Corporation Tax

Research & Development Tax Relief Changes

Key points:

  •   R&D admin burden reduced

The Government reiterated its ambition to increase the level of private investment in science, research and innovation following a review of the R&D tax regime.  Whilst rates of relief remain unchanged at 230% on qualifying research and development expenditure, administrative changes will be made in order to simplify R&D claims and increase certainty as to what constitutes qualifying R&D expenditure.

 

Corporate Tax Changes

Key points:

  •   Little tinkering with the corporate tax system

By way of a welcome change the Chancellor chose not to make any significant announcements in his Spring Budget concerning corporate tax, other than some adjustments concerning withholding tax on interest involving foreign lenders and UK borrowers and an announcement that HMRC will remove the ability of businesses with loss carrying capital assets to obtain an unfair tax advantage by converting those capital losses into more flexible trading losses.

There was however confirmation that the forthcoming Finance Bill will include legislation in respect of changes announced previously including:

 

The reduction of corporation tax to 19% from 1 April 2017, being the lowest rate in the G20.  It will reduce to 17% from 1 April 2020

 

The removal of the investing company requirement within the Substantial Shareholdings Exemption with effect from 1 April 2017.  This will effectively widen the relief by increasing the number of transactions qualifying for exemption on the sale of shares

 

The relaxation of the rules governing corporate losses carried forward from earlier periods.  From 1 April 2017 these losses will be usable against profits from different types of income and profits of other group companies.

 

The restriction on the use of losses carried forward by companies to prevent them reducing profits arising on or after 1 April 2017 by more than 50%.  However this will only apply to a company or group with profits above £5 million.

 

The imposition of a limit to the tax deductions that companies can claim for their interest expenses from 1 April 2017. The new rules will restrict each group’s net deductions for interest to 30% of the earnings before interest, tax, depreciation and amortisation (EBITDA) that is taxable in the UK.

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