Corporation tax
Corporation tax rates and bands are as follows:
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The main rate of corporation tax will be reduced to 23% for the financial year commencing 1 April 2013 and to 22% for the financial year commencing 1 April 2014.
Capital allowances
From April 2012 there will be a reduction in the amount of expenditure on plant and machinery that qualifies for a 100% year one write-off (via the Annual Investment Allowance (AIA)), from £100,000 to just £25,000.
In addition, from 1 April 2012 (for businesses within the charge to corporation tax) and from 6 April 2012 (for businesses within the charge to income tax), the rates of writing down allowances will be reduced from 20% to 18% (main rate pool) and from 10% to 8% (special rate pool). For businesses with years straddling 31 March/5 April, there will be a transitional AIA and writing down allowance.
From April 2012 the availability of capital allowances to a purchaser of fixtures will be conditional on businesses following a new statutory mechanism for fixing a value for fixtures within two years of a sale.
As announced in the Autumn Statement, the Enterprise Zones in assisted areas will qualify for enhanced capital allowances. In these areas, 100% First Year Allowances will be available for expenditure incurred by trading companies on qualifying plant or machinery. The qualifying expenditure must be incurred between 1 April 2012 and 31 March 2017.
Research and development (R&D)
The additional corporation tax deduction given to SMEs for qualifying R&D expenditure rises from 100% to 125%, in respect of expenditure incurred on or after 1 April 2012. The £10,000 minimum expenditure requirement for large companies and SMEs will be abolished. The Government will introduce an ‘above the line’ R&D tax credit from April 2013 with a minimum rate of 9.1% before tax. Loss making companies will be able to claim a payable credit.
Controlled foreign companies (CFCs)
A new CFC regime will have effect for CFC accounting periods beginning on or after 1 January 2013. The business profits of a foreign subsidiary will be outside the scope of the new CFC regime if they meet the specified conditions set out in a ‘gateway’. There will be ‘safe harbours’ for the gateway conditions covering general commercial business, incidental finance income and some sector specific rules. As an alternative to the gateway there will be exemptions including excluded territory exemption and a low profits exemption. There will also be rules for intra group finance income.
Media
Subject to State Aid approval and following consultation, the Government will introduce new corporation tax reliefs from April 2013 for the video games, animation and high-end television industries.
Enterprise Management Incentives (EMI)
Subject to State Aid approval, the limit on the value of shares over which options may be held by an employee under EMI will be increased, as soon as possible, from £120,000 to £250,000. The Government will make reforms to the EMI in Finance Bill 2013 so that gains made on shares acquired through exercising EMI options on or after 6 April 2012 will be eligible for Entrepreneurs’ Relief.
Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCTs)
Legislation will be included in Finance Bill 2012 to simplify the EIS by relaxing the connected person rules and widening the definition of shares which qualify for relief, and removing the £500 minimum investment limit. The Government will also remove the £1 million limit on investment by a VCT in a single company (except for companies in a partnership or a joint venture).
The employee limit for both EIS and VCT purposes will be increased to fewer than 250 employees, while the gross asset limit will rise to £15 million before the investment and £16 million after, and the maximum annual amount that can be invested in an individual company will increase to £5 million (and not £10 million as had been previously announced). These changes will apply, subject to State Aid approval, to shares in investee companies that are issued on or after 6 April 2012. In addition, the maximum annual amount that an individual can invest under the EIS will rise to £1 million.
From April 2012, a new Seed Enterprise Investment Scheme (SEIS) will:
- apply to smaller companies, those with 25 or fewer employees and assets of up to £200,000, which are carrying on or preparing to carry on a new business
- give income tax relief worth 50% of the amount invested to individual investors with a stake of less than 30% in such companies, including directors who invest in their companies
- apply to an annual amount of investment of £100,000 per investor, with unused annual amounts able to be carried back to the previous year, as under EIS
- provide for relief within an overall tax favoured investment limit of £150,000 for the company
- provide for an exemption from CGT on gains on shares within the scope of the SEIS and on gains realised from disposals of assets in 2012/13, where the gains are reinvested through the new SEIS in the same year.
Patent Box
The Patent Box will, from 1 April 2013, allow companies to elect to apply a 10% rate of corporation tax to all profits attributable to qualifying patents, whether paid separately as royalties or embedded in the sales price of products. The regime will also apply to other qualifying intellectual property rights such as regulatory data protection, supplementary protection certificates and plant variety rights.
Small businesses
From April 2013 a new cash basis for calculating tax for small unincorporated businesses will be introduced. The Government will consult on the details of the scheme including on extending eligibility to businesses with turnover up to the VAT registration threshold of £77,000.
Anti-avoidance
Legislation will be introduced in the Finance Bill to prevent tax avoidance arising from: corporate investors in Authorised Investment Funds; corporate settlor-interested trusts; debt buybacks; plant and machinery leasing; plant and machinery transactions where there is a tax avoidance purpose; post-cessation trade and property reliefs; property losses; sales of lessor companies; and site restoration payments.