Business taxes

Corporation tax rates

The Chancellor announced that the main rate of corporation tax will be reduced to 24% from April 2012, rather than 25% as had been announced at Budget 2011. The rate will then be reduced by a further 1% in each of the following two years, and as a result will be 22% from April 2014. This will give the UK one of the lowest corporate tax rates in comparison to other major G20 economies. There are no changes to the small profits rate which will remain at 20%.

Small business tax cash basis and simplification of allowable expenses

Following the Office of Tax Simplification review of small business tax, the Chancellor has announced the introduction of a new cash basis for calculating tax for small unincorporated businesses. A consultation will be held on the details of the scheme, including eligibility of businesses with turnover up to the VAT registration threshold of £77,000. The new basis will be introduced in April 2013.

A further consultation will be held on standardising business expenses, allowing a fixed amount to be claimed rather than recording actual amounts.

Intellectual property: ‘patent box'

As previously announced in November 2010, the Government will introduce a reduced 10 per cent rate of corporation tax for profits attributed to patents and certain other similar types of intellectual property. This will be introduced over the five years from 1 April 2013 and forms part of the Government's ‘growth agenda'. In the first year this proportion will be 60 per cent and increase annually to 100 per cent from April 2017.

Enhanced capital allowances: energy-saving and water-efficient technologies

The list of designated energy-saving and water-efficient technologies qualifying for enhanced capital allowances will be updated during summer 2012, subject to State aid approval. The scheme allows a 100% deduction of the qualifying assets against taxable profits.

Capital allowances: business cars first-year allowances (FYAs)

From April 2013 the 100% FYA for businesses purchasing low emissions cars will be extended for a further two years to 31 March 2015. The carbon dioxide emissions threshold below which cars are eligible for the FYA will also be reduced from 110 g/km to 95 g/km.

Capital allowances: business cars main rate

From April 2013, the carbon dioxide emissions threshold for the main rate of capital allowances of 18 per cent for business cars will reduce from 160 g/km to 130 g/km. This will also be the new threshold above which the lease rental restriction applies.

Enhanced capital allowances (ECAs) in Enterprise Zones

100% capital allowances will be available on plant and machinery investment made in designated areas of the London Royal Docks Enterprise Zone, three Scottish Enterprise Zones in Irvine, Nigg and Dundee, and Deeside in North Wales. This follows announcements regarding ECA's in English Enterprise Zones in 2011, and the additional zone in Humber announced in February 2012. These allowances will be available from 1 April 2012.

Capital allowances on gas refuelling equipment

The 100% first-year capital allowance for gas refuelling equipment will be extended from April 2013 for two further years to 31 March 2015.

Research and development (R&D) tax credits

The Chancellor has announced an ‘above the line' credit for R&D, with a minimum rate of 9.1% before tax. Loss-making companies will be able to claim a cash refund. A consultation on the detailed design of the credit will take place shortly and final details will be decided following consultation. The credit will be introduced from April 2013.

Corporation tax reliefs for the creative sector

The Chancellor drew on the success of the film sector and following industry consultations will introduce corporation tax reliefs for the video games, animation and high-end television industries from April 2013, subject to State aid approval.

Grouping rules: change to equity rules

Legislation will be introduced in Finance Bill 2012 to ensure that the group status of a company will be unaffected where it issues loan notes carrying a right to conversion into shares or securities of quoted unconnected companies. This follows a number of clearance applications received by HMRC where companies sought confirmation that they would not lose eligibility for group relief as a result of issuing loan notes with conversion rights. This measure will have effect for transactions entered into on or after 21 March 2012.

Controlled foreign company (CFC) rules

As announced in November 2010 new CFC rules are to be introduced which reflect the global nature of business activities. The new rules include a finance company partial exemption that in broad terms will result in an effective UK tax rate of one quarter of the main rate on profits derived from overseas group financing arrangements. The rules will be effective for CFCs with accounting periods beginning on or after 1 January 2013.

Company distributions

As announced on 6 December 2011 certain transactions involving transfers of assets or liabilities between UK resident companies are not excluded from being treated as distributions for the purposes of corporation tax. It will also clarify the interface between two overlapping provisions in the distributions rules. These measures will be included in the 2012 Finance Act.

Bank levy

As previously announced the full rate of the bank levy will be set at 0.088% from 1 January 2012. But the Chancellor has now announced that from 1 January 2013 the full rate of the bank levy will be set at 0.105 %. The bank levy legislation will also be amended to ensure that the liabilities of joint ventures are correctly aggregated into a foreign banking group or a relevant non-banking group's chargeable equity and liabilities.

Enterprise management incentive scheme

The current £120,000 limit for options held by an employee under an Enterprise Management Incentive Scheme will be increased to £250,000. The measure is subject to state aid approval but will be introduced as soon as possible. The aim is to help small and medium sized businesses retain and recruit high calibre employees.

Enterprise incentive schemes

The following changes were confirmed today:

The limits which currently apply to Enterprise Investment Schemes (EIS) and Venture Capital Trusts (VCTs) will be increased as follows:

  • The employee limit will rise from 50 to 250
  • The gross assets limit of £7 million before investment and £8 million after will increase to £15 million before and £16 million after
  • The maximum annual amount that can be invested in both schemes will increase from £2 million to £5 million.

The rules for EIS and VCTs will be simplified so that:

  • There will be a relaxation in the rules defining when a person is connected to a company
  • The definition of qualifying shares will be widened
  • The £500 minimum investment threshold will be removed
  • The £1 million investment limit by a VCT in a single company will be removed

The changes to EIS will be effective on or after 6 April 2012 and the VCT changes on or after 1 April 2012.