The main rate of corporation tax will reduce from the current rate of 26% to 24% on 1 April 2012. Further reductions are proposed, so that the main rate will become 23% on 1 April 2013 and 22% on 1 April 2014.
The threshold for the main rate remains at £1,500,000.
There are separate rules governing “ring fence profits”, which primarily relate to companies in the oil industry.
Corporation tax rates
A further reduction of 1% per annum has been announced so that the main rate of corporation tax will be 24% from 1 April 2012, reducing to 22% by 1 April 2014.
Controlled foreign companies
New rules will be introduced for CFC accounting periods beginning after 31 December 2012. If the new CFC regime applies, certain profits of the CFC will be taxable in its UK parent (“chargeable profits”).
A new “gateway test” defines “chargeable profits” which includes profits artificially diverted from the UK. “Gateway safe harbours” will be introduced to exclude certain profits of the foreign subsidiary from the CFC regime including commercial activities and incidental finance income.
In addition to the gateway test there are exemptions applying to the CFC as a whole including excluded territory, low profits, low profit margins and tax rate exemptions.
A number of amendments to the worldwide debt cap will be introduced in the Finance Bill 2012 including the ability to opt out of the de-minimis limits of the net financing deduction and net financing income amounts. This will prevent wholly UK groups from suffering an overall disallowance purely due to the application of the de-minimis limits.
In addition a group will be required to be a worldwide group throughout the period of account in question for the debt cap rules to apply.
New anti-avoidance measures will also be introduced.
Companies may elect from 1 April 2013 to apply a 10% corporation tax rate to a proportion of profits attributable to qualifying patents (including those granted by the UK Intellectual Property Office and the European Patent Office).
The proportion of profits to which the 10% rate may apply is to be phased in over 5 years as follows: 60% in 2013/14, rising by 10% p.a. until the full relief is available from April 2017.
The Accounting Standards Board have previously stated that they intend to significantly change what they constitutes UK GAAP (Generally Accepted Accounting Principles) during 2012. This is likely to mean there will be an impact on UK financial reporting.
As acceptable accounting policies for computing taxable profits includes UK GAAP there will also be an impact on the computation of a business’s taxable profit arising from these changes.
The rules will ensure the adjustments that will arise from the move from existing UK GAAP to “new” UK GAAP follows existing tax legislation so that a change from one valid basis to another can be dealt with in the year of change.
During the summer of 2012 there will be a period of consultation on whether to introduce a rule which will allow companies with a non-sterling functional currency to compute any capital gains or losses in this functional currency, rather than in sterling.
The aim is to provide a simpler and fairer tax treatment, as well as reducing the administrative burden for these companies. If applicable, any new legislation will be introduced in Finance Bill 2013.
Business premises renovation allowance
From April 2012, the Business Premises Renovation Allowance scheme which allows a 100% deduction for expenditure incurred will be extended for a further five years to April 2017, providing relief on renovation of business premises in assisted areas.
Research & development
As previously announced, from 1 April 2012:
• Small and Medium Enterprises (SMEs) will receive tax relief on 225% of qualifying expenditure
• The rule limiting the R&D tax credit for SMEs to the amount of PAYE and NICs it pays in the period are abolished.
• The SMEs rate of repayable credit is reduced from 12.5% to 11%
• The minimum annual R&D expenditure of £10,000 for all companies has been abolished
• Vaccine Research Relief for SMEs is abolished
• The definition of “externally provided worker” will be widened to allow claims for work carried out by subcontractors.
Above the line R&D credit
From 1 April 2013 the government intends to introduce an above the line R&D tax credit. This will allow the tax credit to be reflected in companies’ financial statements in EBITDA and profit before tax as opposed to being shown as a reduction in the tax charge.
Tax relief for digital production
Perhaps one of the most exciting developments in this Budget was the announcement that From 1 April 2013 the government intends to introduce a corporation tax relief for the video games, animation and high-end television industries from 1 April 2013. The manner of the relief has yet to be determined but the measure is expected to allow £40m of additional tax relief over two years. Its nature will be formulated via a consultation process over the summer.
Capital allowances: solar panels
Expenditure on solar panels will now qualify as special rate for capital allowance purposes (currently 8%) and where applicable Annual Investment Allowances (AIA).
Enhanced capital allowances are not available for expenditure on plant and machinery where Feed-in Tariffs (FiT) or the Renewable Heat Incentive (RHI) are received after 1 April 2012 for corporate entities generally and 6 April for sole traders and partnerships.
Capital allowances: enterprise zones
The Government will offer 100% capital allowances on plant and machinery investments made in designated areas of the London Royal Docks Enterprise Zone, three Scottish Enterprise Zones in Irvine, Nigg and Dundee, and Deeside in North Wales.
This follows announcements made in the Autumn Statement 2011 of 100% capital allowances available in the following Enterprise Zones: the Black Country, Humber, Liverpool, North Eastern, Sheffield, and Tees Valley.
Allowances in all zones will be available from 1 April 2012.
Capital allowances: fixtures
As announced at Budget 2011, from April 2012 the availability of capital allowances to a purchaser of fixtures will be conditional on businesses following a new statutory mechanism for fixing a value for fixtures by agreement between vendor and purchaser within two years of a sale.
A technical amendment to the legislation will also enable plant and machinery capital allowances to be claimed by a new owner on any fixtures expenditure that has not been relieved under the BPRA scheme.
Enhanced capital allowances: energy saving technologies
The Enhanced Capital Allowance (ECA) regime provides for expenditure by a business on certain qualifying plant and machinery to be written off in full as a tax deductible expense. The plant and machinery has to be energy saving and/or water efficient.
It is proposed to update the list of qualifying technologies and products to include a new sub-technology: heat pump driven air curtains. The criteria for eleven technologies will also be revised.
In addition, three technologies – combustion trim controls, energy saving controls for desiccant air dryers and sequence controls – will be removed from the scheme.
The effective date will be announced by a Treasury Order to be made prior to the summer 2012 Parliamentary recess.
Anti-avoidance - capital allowances
Legislation is to be included in the Finance Bill 2012 to make the capital allowances anti-avoidance more effective. The transactions that will be caught by the legislation are those involving plant and machinery where there is an avoidance purpose to the transaction or where the transactions form part of a tax avoidance scheme.
The effect of the legislation will be to deny first year allowances or annual investment allowance for the purchase of plant and machinery and to restrict the allowances that the purchaser can claim, such that the tax advantage is cancelled.
The Government had announced in August 2011 that, for expenditure incurred on or after 12 August 2011, the exception from the existing anti-avoidance rules for plant and machinery acquired from a manufacturer or supplier would be repealed in the Finance Bill 2012. The legislation now to be introduced does not contain this repeal in full, but only relates to expenditure incurred for avoidance purposes or that is part of a tax avoidance scheme.
First year capital allowances for gas refuelling equipment
100% capital allowances for plant and machinery used in gas, biogas and hydrogen refuelling stations will be extended to 31 March 2015.
First-year capital allowances for low emission cars
100% capital allowance for businesses purchasing low emission cars will be extended for a further two years from 31 March 2013 although, the qualifying threshold will be reduced to the current 100g/km to 95g/km.
The proposed extension does not apply to leased cars.
Company car emissions
The Finance Bill 2013 will reduce the threshold for a main rate car to 130g/km to match EU emissions targets for 2020.
The associated lease rental restriction will also be revalorised in line with this.
The changes will take effect from 1 April 2013 for businesses charged to corporation tax and 6 April 2013 for businesses charged to income tax.
Tax credits for expenditure on environmentally friendly beneficial plant or machinery
Companies could claim first-year tax credit of 19% in respect losses attributable to their expenditure on designated environmentally friendly plant or machinery. This legislation will be extended for a further five years from 1 April 2013.
The amount of payable credit cannot be more than £47,500.
Capital allowances for safety at sports grounds
Capital allowances are not generally available for capital expenditure incurred on the fabric of buildings.
The safety at sports grounds reliefs were introduced between 1975 and 1988 to provide capital allowances on expenditure incurred in respect of making various safety improvements at sports grounds, either under the Safety at Sports Grounds Act 1975 or the Fire Safety and Safety of Places of Sport Act 1987.
These reliefs will be withdrawn in relation to capital expenditure incurred on or after 1 April 2013 for businesses within the charge to corporation tax and on or after 6 April 2013 for businesses within the charge to income tax.
Flat conversion allowance
Flat conversion allowances (FCAs) provide a 100% capital allowance to encourage the conversion or development of empty or under-used space above shops and other commercial premises into residential property for letting.
This relief will be withdrawn for expenditure incurred on or after 1 April 2013 for businesses within the charge to corporation tax, and on or after 6 April 2013 for businesses within the charge to income tax.
The entitlement to claim writing down allowance on any outstanding residue of qualifying expenditure will also cease with effect from the same dates.
The Finance Bill 2012 will include legislation to ensure that the total capital allowances received by lessees under long funding leases will equal their net capital expenditure under those leases. This legislation is designed to counter arrangements whereby lessees seek to avoid tax on amounts received in connection with the leases which are not required to be brought into charge to tax under the specified formula for disposals of long funding leases. The measures will ensure that such payments to the lessee or connected persons are brought within the charge to tax. The changes will apply to disposal events on or after 21 March 2012.
Lease premium relief
The Government has announced that following a period of consultation they will be seeking to introduce legislation to amend one particularly complex area of lease premium relief where long leases which are treated as short leases.
It is intended that any new legislation will be introduced in the Finance Bill 2013.
Measures were announced on 27 February 2012 to counter a scheme that was being used by companies to take advantage of the loan relationship rules for connected companies.
Legislation will be introduced in Finance Act 2012 to counter arrangements that are entered into to avoid or reduce a deemed release where a connected creditor company acquires impaired or discounted debt from a third party or where creditor and debtor companies, who are party to a debt become connected.
The legislation will apply to arrangements entered into after 27 February 2012, but will also include a provision where a creditor party becomes party to a loan relationship and became connected to the debtor company between 1 December 2011 and 27 February 2012.
Following an announcement on 27 February 2012, anti avoidance legislation will be introduced to address a scheme which allowed corporate investors in AIFs to obtain a tax benefit on distributions from these funds, where no underlying tax was being suffered by the fund.
As a result, it should be no longer possible for a company to obtain a credit for tax not suffered or to reduce their tax liability below the level which would apply if the assets had been held directly. The new legislation will have an effect on any distributions made on or after 27 February 2012.
Trusts settled by companies
Anti-avoidance legislation will be introduced in response to disclosed schemes that sought to exploit the settlements legislation to treat dividend income as that of a corporate settlor rather than of an individual beneficiary.
The settlements legislation will be amended to confirm that it does not apply to any income arising under a settlement where the settlor was not an individual. This will apply with effect from 21 March 2012.
Landfill site restoration
Payments for landfill site restoration work are usually deductible when made but where they are made to connected persons after 20 March 2012, a revenue deduction or relief will only be given when the restoration is completed. Relief will also be denied where one of the main purpose of the arrangement is to obtain tax relief.
Disclosure of schemes
Formal consultation will take place over the summer on extending the DOTAS hallmarks to widen the number of avoidance schemes that have to be notified. The intention is to publish draft regulations later in the year.
Asset transfers between UK companies
As previously announced, existing rules that apply where one UK company transfers assets and liabilities (other than cash) to another UK company are to be repealed. This should remove certain anomalous differences to the tax treatment when a non-UK resident company is involved. It will ensure that the transfer of assets and liabilities between UK resident companies can be treated as a distribution for corporation tax purposes in all cases.
The measure will have effect for all transfers on or after the date of Royal Assent of Finance Bill 2012.
Manufactured overseas dividends
In September 2011 targeted anti-avoidance legislation was introduced to stop a tax avoidance scheme which allowed certain companies to offset or claim a repayment of UK tax which had never been paid on manufactured overseas dividends that are routinely paid in the financial markets under stock lending or repo transactions.
Broadening REITs appeal
The Government has previously announced that they will make improvements to the Real Estate Investment Trust (REIT) regime to make them more popular and to reduce the compliance costs of setting up and running a REIT.
The improvements include:
• the abolition of the 2% entry charge
• the relaxation of the listing requirement to include junior markets
• the simplification of the ownership rules
• the relaxation of conditions regarding the REIT’s assets
• the rules regarding the level of borrowing to be simplified
These measures will come into effect on or after the date of Royal Assent of Finance Bill 2012.
Widening REIT investment
The Government is to commence a consultation process on ways of improving the REIT regime with the intention of:
• giving REITs a role in supporting the social housing sector, and
• changing the treatment of income received by a REIT when it has invested in another REIT.
The intention is to issue new legislation in Finance Bill 2013.
Review of taxation of interest
Although interest on gilt-edged securities are paid without withholding tax, this treatment does not apply to all interest payments. The Government is considering changes, as yet unspecified, to the taxation of interest and interest-like returns and will consult before implementing changes, perhaps in. 2013 Finance Bill.
Small business simplification
The Government have announced they will complete a consultation of Tax Simplification for small business tax with a view to introducing legislation in Finance Bill 2013.
The consultation will include:
• Introduction of a voluntary cash accounting basis for unincorporated businesses with a turnover up to £77,000;
• Simplified expenses system for business use of cars, motorcycles and home use
Further consultation regarding the introduction of a disincorporation relief will be undertaken during the summer 2012.
Community Investment tax relief
The 2013 Finance Bill will relax the requirements that currently place conditions on the speed with which Community Development Finance Initiatives (CDFI) must on-lend the funding they receive, and introduce new rules to allow investors to carry unused relief forward.
The scheme encourages investment in disadvantaged communities by giving tax relief to investors who back businesses and other enterprises in less advantaged areas by investing in accredited CDFIs.
The tax relief is available to individuals and companies and is worth up to 25% of the value of the investment in the CDFI. The relief is spread over five years, starting with the year in which the investment is made.
Convertible loan notes
Certain loan notes that are convertible into shares of listed and unconnected companies are treated as equity capital in the issuer, thus potentially meaning that the issuer is treated as outside its economic group for tax purposes. Such loans can now be treated as normal commercial loans as opposed to equity capital rights in the issuing company.
Such loans can be attractive to investors because of the low level of current interest rates.
This measure will be introduced in the Finance Bill 2012 but will effect transactions from 21 March 2012.
Oil and Gas
It is proposed that a new £3 billion field allowance will be introduced by statutory instrument later this year for particularly deep new fields with sizeable resources, targeted upon the West of Shetland area. This is to encourage further investment in this area. Additionally, the small field allowance will increase to £150 million and the size of field qualifying for the maximum allowance will increase to 6.25 million tonnes.
The Government’s policy is aimed at stimulating further investment and innovation for fields that are economic but are marginal due to taxation.
Oil and Gas: restriction on decommissioning relief
The Finance Bill 2012 will include a restriction to tax relief for the purposes of the Supplementary Charge to 20 per cent in relation to decommissioning expenditure. The proposed legislation will also widen the scope of the extended carry back rules for losses of ring fence trades. This will make losses from mineral extraction allowances in respect of decommissioning expenditure consistent with the definition of decommissioning expenditure used in restricting the relief. This was previously announced in the 2011 Budget.
Oil and Gas: decommissioning certainty
The Finance Bill 2013 will contain legislation giving the Government statutory authority to sign contracts with companies operating in the UK or UK continental shelf to provide them with certainty on the relief they will obtain when they decommission assets. Consultation on the nature and form of these contracts will take place in the coming months.