Our recent blog from our Budget Summary series looked at Making Tax Digital for Business. In this blog article we look at other areas relating to business tax that were mentioned in the 2017 Spring Budget.
Corporation tax rates
Corporation tax rates have already been enacted for periods up to 31 March 2021. The main rate of corporation tax is currently 19% and will reduce to 17% for the Financial Year beginning on 1 April 2020.
Corporate tax loss relief
Previously, a company was restricted in the type of profit which could be relieved by a loss if the loss was brought forward from an earlier accounting period. For example, a trading loss carried forward could only relieve future profits from the same trade. Changes were proposed in the budget which means that losses arising on or after 1 April 2017, when carried forward, are useable against profits from other income streams or other companies within a group. This applies to most types of losses but not to capital losses.
However, since 1 April 2017, large companies are now only able to use losses carried forward against up to 50% of their profits above £5 million. For groups, the £5 million allowance will apply to the group.
We can help you with your corporation tax – find out more here
Research and development (R&D)
There are two types of tax reliefs for eligible R&D expenditure. Under one of these, qualifying companies can claim a taxable credit of 11% in relation to eligible R&D expenditure. This is known as the Research and Development Expenditure Credit (RDEC). To further support investment, the government will make administrative changes to the RDEC to increase the certainty and simplicity around claims and will take action to improve awareness of R&D tax credits among small and medium-sized enterprises.
To find out more about R&D Tax Credits read our recent blog articles:
- Are you eligible for research and Development Tax Credits?
- Costs you can claim for Research and Development Tax Credits
Substantial shareholding exemption (SSE) reform
Changes were proposed to some of the qualifying conditions for the SSE and these are now in place. The good news is that the changes remove some of the obstacles to qualify for SSE.
- The condition that the investing company is required to be a trading company or part of a trading group has been removed.
- The condition that the investment must have been held for a continuous period, at a minimum of 12 months in the two years preceding the sale has been extended to a continuous period of 12 months in the six years preceding the sale.
- The condition that the company in which the shares are sold continues to be a qualifying company immediately after the sale is withdrawn, unless the sale is to a connected party.
- For a class of investors defined as Qualifying Institutional Investors, the condition that the company in which the shares were sold is a trading company has also been removed. The draft legislation contains a list of Qualifying Institutional Investors.
The changes took effect for disposals on or after 1 April 2017.
Restrictions on residential property interest
Legislation has already been enacted to restrict interest relief for landlords.
From 6 April 2017, landlords are no longer able to deduct all their finance costs from their property income. They will instead receive a basic rate reduction from their income tax liability for these finance costs. Finance costs include mortgage interest, interest on loans to buy furnishings and fees incurred when taking out or repaying loans or mortgages.
The restriction is being phased in with 75% of finance costs being allowed in 2017/18, 50% in 2018/19, 25% in 2019/20 and be fully in place for 2020/21. The remaining finance costs for each year will be given as a basic rate tax reduction but cannot create a tax refund.
These restrictions apply to:
- UK resident individuals that let residential properties in the UK or overseas
- non-UK resident individuals that let residential properties in the UK
- individuals who let such properties in partnership
- trustees or beneficiaries of trusts liable for income tax on the property profits.
- UK and non-UK resident companies are not affected nor landlords of ‘Furnished Holiday Lettings’.
Enlarging Social Investment Tax Relief
Significant amendments to the Social Investment Tax Relief (SITR) will be legislated for in Finance Bill 2017 to:
- increase the amount of investment a social enterprise may receive over its lifetime to £1.5 million, for social enterprises that receive their initial risk finance investment no later than seven years after their first commercial sale. The current limit will continue to apply to older social enterprises
- reduce the limit on full-time equivalent employees to below 250 employees
- exclude certain activities, including asset leasing and on-lending. Investment in nursing homes and residential care homes will be excluded initially. However, the government intends to introduce an accreditation system to allow such investment to qualify for SITR in future
- exclude the use of money raised under the SITR to pay off existing loans
- clarify that individuals will be eligible to claim relief under the SITR only if they are independent from the social enterprise
- introduce a provision to exclude investments where arrangements are put in place with the main purpose of delivering a benefit to an individual or party connected to the social enterprise.
The changes take effect for investments made on or after 6 April 2017.