Corporation Tax measures
The Budget confirmed that corporation tax rates are to remain unchanged: the full rate will remain at 28% on and after 1 April 2010, and the small companies’ rate will remain at 21 per cent on and after 1 April 2009
Carry back of losses
The availability of the three year loss carry back as announced in the 2008 Pre Budget Report has been extended by one year.
In addition to the existing unlimited offset against profits reported in the previous year, up to a further £50,000 of unused losses may be carried back to reduce taxable profits reported in the two previous years to trigger a tax repayment.
For companies, this applies to trading losses made in accounting periods ending between 24 November 2008 and 23 November 2010. For unincorporated businesses it applies to trading losses made in tax years 2008-09 and 2009-10.
The loss carry-back extension will provide tax repayments that could be a welcome cash boost for businesses whose financial performance has suffered in the economic downturn. Businesses that expect to report tax losses should look to take up this opportunity and seek professional advice as soon as possible.
Taxation of foreign profits
As expected, the Government intends to bring forward legislation amending various aspects of the tax treatment of foreign activities of UK companies and groups. The proposed changes are:
- Provide an exemption from corporation tax for most dividends received from overseas companies on or after 1 July 2009 (currently foreign dividends received by UK companies are taxable, although credit is given for overseas tax suffered).
- Introduce some changes to the ‘Controlled Foreign Companies’ rules for accounting periods starting on or after 1 July 2009.
- Introduce a ‘debt cap’ to limit the corporation tax deduction for financing costs payable by UK members of a group to the consolidated gross financing cost of the group as a whole and amend the Treasury Consents rules so that they only apply to transactions over £100 million.
The dividend exemption in particular is to be welcomed and will simplify the UK tax affairs of many companies.
Company loans relationships – connected companies
Amendments are proposed to two aspects of the legislation governing company loan relationships:
- The first change resolves a mismatch in treatment between debtor and creditor companies when a trade debt is released.
Where the release is between companies that are connected (i.e. under common control), the current legislation denies relief to the company foregoing the debt but can give a tax charge in the company which has the debt released. The proposed rule change, effective from 22 April 2009, will prevent such a tax charge arising.
- The second change concerns the ‘late interest’ rules affecting the timing of tax deductions for interest payable between connected parties.
Currently interest payments to connected parties that are outside the loan relationships rules are only tax deductible when the interest is actually paid, rather than when the interest expense is recognised in the accounts. For accounting periods beginning on or after 1 April 2009, it is proposed that this rule be relaxed and only applied if the recipient of the interest is resident in a ‘non-qualifying’ territory (in most cases, a tax haven). It is also proposed that a similar change be made to the rules concerning finance charges on deeply discounted securities.
Back to Budget 2009>>