Business Tax
Corporation Tax
The planned increase in the small companies’ rate from 21% to 22%, scheduled to take effect from April 2010, is now deferred until April 2011.
Capital Allowances
Presumably in an attempt to prove his green credentials, the Chancellor announced that new electric vans will qualify for 100% first year allowances. This will have effect from 1 April 2010 (for companies) and 6 April 2010 (for unincorporated businesses) subject to the State aid rules. Second hand vans will not qualify. Electric cars and cars with Co2 emissions of not more than 110g/km already qualify for 100% capital allowances.
There were several anti avoidance measures announced regarding capital allowances. The first one is designed to stop companies in tax motivated transactions which acquire an interest in an “excess of allowances”. This is defined as where the tax written down value exceeds the balance sheet value. This happens frequently in the commercial world and the Budget notice states that only tax motivated transactions will be affected. Rules already announced in July 2009 were designed to restrict the utilisation of losses by groups of companies that are created by an excess of capital allowances. The change in the Pre-Budget Report is to extend these rules to include the situation where an unincorporated shareholder sells a company with an excess of allowances to a group in a tax motivated transaction.
There were also a couple of anti avoidance measures involving the leasing of plant and machinery. These will have effect from 9 December 2009 and are aimed to ensure that:
- lessor companies are unable to generate tax losses using arrangements intended to result in tax relief in excess of the value of taxable income; and
- businesses are prevented from turning a timing advantage into a permanent tax reduction by ceasing to be within the charge to tax following the sale of the right to income from a lease of plant and machinery.
Research & Development (R&D) tax relief made more widely available
R&D tax relief will be available to companies regardless of whether or not they have, or retain an interest in, the intellectual property developed through the R&D process. This applies to ‘SME’ companies for their accounting periods ending after 9 December 2009. SMEs will be able to take advantage of this change whether they claim under the SME R&D scheme or the large-company R&D scheme (which is available for those whose R&D is grant-funded and never required the IP to be owned by the company).
This will help university spin outs which in the past have been excluded from relief if IP remains with the university.
Companies in this field may wish to consider extending their accounting periods to take advantage of this relief sooner.
www.armstrongwatson.co.uk/r-and-d
10% rate on income from UK patents
From April 2013 a reduced rate of corporation tax of 10% will apply to income arising from new UK patents. Details of this are not expected to come until late 2010 (as the legislation will be introduced in Finance Act 2011) and so it is not yet clear whether this rate will apply only to royalties or also to sale of goods protected by patents.
In any event we would expect to see an increase in the number of new patents registered in the UK as many businesses have been reluctant to register patents due to the costs involved. This relief should negate that financial issue; however, enforceability of patents will remain a commercial issue.
EIS / VCTs
Although no specific proposals were made it is understood that the scope of EIS and VCT tax relief is going to be restricted so that they only apply to smaller companies. These remain very valuable reliefs and importantly there will not be any change to the relief that investors can claim. EIS therefore remains a valuable tool in:
planning for relief from income tax, capital gains tax and inheritance tax; and
for companies to use when seeking investment.
EMI share options
Changes may be made to the rules relating to Enterprise Management Incentives (EMI) share option schemes to ensure that the European Commission approves the schemes for State Aid purposes.
Film Tax Credits
Film production companies making films with production spends spread across two or more accounting periods have been unfairly restricted in the maximum tax credit claimable. This anomaly has occurred when the proportion of UK spend has increased in the second accounting period.
The legislation is to be amended to ensure that, where the proportion of UK spend increases in the second accounting period, film production companies will not be restricted in their claim for tax credits. This applies for accounting period ended on or after 9 December 2009.
Sale of Lessor Companies
Sale of Lessor Companies: Alternative Treatment
This only affects companies carrying on a business of leasing plant or machinery.
When a lessor company changes hands there is a tax timing benefit for the selling group. Schedule 10 of FA 2006 imposes a tax charge which prevented this loss of tax, but because of the challenging economic times the measure has affected normal commercial transactions.
The Pre-Budget Report has announced that from 9 December 2009 the lessor company can elect for an alternative treatment, removing the need to calculate an immediate charge, this is done by isolating the profits of the business following the sale of the company.
Sale of Lessor Companies: Consortium Arrangements
When the lessor company is owned by a consortium of companies it was previously possible to structure the arrangement to avoid the above tax charge, this is now being prevented by altering the definition of a company owned by a consortium to include those owned indirectly.
Employee Benefit Trusts
Surprisingly, despite all the noises made by HM Revenue & Customs recently in respect of EBTs, there was no announcement in the Pre-Budget Report in relation to either the PAYE/NIC aspects of EBTs or the Inheritance Tax position.
Therefore, EBTs remain a useful tool to extract surplus cash and assets from a company, to improve a shareholder’s Capital Gains Tax or Inheritance Tax position of their shareholding or to provide tax efficient loans to employees.
Of course, changes may occur in the next Budget, rumoured to be in February, so now may be the time to undertake such planning.
