Business tax

Corporation tax rates

The main rate of corporation tax is currently 20% and this rate will continue for the Financial Year beginning on 1 April 2016. The main rate of corporation tax will then be reduced as follows:

• 19% for the Financial Years beginning on 1 April 2017, 1 April 2018 and 1 April 2019
• 18% for the Financial Year beginning on 1 April 2020.

Annual Investment Allowance (AIA)

The AIA provides a 100% deduction for the cost of most plant and machinery (not cars) purchased by a business, up to an annual limit and is available to most businesses.

The maximum amount of the AIA was temporarily increased to £500,000 from April 2014 until 31 December 2015. The level of the maximum AIA will now be set permanently at £200,000 for all qualifying investment in plant and machinery made on or after 1 January 2016.

Where a business has a chargeable period which spans 1 January 2016 there are transitional rules for calculating the maximum AIA for that period.

Comment

The timing of the expenditure around 1 January 2016 is critical for businesses with a chargeable period which straddles this date. For example a company with a 31 March year end has an AIA limit for the year to 31 March 2016 as follows:

April 2015 – December 2015	9/12 x £500,000 =	£375,000
January 2016 – March 2016	3/12 x £200,000 =	£50,000
Total		£425,000

However any AIA available on expenditure in the second period would be limited to the time apportioned maximum in that period. So, for expenditure incurred on or after 1 January until 31 March 2016, the maximum amount of relief will only be £50,000.

Corporation tax of 45% on restitution interest

The government has provided that a special 45% rate of corporation tax is to be applied to restitution interest. This measure was legislated for in Finance (No.2) Act 2015. Restitution interest can arise when a company has made a claim to the courts in relation to tax paid under a ‘mistake of law’ where HMRC are the defendants. Any interest award that represents compensation for the time value of money is restitution interest. If received on or after 21 October 2015, this interest will be charged at a special rate of 45%. This rate does not apply to any amounts which represent the repayment of overpaid tax or interest payments by HMRC under statutory provisions.

Research and development (R&D)

The government has introduced a voluntary Advanced Assurance scheme for small businesses making their first R&D claim. The scheme commenced in November 2015 and provides successful applicants assurance that HMRC will allow their first three years of R&D tax relief claims without further enquiry. The government also intend to improve their communication and guidance for small companies seeking to claim R&D tax relief.

Loans to trustees of charitable trusts

Under current legislation, loans made by close companies to trustees of charitable trusts which are  participators, or associates of participators, in the company could be liable to a tax charge of 25% under ‘loans to a participator’ rules. Any such loans made on or after 25 November 2015 will now be exempt from this charge. The new rule only applies where the loan received by the trustee is applied wholly to the purposes of the charitable trust.

Extending averaging for farmers

The averaging period for self-employed farmers will be extended from two years to five years as of April 2016, with farmers having the option of either averaging period.

Eligible investments for venture capital schemes

With effect from 30 November 2015, the provision of reserve energy generating capacity and the generation of renewable energy benefiting from other government support by community energy organisations will no longer be qualifying activities for the Enterprise Investment Scheme (EIS), Venture Capital Trusts (VCT), the Seed Enterprise Investment Scheme and enlarged Social Investment Tax Relief (SITR). The government will exclude all remaining energy generation activities from the schemes from 6 April 2016 as well as from the enlarged SITR. The government will also continue to explore options to introduce increased flexibility for replacement capital within the schemes.

Corporate debt and new accounting standards

The government will legislate to update the tax rules for company debt to ensure that they interact correctly with new accounting standards in three specific circumstances. Details of the circumstances will be contained in the draft Finance Bill 2016 clauses to be issued in early December.

Company distributions

Later this year the government will publish a consultation on the rules concerning company distributions. There will also be a Targeted Anti-avoidance Rule to prevent opportunities for income to be converted to capital in order to gain a tax advantage.

Anti-avoidance

Specific anti-avoidance amendments have been made or are proposed in relation to the following:

• The intangible fixed asset rules for partnerships with corporate members, which apply to transactions involving transfers of intangible fixed assets to the partnership that take place on or after 25 November 2015. With regard to transactions that occurred before 25 November 2015, the measure will have effect in relation to the accounting debits and credits accruing on or after that date.
• Capital allowances and leasing which will apply to certain agreements entered into on or after 25 November 2015.