22 November 2017

Autumn Budget 2017: Business tax

A summary of the key business tax changes announced by the Chancellor during the Autumn Budget 2017.

Boosting UK R&D and electric vehicles

With encouraging technology a key Budget theme, the Chancellor announced a range of measures to stimulate research and development (R&D) activity.

Philip Hammond promised support for innovative businesses at the ‘forefront of…technological revolution’ by taking a significant step to increase R&D investment in the economy to a targeted 2.4% of GDP by 2027.

From 1 January 2018, companies that claim relief under the Research and Development Expenditure Credit (RDEC) scheme will see their rate of relief increase by 1% to 12%. The RDEC scheme (otherwise referred to as the ‘above the line’ credit) is available to large companies, but sometimes used by SMEs. The increase in the rate of relief will result in an effective tax saving of 9.72%, up from the previous 8.91%, based on the current rate of corporation tax of 19%. The change should make the UK more attractive for investment by multinational entities.

In another move to encourage more companies to carry out R&D, the Government has announced plans to change the immigration rules in order to encourage world-leading scientists and researchers to apply for settlement in the UK.

The Chancellor also promised support for the next generation of vehicles, pledging £400 million to a new Charging Investment Infrastructure Fund and introducing a long-term aim of having 25% of central government’s cars producing zero emissions.

In addition, a further £100 million has been promised to guarantee the continuation of the Plug-In Car Grant to 2020 to help consumers with the cost of buying new battery-powered electric vehicles.

Capital allowances 

  • Energy Technology List (ETL) updated. This is a list of technologies and products qualifying for the energy-saving 100% first year allowances (FYA) which affected companies can claim after utilising the annual investment allowance.
  • Loss-making companies investing in technologies and products on the ETL: as an alternative to claiming the 100% FYA, these companies may instead claim a First Year Tax Credit - where losses are surrendered for a cash payment. This treatment has been extended for five years up to 31 March 2023 and the rate of credit has also been set at two-thirds of the corporation tax rate.
  • Zero-emission goods vehicles and gas refuelling equipment: the FYA has been extended to March/April 2021.

Freezing of indexation allowance

Companies disposing of chargeable assets retained the indexation allowance, the relief available for inflation, when it was abolished for individuals in 2008. Indexation relief for companies no longer applies to gains arising in the period from 1 January 2018.

The indexation allowance currently available to companies reduces the gain subject to corporation tax but cannot create or increase a capital loss. The disposal of chargeable assets up to 31 December 2017 will continue to attract a full indexation allowance. However, disposals of chargeable assets from 1 January 2018 will only attract an indexation allowance for periods up to December 2017, with no further relief for inflationary increases.

The freezing of the indexation allowance will lead to companies paying more corporation tax on the disposal of their chargeable assets. All companies holding capital assets and shares or securities in share pools will be affected by the change in the rules.

Capital gains assets transferred to non-resident company and reorganisations of share capital

The government will amend the substantial shareholding exemption legislation and the share reconstruction rules to avoid unintended chargeable gains being triggered where a UK company incorporates foreign branch assets in exchange for shares in an overseas company.

Amendments to corporate interest restriction rules

This measure makes technical amendments to the rules to ensure the regime works as intended. The amendment will affect large businesses within the charge to corporation tax which incur net interest and other financing costs above £2 million per annum, and will restrict their ability to reduce their taxable profit through excessive UK interest expenses.

Partnership taxation: proposals to clarify tax treatment

The changes and clarifications seek to address areas of uncertainty and complexity identified as problematic by stakeholders but also limit the opportunity for partnerships to manipulate the allocation of taxable profits to obtain a tax advantage. The changes also facilitate digital transformation of partner taxation using information in the partnership return.

Hybrid mismatch rules

Aspects of the corporation tax rules which apply to arrangements involving hybrid structures and instruments will be amended to clarify how and when the rules apply, and to ensure that the rules operate as intended. HMRC has published further details of these amendments alongside the Budget.

Carried interest

To prevent the avoidance of legislation designed to ensure that individuals involved in investment management for private equity or other investment funds receiving carried interest pay Capital Gains Tax (CGT) on their full economic gain, the government will remove the transitional commencement provisions with immediate effect.

Income Tax: debt traded on a multilateral trading facility

For UK companies issuing debt admitted to trading on a multilateral trading facility (MTF) operated by a recognised stock exchange regulated in the European Economic Area, this measure removes the requirement to withhold tax on interest for debt issued. The measure also widens the definition of alternative finance investment bonds to include securities admitted to trading on such an MTF.

Bank levy: changes to the scope and administration

From 2021, the bank levy will be chargeable only on the equity and liabilities in the UK balance sheet of banks and building societies. Broadly, this means that overseas activities of UK headquartered banking groups will no longer be subject to the bank levy. The measure also provides for the amount of UK equity and liabilities subject to the bank levy to be reduced in various circumstances, for example where a UK bank holds certain types of 'loss absorbing' investments in an overseas subsidiary.

Investment management strategy

It was announced today that a second version of the Investment Management Strategy will be published, including actions, to be taken forward in collaboration with the industry, on skills, fintech and international engagement.

Extension of security deposit legislation. 

The Government will publish a consultation in Spring 2018 on the most effective means of introducing changes to extend existing security deposit legislation to include corporation tax and Construction Industry Scheme deductions.

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