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16 March 2016

The Chancellor announced a mixed bag of measures making significant changes to the taxation of companies.  Some good, some bad.

The main rate

It was previously announced that the main rate of corporation tax (CT) would fall to 18% from 1 April 2020, but he has gone one step further and will reduce the rate to 17%.

Tax on directors’ loan accounts

Under current rules, where a close company (broadly, a company with five or fewer owners) loans money to an individual associated with the company, typically a shareholding director, then a tax charge of 25% is due on the balance of the loan at the company year end.  From 6 April 2016, loans made after this date will be charged at an increased rate of 32.5%.  As is currently the case, once the loan has been repaid, the tax paid may be reclaimed from HMRC.

Legislation will also be introduced to provide an exemption from this charge where loans are made to charity.

Repeal of the renewals allowance

Previously, the cost of replacement or alteration of tools and small equipment was a deductible costs against profits of a business.  This measure will mean that expenditure of this type will be treated on the same footing as acquisitions of any type of equipment, essentially subject to the capital allowances regime.  Further detail has not yet been released but this could have a detrimental affect on businesses unable to claim capital allowances, such as corporate or non-corporate residential landlords, although a previously announced provision to allow a deduction for replacement furnishings may mitigate the impact.

Reform of corporate loss relief

From 1 April 2017, a positive change is that brought forward losses will be available to set against any type of profit, and by any company in the same group.  However, loss relief will be restricted for larger companies, so that only 50% of profits above £5m may be relieved.  The £5m threshold will apply to whole groups as well as stand alone companies.

Change to quarterly instalment dates

Summer Budget 2015 announced a change to bring forward the quarterly payment dates applicable to large companies by four months.  This measure has been delayed by two years to accounting periods ending on or after 1 April 2019 to give businesses time to adapt.

Low emission cars

First Year Allowances of 100% for low emission cars (<50g/km CO2) is to be extended from 2018 to 2021.  The main rate of capital allowances will fall to 8% for cars with emissions of 110 g/km CO2, down from the previous 130 g/km CO2 with effect from 1 April 2018.


A number of measures have been introduced to combat what is perceived by parliament as the artificial reduction of profits, especially where there is an overseas connection.  Legislation will place additional obligations to tax royalty payments at source when paid by UK companies, combat the exploitation of so called “hybrid-mismatches” (broadly where rules in different jurisdiction cause costs to be allowable in one country, but exempt as income in another), and update transfer pricing regulations, in particular focusing on a new rule to limit interest relief to 30% of a group’s EBITDA (Earnings before interest, tax, depreciation and amortisation), subject to a £2m de minimis threshold.

Disguised remuneration

Not content with just accelerated payment notices, follower notices and the introduction of the common reporting standard, there will be a renewed attack on individuals who received loans from structures such as employee benefit trusts which remain unpaid at 5 April 2019.  It is parliament’s intention that these measures will put beyond doubt that the loans are subject to tax under the disguised remuneration provisions.