Corporation Tax

Rates Reduced

Decrying detractors who said that corporation tax rates should not have been cut and should not be cut any further, the Chancellor reduced the rate of corporation tax from 20% to 19%, effective from 1 April 2017 .  The rate will reduce again from 1 April 2020, dropping to 18%.

However, “big companies” with profit over £20million a year will have their corporation tax payments dates brought forward so tax is paid closer to the point at which profits are earned.  Currently “large” companies pay tax in instalments, with the first instalment due within the current accounting period, six months after the start of the accounting period and the last due three months after its end.  From April 2017 these companies will be required to make corporation tax payments in the third, sixth, ninth and twelfth months of their accounting period, thereby paying their tax for every quarter immediately after the end of that quarter.

“Fair Share” by Banks

The Chancellor reiterated a point made in previous statements that banks should pay their fair share.  Accordingly, an 8% surcharge will be introduced on the profits of banking companies in accounting periods beginning on or after 1 January 2016.  As announced in the March 2015 Budget, banks and buildings societies will not get corporation tax relief for compensation payments they have to make for misconduct issues.

Still calling on banks to make a fair contribution – but perhaps approaching it in a more moderate way (as one Budget commentator put it, “making a plea for HSBC to stay”) –  the recently introduced Bank Levy will decrease from 0.21% to 0.18% from 1 January 2016 and will continue to decrease each calendar year thereafter until 2021.

Goodwill Surprise

An unpleasant surprise was the restriction to corporation tax relief for the amortisation of business goodwill/customer related intangible assets. This measure takes immediate affect and is likely therefore to impact on some business acquisition transactions that are currently underway. Tax relief on amortisation of assets owned prior to 8 July are unaffected.  This effectively means no corporation tax relief for the amortisation of newly acquired intangibles until they are sold.   A previous adjustment to corporation tax relief for amortisation was introduced in the 2014 Autumn Statement but applied only to transactions between connected parties; this change affects all goodwill so is much wider in scope.

This now results in a very complex corporation tax system for intangible assets, with at least three different sets of rules to consider depending upon when the intangible asset was purchased.

Minor Changes

A new measure specifically for Controlled Foreign Companies (CFC) stops losses and other surplus expenses from being set off against the charge on the profits of CFCs. The measure applies to profits which arise on or after 8 July 2015 and effectively closes a loophole which would otherwise allow such a company to avoid the tax the charge was designed to collect.

There is a small change to the “large company” R&D scheme in that universities and charities are unable to claim the R&D expenditure credit.  This is to ensure that the scheme remains particularly targeted to the areas it was intended, namely R&D undertaken by businesses.

A simplification for consortium relief for companies does away with any possible discrimination for claimants based on the jurisdiction (whether UK or overseas) of the relevant company.

A new measure updates the rules governing company loan relationships.  It makes a series of changes to update the computation of profits and losses of loan relationships. Given that the rules have not changed since 1996 the measure is intended to bring matters up to speed with accounting standards rather than to bring in any particular tax revenues for the Government.

The Chancellor announced a measure to ensure that the correct value for tax purposes are brought into account for transfers of trading stock or intangible fixed assets between related parties in certain circumstances.  The intention is to prevent attempted tax avoidance by companies who artificially increase the value of stock for tax purposes.

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Nov 20

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