Corporation tax rates
The main rate of corporation tax which generally applies to companies with profits of more than £1.5 million is to reduce from 28% to 27% from 1 April 2011. There will be further graduated reductions so that the main rate will be 24% by 1 April 2014.
The small profits rate of corporation tax which generally applies to companies with up to £300,000 of profits is to reduce to 20% also with effect from 1 April 2011.
The effective marginal corporation tax rate for profits between £300,000 and £1.5 million is expected to be 28.75% from 1 April 2011 (assuming there is no change to the basis upon which the marginal relief calculation is computed).
The Chancellor stated that there is to be reform of corporation tax over a five year period to promote UK competitiveness. These headline rate reductions are an initial step towards this goal. The previous government had intended to increase the small profits rate of corporation tax from its current rate of 21% to 22%.
Capital allowances on plant and machinery
Two key areas of change to capital allowance rates are to take effect from April 2012.
The first measure will reduce the maximum Annual Investment Allowance. This is available to most businesses and provides immediate 100% tax relief on the purchase of qualifying plant and machinery. The allowance is currently £100,000. It is to decrease to £25,000.
The second measure reduces the rates of writing down allowances per annum on expenditure not relieved by other allowances as follows:
- from 20% to 18% on expenditure allocated to the main plant pool
- from 10% to 8% on expenditure allocated to the special rate pool.
Transitional rules will apply for chargeable periods which span 1 April 2012 for businesses within the charge to corporation tax and 6 April 2012 for businesses within the charge to income tax.
The delayed start date for the proposed reduction in capital allowances from April 2012 makes sense as it will help to offset the loss of corporation tax revenue to the Exchequer when the reduction in corporation tax rates kicks in.
Those aspects of corporation tax group relief rules that cover consortium relief will be amended to allow EU and EEA-resident companies engaged in UK consortia to pass on relief for the losses of those consortia to their UK resident group companies. At the same time, the government is strengthening rules designed to ensure that access to consortium relief is given only in proper proportion to the member company’s involvement in the consortium. Legislation will be in the Finance Bill and both changes will have effect from the day on which draft legislation is published.
Income tax deducted at source
Current rules require certain persons (mainly individuals and unincorporated bodies) to deduct income tax at source on certain payments such as interest and patent royalties and to then pay it over to HMRC. A change to HMRC powers is proposed to enable regulations to be made relating to when and how such a person should remit and report the payment.
Previous announcements to go ahead
The following proposals announced by the previous government are to be implemented:
- the introduction of a new 100% first year allowance for capital expenditure on new zero-emission goods vehicles for expenditure incurred on or after 1 April 2010 and before 1 April 2015 for companies and on or after 6 April 2010 and before 6 April 2015 for unincorporated businesses.
- the removal of the condition that required intellectual property derived from research and development expenditure to be owned by the small and medium enterprise company seeking the tax relief claim. The change will have effect for any expenditure incurred in an accounting period ending on or after 9 December 2009.
Small business tax
The government remains committed to a review of IR35 and small business tax and will release further details shortly.