The Summer Budget saw the Chancellor continue to tinker with the corporate tax system with a view to making the UK more competitive internationally whilst closing perceived “loopholes”.
The reduction in the rates of corporation tax is welcome with the rate cut to 19% in 2017 and 18% in 2020. The Treasury estimates this will benefit over a million businesses and, looked at over the longer term, the corporation tax burden has reduced enormously from its 2010 rate of 28%. The Chancellor has, to a degree, listened to the complaints of the banking industry by reducing the rate and scope of the Bank Levy but has simultaneously introduced a corporation tax surcharge on banks. The Treasury estimate the government take from these measures will peak in 2018 and then reduce, but it remains to be seen whether the threatened departure of HSBC will come to pass.
The Treasury makes much of its efforts to simplify tax but the Chancellor has announced a change to corporation tax that just makes thing more complicated. Although we are due a single rate of corporation tax in April 2016 we now have no less than three different sets of rules for determining when that tax is payable. In addition to the single payment and current quarterly payments regimes, companies with large profits will now pay their tax under a modified quarterly payment system. The effect of this is to bring forward the payment date for companies with chargeable profits of £20m or more. The fact that this estimated to bring the Exchequer a benefit of £4.5bn in 2017 and £3.1bn in 2018 might suggest why this departure from simplicity was deemed appropriate.
The Annual Investment Allowance (AIA) on capital expenditure has been a boon to many businesses over recent years providing a cash flow benefit to those investing in plant and machinery. The AIA was due to fall from the current high of £500,000 to £25,000 on 1st January but the Chancellor announced that it will now only fall to £200,000 and stay there the remainder of this parliament.
The Treasury’s search for abusive tax planning and exploitation of existing reliefs continues and to this end they have identified two more areas of “unfairness”. The restriction of relief for business goodwill amortisation will affect all acquisitions and disposals on or after 8 July 2015. After an attack on the use of the relief on the incorporation of sole trades and partnerships in the Autumn Statement the relief has been removed altogether and this will remove the long standing tension between acquiring assets and shares in corporate transactions. The relatively new Research and development Tax Credit or RDEC also appears to have been the subject of what the Treasury might consider sharp practice by universities and charities. Changes have been made to remove any confusion that these institutions can claim the benefit of the relief. Finally to try and further dissuade companies from indulging in “aggressive” tax planning, measures are to be introduced to name and shame serial “avoiders”, levy financial penalties upon them and subject them to greater compliance and reporting requirements.