Corporation Tax

Corporation Tax Rate Reduction in 2020

The main rate of corporation tax will be reduced to 17% for the financial year beginning 1 April 2020.

Close Company Reforms

The rate of tax charged on loans to participators and benefits conferred by close companies will be specifically linked to the dividend upper rate (32.5%), from 6 April 2016. Currently it is set at 25%. This rate will apply to loans made and benefits conferred by close companies on or after 6 April 2016. For accounting periods which straddle that date different rates will be applied to separate loans made or benefits conferred before, and on or after, 6 April 2016. The reason for this change is to ensure that the rules continue to prevent individuals gaining an unfair tax advantage by taking loans (or making other arrangements to extract value) from their companies rather than remuneration or dividends.

In addition, for loans or advances made on or after 25 November 2015, a tax charge is not applied to loans or advances made by close companies to charity trustees for charitable purposes.

Reform of Corporate Loss Relief

Corporate losses arising on or after 1 April 2017 will, when they are carried forward, be able to be offset against profits from different types of income and other group companies. In addition, where a company or group’s profit is above £5m, the losses carried forward are only able to be offset against up to 50% of the profits above £5m. Carried forward losses arising at any time will be subject to this restriction.

Large Company Instalment Payments

The commencement of rules advancing quarterly instalment payments for very large companies (those with profits above £20m) is deferred for two years, so that they will have effect for accounting periods commencing on or after 1 April 2019.

Hybrid Mismatch Arrangements

Broadly speaking, these arrangements exploit differences in the tax treatment of an entity or instrument under the laws of more than one tax jurisdiction, to achieve double non-taxation or a prolonged deferral of tax. Following consultation, legislation will be introduced (that will apply from 1 January 2017) that will neutralise the tax effect of hybrid mismatch arrangements in accordance with the recommendations of the BEPS project. In addition, the measure will also neutralise the tax effect of hybrid mismatch arrangements involving permanent establishments.

Extension of Enhanced Capital Allowances in Enterprise Zones

With effect from the date of Royal Assent to Finance Act 2016, legislation will ensure that all enterprise zones are able to offer enhanced capital allowances (ECAs) for 8 years following the establishment of the ECA site.

Vaccine Research Relief: Expiry in 2017

The Government plans to withdraw Vaccine Research Relief from 1 April 2017 owing to the low level of take-up.

Patent Box

Legislation will be introduced to ensure that the lower Patent Box corporation tax rate is determined by reference to a company’s direct engagement in Research and Development. This will come into effect on 1 July 2016.

Research and Development (R&D) Relief: SME State Aid Cap

Legislation will be introduced in Finance Bill 2016 to amend the calculation of the state aid cap for the purposes of the Research & Development relief calculation for small and medium enterprises (SMEs). This calculation allows an SME to discount any aid which represents a notional amount which could be claimed under the large company R&D relief when calculating whether or not they are under the state aid cap for R&D SME relief.

As the large company scheme is being replaced by the R&D expenditure credit on 1 April 2016 an amendment is needed so that the calculation continues to apply in the same way as it did under the previous scheme.

Profits from Trading in and Developing UK Land

New rules are to be introduced in Finance Bill 2016 to charge corporation tax on trading profits of companies from dealing in or developing UK land without any restriction for the normal territorial limits on UK legislation. The charge will apply irrespective of the residence of the company and of where the trade is carried on and whether or not the trade is carried on through a permanent establishment in the UK or elsewhere.

The new rules will be introduced to the Bill at Report Stage and will apply to disposals on or after the date of the introduction, expected to be in June 2016. Anti-avoidance rules will apply with effect from 16 March 2016 to counteract arrangements made to avoid or reduce the charge before it is introduced.

Tax Deductibility of Corporate Interest Expenses

From 1 April 2017, interest expenses that can be offset against profits of large multinational enterprises will be limited to 30% of a group’s earnings. This measure will be targeted by the introduction of a group ratio rule, an exemption for public benefit infrastructure and a £2m de minimis threshold.

Large Business Tax Strategies

Legislation will be introduced to improve large business tax compliance. These provisions will include a new requirement that large businesses publish their tax strategies, and special measures powers to tackle a minority of large businesses that persistently engage in aggressive tax planning. The legislation will be effective for accounting periods commencing on or after Royal Assent to Finance Act 2016.