Corporate and Business Tax
Corporation tax rates
The main rate of corporation tax which applies to companies with profits of more
than £1.5 million remains at 28%.
The small companies corporation tax rate which applies to companies with up to £300,000
of profits remains at 21%.
The effective marginal corporation tax rate for profits between £300,000 and £1.5
million is 29.75%.
Trading loss carry back
Under current rules businesses already have a number of mechanisms to relieve trading
losses against other income including past trading profits.
For example unincorporated businesses can offset unlimited trading losses against
income in the preceding year. In the early years of operation an unincorporated
business can carry trading losses back for three years.
The main relief for companies is a carry back of unlimited trading losses against
profits made in the previous year.
A proposed revision will apply for two years and will extend the period that current
trading losses from businesses can be carried back against previous profits to a
period of three years with losses being carried back against later years first.
The amount of losses that can be carried back to the preceding year remains unlimited.
After carry back to the preceding year, a maximum of £50,000 of the balance of unused
losses is then available for carry back to the earlier two years.
The measure will have effect for company accounting periods ending in the period
24 November 2008 to 23 November 2010. For unincorporated businesses, the measure
will have effect in relation to trading losses for tax years 2008/09 and 2009/10.
Comment
The £50,000 limit applies separately to the unused losses of each 12 month period
or tax year.
Capital allowances on plant and machinery
Additional capital allowances are to be available for expenditure incurred by a
qualifying activity in the 12 month period commencing 1 April 2009 for companies
and 6 April 2009 for individuals and partnerships. Most businesses have since 1
April 2008 (corporation tax) or 6 April 2008 (income tax) been able to claim the
new Annual Investment Allowance (AIA) on the first £50,000 spent on most plant and
machinery. Expenditure on qualifying plant and machinery not covered by the AIA
will be eligible for a temporary first year allowance (FYA) of 40% instead of 20%
Writing Down Allowance (WDA). The FYA will not apply for expenditure on integral
features, cars, long life assets and assets for leasing.
Comment
The availability of additional capital allowances will be attractive to larger
or plant intensive businesses where the AIA is insufficient, particularly groups
of companies where one AIA has to be shared between all companies.
Taxation of business travel
Changes are being made to the capital allowance treatment of cars. The changes will
have effect from 1 April 2009 for corporation tax purposes and 6 April 2009 for
income tax. The special rules that restrict the amount of capital allowances for
cars costing more than £12,000 will be abolished.
- Expenditure on cars with CO2 emissions of 160g/km or below will be allocated to
the plant and machinery main pool (ie will obtain 20% WDA).
- Expenditure on cars with CO2 emissions above 160g/km will be allocated to the
‘special rate pool’ (ie will obtain 10% WDA).
- Cars that have an element of non-business use will continue to be dealt with in
a single asset pool to enable the private use adjustment to be made but for expenditure
incurred from April 2009 onwards the rate of WDA will be determined by the car’s
CO2 emissions.
Expenditure incurred before April 2009 will in general continue to be subject to
the existing ‘expensive’ car rules for a transitional period of around five years.
If any expenditure remains in a single asset pool at the end of the transitional
period (unless there is any non-business use of the car) it will be transferred
to the main capital allowances pool.
From April 2009 the special rules that restrict the amount of lease rental payments
that can be deducted for tax purposes for a car with a retail price exceeding £12,000
will be reformed. The restriction will be changed to a flat rate disallowance of
15% of relevant payments and apply only in respect of cars with CO2 emissions above
160g/km.
The provisions also aim to ensure that only one lease restriction will apply where
there is a chain of leases and that in limited circumstances there is no disallowance.
One example of this is where a business rents such a car on short term hire not
exceeding 45 days. Expenditure under leases that commenced prior to 1 or 6 April
2009 (that is where the car is made available before April 2009) will continue to
be subject to the existing rules.
Motorcycles are to be excluded from the definition of cars and will not therefore
be subject to these rules. Expenditure incurred on motorcycles on or after 1 or
6 April 2009 will qualify for the AIA or alternatively the temporary FYA.
Comment
The 100% FYA regime for low emission cars was extended to 31 March 2013 in Budget
2008 and therefore will still apply. The current threshold for CO2 emissions is
110g/km (so not many cars qualify).
Further extension of green technology lists
Businesses purchasing designated plant and machinery which meet energy saving or
water technology criteria are eligible for 100% capital allowances. The qualifying
technologies are published in lists which are reviewed annually to ensure the criteria
are still relevant. This year one new technology - uninterruptible power supplies
- will be added. It has also been announced that there will be other additions and
removals to the sub-technology lists when all the lists are reissued later in 2009.
The current lists are available on the internet at www.eca.gov.uk.
Groups and chargeable gains
A capital gains group is able to relieve a chargeable gain in one group company
with an allowable loss in another group company provided the disposal was to a third
party.
Changes are proposed to the legislation. Instead of deeming a transfer of an asset
from one group company to another before the disposal, it transfers a gain or loss
from the company making the disposal to one or more other specified companies within
the group when they jointly elect. The former restrictions on the type of asset,
and the circumstances under which the gain or loss arises no longer apply.
Taxation of foreign profits
The government will bring forward a package of reforms to the taxation of corporate
foreign profits in Finance Bill 2009.
Foreign dividends are currently chargeable to UK corporation tax with a credit for
foreign tax depending on the precise circumstances. Such dividends will generally
be exempt for all companies where received on or after 1 July 2009. This will
apply regardless of the level of shareholding in the foreign company.
Targeted Anti-Avoidance Rules will apply to protect against any avoidance activity
seeking to exploit these dividend exemptions. The exemption will be supported by
a worldwide debt cap on interest and changes to the Controlled Foreign Company rules.
In addition the existing Treasury consent rules will be reformed.
Comment
The government is attempting to enhance the competitiveness of the corporate tax
system to make the UK a more attractive location for multinational business. There
have been a number of high profile plans by some UK businesses to relocate outside
the UK.
Corporation tax: loan relationships
Legislation will be introduced in Finance Bill 2009 to amend the loan relationships
rules affecting connected companies. Two companies are ‘connected’ under the loan
relationships rules if one controls the other, or they are both under common control
- so companies in the same group are connected.
The amendments cover:
- the release of trade debts between connected companies
- the late payment of interest between connected companies.
A creditor that formally releases a connected debtor from a trade or property business
debt is denied a deduction for the loss on the debt but currently the debtor may
be taxed on its ‘profit’ in certain circumstances. Under the first change, the debtor
company will not be taxable on the release.
This is to be effective for such debts released on or after Budget Day.
Interest payable is normally allowed on the accruals basis. However a deduction
for interest payable to a connected creditor that is outside the UK is allowed on
a paid basis if paid more than 12 months from the end of accounting period in which
it accrued. It is proposed to change this rule. Where the interest is payable to
a company, unless that company is located in a tax haven, interest will be deductible
as it accrues in the accounts, not when it is paid.
This change will have effect for company accounting periods beginning on or after
1 April 2009. An election for a paid basis to continue will be available for
the first such accounting period only.
Goodwill and the intangible asset rules
The intangible asset regime only applies to companies and was introduced on 1 April
2002. Legislation will be introduced in Finance Bill 2009 to confirm that goodwill
includes internally-generated goodwill. It also confirms that all goodwill is created
in the course of carrying on the business in question and is subject to rules determining
whether goodwill is treated as created on or after 1 April 2002.
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