Corporation Tax

Corporation tax rates are as follows:

The corporation tax rate will be 19% for the financial years beginning 1 April 2017, 1 April 2018 and 1 April 2019, and 17% for the financial year beginning 1 April 2020.

Corporation tax loss relief

For losses incurred on or after 1 April 2017, businesses will be able to use carried forward losses against profits from other income streams or from other companies within a group.

From 1 April 2017, the amount of profit that can be offset through losses carried forward will be restricted to 50%. This restriction will only apply to profits in excess of £5m. For groups, the £5m allowance will apply to the group.

Corporation tax payment dates

It was previously announced that companies with annual taxable profits of £20m or more would make corporation tax payments in the third, sixth, ninth and twelfth months of their accounting period. The introduction of this is to be deferred so that the new payment dates will now apply to accounting periods starting on or after 1 April 2019.

Tax deductibility of corporate interest expenses

The Government is to cap the amount of relief for interest to 30% of a group's taxable earnings in the UK or based on the net interest to earnings ratio for the worldwide group. The rule will be introduced from 1 April 2017 and will include a group threshold limit of £2m net UK interest expense and provisions for public benefit infrastructure.

Loans to participators

The rate of tax charged on loans to participators and other arrangements is to be increased from 25% to 32.5% so that it continues to mirror the higher rate of dividend tax. This new rate will apply to loans made and benefits conferred by close companies on or after 6 April 2016. For accounting periods which straddle 6 April 2016, different rates will be applied to separate loans made or benefits conferred before, and on or after, 6 April 2016.

Personal service companies

From April 2017, individuals working through their own company in the public sector will no longer be responsible for deciding whether the intermediaries legislation (known as IR35) applies and then paying the relevant tax and national insurance contributions (NICs). This responsibility will instead move to the public sector employer, agency, or third party that pays the worker’s intermediary. They will have to decide if the rules apply to a contract and, if so, account for and pay the liabilities through the RTI system and deduct the relevant tax and NICs.

The existing IR35 rules will continue as they are now for non-public sector engagements.

Profits from trading in and developing UK land

Legislation will be introduced to ensure that non-resident developers of UK property will always be brought into UK tax on the profits from that development. The legislation puts in place a specific set of rules to tax trading profits derived from land in the UK and these rules will apply equally to resident and non-resident businesses, and will not depend on the existence of a 'permanent establishment' in the UK.

The legislation will be introduced at Report Stage of Finance Bill 2016 and will take effect from the date of introduction. Anti-avoidance rules will take effect from Budget Day to counteract arrangements, put in place between Budget Day and the date the new legislation is introduced, that are designed to get around the charge.

Research and Development (R&D)

Legislation is to be introduced to prevent an unintended reduction in the R&D relief available to some SMEs when the Large Company relief, which is being replaced by R&D Expenditure Credit, expires on 31 March 2016. The revised calculation will apply in respect of expenditure incurred on or after 1 April 2016.

Vaccine research relief will cease to apply to expenditure inccurred on or after 1 April 2017.

Enterprise Management Incentives (EMI)

A rights issue which takes place on or after 6 April 2016 in respect of shares received on exercise of an EMI option will be treated in the same way for share identification purposes as other rights issues: the new shares will be treated as acquired at the same time as the original shares.

Enterprise Zones

The period in which businesses investing in new plant and machinery, in enhanced capital allowance sites in Enterprise Zones, can qualify for 100% capital allowances is to be extended to eight years. The legislation will have effect from Royal Assent.

Venture capital schemes

The method of determining the five year period for the average turnover amount and the relevant three preceding years for the operating costs conditions will be clarified for both Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCTs) to ensure that the most recently filed accounts of a company are generally used to determine the end date of the relevant period. This will have effect from 18 November 2015 for shares issued under EIS and for investments made by VCTs, however an investee company may elect to apply the existing legislation for investments received between 18 November 2015 and 5 April 2016, inclusive.

A new condition will be introduced to clarify the non-qualifying investments a VCT may make for liquidity management purposes. This will have effect from 6 April 2016.

Trading income received in non-monetary form

Legislation will be introduced to confirm that trading and property business income received in non-monetary form is brought into account in calculating taxable profits for corporation tax and income tax purposes. This will have effect in relation to transactions occurring on or after 16 March 2016.