8 March 2017
We summarise the business tax measures announced by the Chancellor in the Spring Budget 2017.
The Chancellor aims to make the UK the “best place in the world to start and grow a business”. He has therefore accepted industry calls for a “reduction in administrative burdens” for the Research & Development Expenditure Credit scheme. The Treasury has also announced that it will improve awareness of the availability of the scheme, aiming to drive up investment in science, research and innovation.
A review of Patent Box cost-sharing arrangements will also be undertaken to ensure that where R&D activities are collectively undertaken by two or more companies, neither will be penalised nor able to gain a tax advantage.
As previously announced, the Government will undertake a review to identify the barriers businesses face in accessing longer-term finance. The Patient Capital Review will focus on businesses with large growth and bring the likes of the Enterprise Investment Scheme (EIS) into the spotlight. The ultimate aim is to assess what policy changes may be needed to support growing, innovative firms in need of long-term capital.
Amid a range of property tax measures, the Government will legislate in Finance Bill 2017 to amend the law on profits from trading in and developing land in the UK.
The new legislation will aim to ensure that all profits realised by offshore property developers developing land in the UK – including those on pre-existing contracts – are subject to tax with effect from 8 March 2017.
As announced in August 2016, the Government will also legislate in Finance Bill 2017 to allow most unincorporated property businesses (other than limited liability partnerships, trusts, partnerships with corporate partners or those with receipts of more than £150,000) to calculate their taxable profits using a cash basis of accounting. Landlords will continue to be able to opt to use Generally Accepted Accounting Principles (GAAP) to calculate their profits for tax purposes. There will be consistent treatment across the two systems of the initial and replacement cost of items used in a dwelling house, and of the treatment of interest expense. The changes will have effect from 6 April 2017.
As announced in the Autumn Statement 2016, the Government will consult on the case and options for bringing non-UK resident companies within the scope of corporation tax. Currently they are chargeable to income tax on their UK taxable income and to non-resident capital gains tax only on certain gains. Under such a move, these companies would be subject to the rules that apply generally for the purposes of corporation tax, including the limitation of corporate interest expense deductibility and the loss relief rules, which are to be included in the Finance Bill 2017. It is not clear whether the intention is to bring such companies within the scope of capital gains tax more widely in the same way as UK-resident companies.
The Government will introduce legislation with effect from Budget Day to prevent businesses obtaining a tax advantage by converting capital losses into more flexible trading losses.
Under previous legislation, if fixed assets or investments were appropriated to stock, this was deemed to take place at market value for tax purposes and the transfer could generate a chargeable gain or an allowable loss. An example would be where, following a change of intention, a property held as an investment to generate rental income was transferred to stock.
Businesses could previously generate a capital loss and then elect for this to be treated as a trading loss, usually resulting in greater flexibility. The new legislation prevents an election being made when a capital loss is generated in this way. The loss will remain a capital loss and subject to associated restrictions. An election can still be made if a chargeable gain is generated on the transfer, with the effect that the gain is taxable as a trading profit.
The previous rules also applied to property within the Annual Tax on Enveloped Dwellings (ATED) regime, but only to the non-ATED related element. Similar changes will apply to such an election, so that it cannot be made in respect of a loss but only in respect of a gain.
As announced in the Budget, a large number of tax topics will be subject to consultation. Most consultations will be launched on 20 March 2017.
The tax treatment for employees is dependent on the form in which employers choose to remunerate them. The Government considers that the disparity in tax treatment here is unfair and inconsistent. The various consultations and calls for evidence on the taxation of benefits in kind, accommodation benefits and employee expenses seek to address this issue.
Other consultative documents address a wide range of areas, covering both personal taxation and the corporate sphere. Following the conclusion of the consultations later this year, we should expect numerous changes to the tax system.
The list of consultation documents is as follows:
In addition, the following calls for evidence and other consultation exercises were announced: