 allowance for property and trading income. Any individuals with property or trading income <£1,000 will no longer need to declare or pay tax on that income. Any with income >£1,000 will be able to calculate their taxable profit in two way 1) By deducting their expenses in the normal way or 2) By deducting the relevant allowance.
Making tax digital
From 2018 businesses, self-employed people and landlords who keep records digitally and provide regular digital updates to HMRC will be able to adopt ‘pay-as-you-go’ tax payments. This will allow them to select payment patterns that better fit their circumstances to allow better cash flow management.
Reform of Substantial Shareholding Exemption (SSE)
SSE simply means that capital gains on corporate share disposals are not subject to UK corporation tax where certain conditions are met. Introduced in 2002 it was designed to make sure that tax does not act as a disincentive to commercially desirable business sales or group restructuring. There have been significant changes and developments in the UK and international corporate tax arena since the SSE was introduced. The government is consulting on the scope to which the SSE is delivering its original policy objectives. They also want to assess whether there could be changes to its design in order to simplify, add coherence and improve international competitiveness.
Petroleum Revenue Tax (PRT)
The rate of PRT will be reduced to zero for all chargeable periods ending after 31 December 2015.
Anti-avoidance
The government will change the deduction of tax at source regime and bring all international royalty payments (arising in the UK) within the charge to income tax, unless those taxing rights have been given up under a double taxation agreement or the EU Interest and Royalties Directive.