Given that Chancellor Rishi Sunak's first Budget was largely focused on helping small businesses to weather the Coronavirus storm, there was very little in the way of new business tax announcements. Instead, the government followed-up on a number of pledges made in its election manifesto, and confirmed various pre-announced tax changes. A summary of these measures is included below. A further Budget is expected in the autumn, so this may well contain greater business tax content.
If you would like to discuss the impact of any of the changes, please get in touch with a member of the tax team or your regular Taylor Wessing contact.
- Corporation tax: the rate will remain at 19% (and not reduce to 17% as had previously been announced).
- Entrepreneurs' Relief (ER): following a government review (and contrary to some speculation), ER was not abolished. Instead, the lifetime allowance was significantly cut - reducing from £10 million to £1 million (in turn, reducing the potential CGT saving from £1 million to £100,000). This change took effect from 11 March 2020, and included (effectively retrospective) anti-forestalling provisions.
- Research & Development Expenditure Credit (RDEC): the rate of RDEC, the R&D relief available to large enterprises (and an alternative for SMEs), will increase from 12% to 13% of qualifying R&D expenditure from 1 April 2020. The credit is taxable at the normal corporation tax rate which effectively means the benefit is worth 10.53% (previously 9.72%) of expenditure on qualifying R&D.
- Structures and Buildings Allowance (SBA): The SBA was introduced in 2018 to relieve construction costs for new commercial buildings and structures – originally at a flat annual rate of 2% of the expenditure (so qualifying expenditure was fully tax deducted after 50 years). As confirmed on Budget day, a new SBA rate of 3% will apply from 1 April 2020 (for businesses within corporation tax) or 6 April 2020 (for those within income tax). Qualifying expenditure will therefore now be fully deductible in 33 years, four months.
Confirmation of pre-announced tax changes
New business tax announcements
- Enterprise Management Incentives (EMI) scheme review: although no specific proposals have been made, the government has promised to review the EMI scheme to ensure it provides support for high-growth companies, and to examine whether more companies should be able to access the scheme. EMI shareholders remain eligible for Entrepreneurs' Relief (subject to the reduced lifetime allowance, noted above).
- Review of UK funds regime: the government has launched a consultation on the tax treatment of asset holding companies in fund structures, focusing on credit funds, real estate funds and private equity funds. Whilst the UK offers an attractive holding company regime, it is not as popular for holding assets in a fund structure, and the government wants to understand why. Legislative changes to support fund structures being brought onshore are possible, provided this would not take significant amounts of UK taxable income/gains outside of the UK tax net.
- Hybrid mismatch rules: a consultation is to be launched into the hybrid mismatch rules that were introduced in 2017 to prevent the exploitation of differences in tax treatment between two jurisdictions. No details are given, although the government has stated that it wants to ensure the rules 'work proportionately and as intended'. It is therefore hoped that the outcome of the consultation will be changes to amend some of the overly-punitive aspects of the existing rules, rather than adding further complexity to the regime.
- Large business notification: from April 2021, large businesses will be required to notify HMRC when they take a tax position which HMRC is 'likely to challenge'. This policy will draw on international accounting standards, suggesting a possible alignment with the reporting of uncertain tax positions for statutory accounting purposes.
- Limited Liability Partnership (LLP) returns: following a recent HMRC loss in the tax tribunal, the government has announced that it will legislate (both prospectively and retrospectively) to clarify that LLPs should be treated as general partnerships under income tax rules, thus allowing HMRC to amend LLP members' tax returns where the LLP operates without a view to profit.
- Intangible fixed asset (IFA) regime: the government has announced that it will allow all pre-2002 intangible assets acquired from 1 July 2020 to come within the IFA regime, thus removing the restriction on pre-2002 intangible assets acquired from related parties and allowing companies to claim corporation tax relief on those assets.
- Tax impact of the withdrawal of the London Inter-Bank Offered Rate (LIBOR): a consultation will be launched to ensure that any tax legislation that references LIBOR will continue to operate effectively. It will also inform the government of significant tax issues that arise from the reform of LIBOR and other benchmarks.