Corporation Tax Rates
In his first, and last, Autumn Statement in his role as Chancellor, Philip Hammond kept the promise of his predecessor to reduce the rate of Corporation Tax to 17% by 2020 which is one the lowest in the G20.
Interest Relief Reforms
He also announced that, following a consultation, the Government will introduce rules to limit the amount of tax deductions available to large groups of companies for their UK interest expenses from April 2017.
The reform of the rules will affect groups of companies that have net interest expenses of more than £2 million where net interest expenses exceed 30% of UK taxable earnings and the group’s net interest to earnings ratio in the UK exceeds that of the its worldwide group. Banking and insurance groups will be subject to the rules in the same way as groups in other industry sectors in a bid to ensure level playing fields for all businesses.
Loss Relief Reforms
From April 2017, as announced in the March 2016 Budget and following a consultation period, the Government will legislate for reforms to restrict the amount of profit that can be offset against carried forward losses to 50%. However, there will be more flexibility over the types of profit that can be relieved by losses incurred after April 2017.
The restriction will be subject to a £5 million allowance for each stand alone company or group. In implementing the reforms the government plans to also take steps to address any unintended consequences of the new rules and hopefully simplify the administration of them. How simply they simplify things remains to be seen.
At Budget 2017, the government will consult on whether or not to bring all non-resident companies who are in receipt of taxable UK sourced income into the corporation tax regime. This may well bring an end to the large multinational companies we read about making very large profits in the UK and not paying any UK corporation tax. We will have to wait until next year to see what the Government has to say on the case and options for implementing this change.
Substantial Shareholding Exemption (SSE) reforms
Following a consultation, the Government will make changes to simplify the rules to Substantial Shareholding Exemption. The changes will take effect from April 2017.
The annual charges for the Annual Tax on Enveloped Dwellings (ATED) will rise in line with inflation from 2017/18.
While, on the one hand, the Chancellor is making a big deal of the falling rates of corporation tax, on the other he has raised concerns over rising rates of incorporations and the consequent loss of revenue to HMRC.
At this stage all we know is that the Government will consult on how to sustain the tax-base and ensure that individuals, working in different ways, are taxed fairly. We presume that they will be looking at the varying tax rates (and taxes) applied to people in self-employment, partnerships or owner managed businesses compared to employed individuals.
In the meantime, there are some changes that will affect business owners:
Corporate structures: For those already in place, from April 2016, dividend tax rates have for many reduced the benefit of incorporation and increased the cost of extracting cash.
Partnerships: The Government has already consulted on ensuring profit allocations in partnerships are fairly taxed. In the Autumn Statement it was confirmed that draft legislation will be published, for technical consultation, in due course.
Public sector workers: Described as off-payroll working rules but presumably referring to what we would call personal service companies, this was another previously announced measure repeated in the Autumn Statement. Designed to prevent the heads of public bodies and stars of BBC providing their services through their own companies and paying less tax than they would as employees; responsibility for ensuring the worker is correctly classified as employee or genuinely self-employed has now been passed to the public body paying the wages. Previously the responsibility for ensuring the engagement was correctly taxed – and the risk if it wasn’t - fell to the worker’s own company.
It will be interesting to see how effective this is within the limited area of Public Body engagers as it could form part of the discussion over fairness of taxation of self-employed businesses versus individuals with their own company.
Good news for science and technology businesses and universities
This funding will be available to businesses and universities for R&D on technologies such as robotics, artificial intelligence and industrial biotechnology.
There are no further details, as yet, and there appears to be no change to the R&D tax relief available and on which many potential claimant companies are missing out.
Good news for any business incurring expenditure on electric charge-point equipment
The aim is to promote the uptake of electric vehicles.
Currently, village shops, post offices, public houses and petrol stations in rural areas which currently qualify for a 50% reduction in business rates will see this reduction increase to 100%.
To qualify, the business must be located in a rural area with a population below 3,000 and must be the only business of its kind in the area. Also, a village shop or post office must have a rateable value up to £8,500, and a public house or petrol station have a rateable value up to £12,500.