Business tax
Corporation tax rates
The main rate of corporation tax will remain at 28% from 1 April 2011. The small companies’ rate will continue at 21% from 1 April 2010.
Associated companies and groups
The Government intends to reform and simplify the associated company rules as they apply to the small companies’ rate, following recent consultation. The changes will take effect from April 2011. The Government is also consulting on detailed proposals for simplifying capital gains rules for groups of companies.
Annual investment allowance (AIA)
The AIA, which gives 100% tax relief for investment in plant and machinery, will double to £100,000. The increase will have effect for expenditure from 1 April 2010 for corporation tax and from 6 April 2010 for income tax. Where an accounting period straddles the effective date, the maximum allowance will be apportioned between the periods falling before and after the date. For example, for a company making up accounts for the 2010 calendar year, the AIA will be 3/12 x £50,000 + 9/12 x £100,000 = £87,500.
A new anti-avoidance rule will disallow property loss relief against general income to the extent that the loss is attributable to the AIA. The rule will apply to losses arising as a result of relevant tax avoidance arrangements entered into on or after 24 March 2010.
THINK AHEAD
Get the timing right for your investment in new business equipment. Businesses of any size will generally benefit from immediate tax relief on the first £100,000 a year spent on most types of equipment. Expenditure over £100,000 in a year may just qualify for the 20% annual writing down allowance. So it could be worth spreading major investments over two or more trading years.
Share incentive plans (SIPs)
Legislation will be introduced to deny a corporation tax deduction to companies that pay money to SIP trustees to buy shares from director-shareholders, but no real value is transferred to employees under the SIP. The measure is directed at avoidance schemes and will have effect for payments made and alterations to share capital or rights attached to shares taking place from 24 March 2010.
Video games industry relief
A tax relief for the UK video games industry will be introduced following consultation, subject to state aid approval from the European Commission.
Enterprise management incentives (EMI)
A company that wishes to grant EMI options to its employees will no longer have to operate ‘wholly or mainly’ in the UK but will instead be required only to have a ‘permanent establishment’ in the UK. Where options are granted by the holding company of a group, at least one company in the group will need to have a permanent establishment in the UK. The change is being made to ensure that EMI complies with EU state aid rules, and will take effect from Royal Assent.
Zero-emission goods vehicles
Business expenditure on new, unused zero-emission goods vehicles, including electric vans, will qualify for a 100% first year allowance. The measure will have effect for five years from 1 April 2010 for corporation tax and from 6 April 2010 for income tax.
It will be of practical benefit only where business expenditure exceeds the annual investment allowance.
Company share option plans (CSOPs)
Options under a tax-advantaged CSOP can no longer be granted over shares in a company that is under the control of a listed company. The change, which takes effect from 24 March 2010, counters avoidance arrangements being used to circumvent the £30,000 financial limit on an individual’s CSOP share options.
Loans to participators
Close companies will be denied a corporation tax deduction for a loan to a participator (broadly shareholders and certain loan creditors) that is written off or released. Close companies (generally companies under the control of five or fewer participators) are charged tax when they make a loan to a participator, which is repaid only if the loan is repaid. Where a loan is written off, the company may be entitled to a corporation tax deduction under the loan relationship rules. Write-offs from 24 March 2010 will no longer qualify for such a deduction.
SAVER
You can save tax by trading through a company. A business with profits of about £50,000 can save the owner over £3,700 in tax and national insurance if it is set up to trade through a limited company rather than a sole trader.
Loan relationships
Power will be introduced to amend the corporation tax rules on loan relationships and derivative contracts where they are needed because of changes in accounting standards. Such changes may be made from Royal Assent, but may be retrospective where the revision to accounting treatment takes effect earlier than that date. Smaller companies that have adopted the Financial Reporting Standard for Smaller Entities (FRSSE) are less likely to be affected than larger companies.
Bank payroll tax (BPT)
Banks, building societies and certain other financial businesses are liable to 50% BPT on bonuses of more than £25,000 that are awarded to employees from 12.30pm on 9 December 2009 until 5 April 2010. The details are largely as published in the 2009 Pre-Budget Report, but there are some changes. They include clarification of the date when relevant remuneration is taken to be ‘awarded’ and which businesses are included. Bonuses to employees who visited the UK for no more than 60 days in the 2009/10 tax year will not be liable to BPT. Taxable companies will have to submit a return to HMRC and pay the tax by 31 August 2010.
Improved ‘Time to Pay Scheme’
The Chancellor announced in his speech that the improved ‘Time to Pay Scheme’ will be extended for the whole of the next Parliament.
Business rates
The level of small business rate relief in England will be increased for one year, from 1 October 2010, to give full relief for eligible businesses occupying premises with a rateable value of up to £6,000 and tapering relief to £12,000.
The temporary increase in the threshold for empty property relief to a rateable value of £18,000 will be extended for a further year in 2010/11, as announced in the Pre-Budget Report.
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