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All you need to know about corporate tax announcements within the 2017 budget

How investing in R & D can save you money..

In his budget speech, the Chancellor, Philip Hammond stated that as from January 2018 R&D large company tax credits would increase from 11% to 12%.

This increase is part of the Governments strategy to increase the investment in R&D throughout the economy to 2.4% of GDP.

Just let this sink in for a minute….

There had been reports that for business tax purposes the Chancellor was looking to eliminate the initial reduction of corporation tax in 2020 to 17%, however he stated that the government was ‘committed to maintaining Britain’s competitive corporation tax rates’

It’s simple…

Assets attained from January 2018, will not be eligible for indexation allowance on disposal of capital assets as it will be eradicated. However, if there is already ownership of assets, then it will remain at the amount that would have been due based on December 2017’s Retail Price Index.  As a result of this change, the corporate system is being brought into line with the personal capital gains tax.

It turns out that…

A ‘position paper’ which was issued by the Treasury regarding the digital economy and corporate tax, states that the Government still believes that more needs to be done in relation to the digital economy despite what action has already been taken in agreement with the profit shifting project and OECD base erosion.

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So, what was included in the paper?

Included in the paper are what the governments thoughts are and how they will continue to push for improvements to the framework of international tax, to make sure that the value shaped by the contribution of users within digital businesses is recognised in working out where and when those businesses’ profits are eligible for taxation purposes. 

Nevertheless,

The UK however, is seeking more prompt action.  In an announcement by the Chancellor, the publication of the consultation will be on 1 December 2017.  This will outline the rules and expand the circumstances whereby a royalty payment to a non-UK resident could be seen as the withholding of UK tax.  It is purported that these changes will be implemented from April 2019.

Although the legislation regarding corporate interest restriction received the Royal Assent only last week, the government has stated that ‘technical amendments’ will be made regarding the rules within the following two Finance Bills to guarantee that the regime works as it should. 

You’re probably thinking ‘when will these changes be implemented’?

It is believed that some changes will be treated as having come into effect either on or after 1 April – when commencement of the corporate interest restriction rules began.  The rest of the amendments will take effect on or after 1 January 2018.

The changes are outlined briefly together with several changes to the infrastructure rules in a policy paper which has been issued by HMRC.

Also contained within the Finance Bill are several small changes to the hybrid along with other mismatches regime.  The purpose of this is to deal with discrepancies in tax treatment regarding financial instruments and entities. 

The intention is not to alter the regime’s general scope but to ensure that it operates as is should.

As per the budget documents, tax system changes in the future that are being considered include discussions on the impalpable fixed asset regime and whether there really is an economic case for changes within that regime

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What about small changes?

There will be small changes regarding the exemption legislation of substantial shareholding and the rules surrounding share reconstruction, this is to prevent the triggering of any unintentional chargeable gains being activated in the event that assets of a foreign branch are incorporated into a UK company in return for overseas company shares. 

Here’s why…

This change will put right an irregularity caused when a suspended tax fee becomes payable due to the insertion of a new holding firm directly above an overseas firm of which a company in the UK had formerly moved the assets and trade for a foreign division of shares.  It was announced within the budget documents that the look back will be eliminated for depreciatory transactions.  This is a transaction that removes the value from shares, which could be as the result of moving the assets of one company to another inside of a group for little or no cost. 

Legislation dictates, that when the shares are sold, any prior depreciatory transactions are amended to show any loss upon disposal. 

Are there any time limits?

At present, the time limit for this is 6 years, any prior to this are not taken into consideration. 

Other changes that were announced were the restrictions on the total amount of allowed credit or deductions made, from 22 November 2017, in relation to foreign tax incurred by a company’s overseas permanent establishment (PE), whereby relief was received via the foreign jurisdiction regarding the PE losses against profits (not including those of the PE).

Also announced within the Budget was that from April 2019, all non-UK residents who hold property and receive gains, will be eligible for UK tax. 

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In short..

Measures are being put in place which will commence from 22 November 2017, which aim to halt any introduced arrangements to aid avoidance or the regime. 

Traditionally, the offshore structures put in place for commercial property for offshore investors and to gather UK institutional investment will be liable for capital gains tax on UK property disposal starting from the date that the charge is deemed effective.  

And, what about gains?

At present, both investors and offshore funds are not subject to capital gains on commercial UK property but are for UK tax regarding gains from trading or similar transactions or from residential property. 

No doubt this will impact the industry, but won’t be completely unexpected, in view of the recent changes with regard to land transaction rules together with the comments made, at that time by HMRC. 

Finally…

What is concerning is that such important changes are being made, during the Brexit uncertainty and now is not the time for Britain to be putting off potential foreign investors.  Do you agree or do you think that there will ever be a ‘right time’?

Sarah Aubert