As was previously announced, the main rate of corporation tax is to reduce from 23% to 21% from 1 April 2014. The small companies rate remains at 20%.
Research and Development (R&D) tax credits
The rate of payable R&D tax credits, for loss making Small and Medium Sized Enterprises (SMEs), will increase from 11% to 14.5% for qualifying expenditure incurred on or after 1 April 2014.
Broadly, a SME is a company with fewer than 500 employees and either annual turnover of less than €100m or gross assets of less than €86m. Companies in a group must take into account the aggregate figures of the group when considering these limits.
The increase in payable R&D tax credit means that loss-making SMEs will now be able to claim nearly a third of their R&D expenditure in the form of a cash credit (previously one quarter).
The measure is intended to provide further incentives to small companies who invest in R&D activities and is consistent with the government’s objective to support small innovative companies with the potential for high growth.
Avoidance schemes transferring corporate profits
Further measures are to be introduced to try to prevent companies moving their UK profits to a tax haven or otherwise diverting profits to generate a tax advantage. Schemes using derivative contracts were already subject to blocking legislation and the new legislation is aimed at similar type schemes where there is a tax avoidance purpose.
This may affect worldwide groups that have been the subject of media scrutiny but is unlikely to affect smaller UK groups of companies. The changes are expected to generate about £80 million per year for the Exchequer.