Business tax and investment incentives
Corporation tax rates and bands are as follows:
The main rate of corporation tax will be reduced to 21% for the financial year commencing 1 April 2014 and from 1 April 2015 it will be further reduced and unified with the small profits rate, giving a new unified rate of 20%.
Annual Investment Allowance (AIA)
As announced in the Autumn Statement, the AIA has been temporarily increased for a two-year period from £25,000 to £250,000 per annum for all qualifying investments in plant and machinery made on or after 1 January 2013. Provisions apply to accounting periods that straddle the start and end dates.
Research and development (R&D)
A 10% 'Above the Line' (ATL) credit for large company R&D expenditure will be introduced. This will apply to qualifying expenditure incurred on or after 1 April 2013. The credit will be fully payable, net of tax, to companies with no corporation tax liability. The ATL credit scheme will be optional until it becomes mandatory on 1 April 2016. Companies that do not elect to claim the ATL credit will be able to continue claiming R&D relief under the current large company scheme until 31 March 2016.
Creative industry tax credits
As previously announced, new corporation tax reliefs will be introduced for the video games, animation and high-end television industries. The animation and high-end television tax reliefs are expected to be approved shortly and will start on 1 April 2013. The video games tax relief will be introduced following State Aid approval.
From 1 April 2013, the Patent Box will allow companies to elect to apply a 10% rate of corporation tax to all profits attributable to qualifying patents, whether paid separately as royalties or embedded in the sales price of products. The regime will also apply to other qualifying intellectual property rights such as regulatory data protection, supplementary protection certificates and plant variety rights.
From 6 April 2013 all unincorporated businesses will be able to choose to deduct certain expenses on a flat rate basis.
In addition, a new voluntary cash basis for calculating tax for small businesses will be introduced. The new cash basis will allow eligible self-employed individuals and partnerships to calculate their profits on the basis of the cash that passes through their businesses. Businesses will be eligible if they have annual receipts of up to £79,000 and they will be able to continue to use the cash basis until receipts reach £158,000. Businesses in the scheme will generally not need to distinguish between revenue and capital expenditure. Eligible barristers will be able to choose either to use the new cash basis and simplified expenses or the current accruals basis. The existing cash basis legislation for barristers will be repealed (except for barristers already using it, for the remainder of their qualifying period).
UK residential property
There is to be a package of taxes for certain companies, partnerships with company members and managers of collective investment schemes (collectively referred to as non-natural persons) which own residential property in the UK worth over £2m.
These taxes are: stamp duty land tax at 15% on acquisition of residential property (this came into effect on 21 March 2012); an annual tax of between £15,000 and £140,000 on relevant dwellings (effective from 1 April 2013); and capital gains tax (CGT) at 28% on any gain on disposal (effective from 6 April 2013).
There will be reliefs for property development, investment rental and trading businesses, residential properties open to the public for at least 28 days a year on a commercial basis, residential properties held for employee accommodation, residential properties owned by a charity and held for charitable purposes, working farmhouses, diplomatic properties, and some other publicly-owned residential properties.
Limited Liability Partnerships (LLPs)
The Government will consult on measures to remove the presumption of self-employment for LLP partners so as to tackle the disguising of employment relationships through LLPs, and counter the artificial allocation of profits to partners (in both LLPs and other partnerships) to achieve a tax advantage.
The Government will introduce a disincorporation relief for five years from April 2013. The relief will allow a company to transfer goodwill and an interest in land to its shareholders so that no corporation tax charge arises on the transfer. The relief will be available to businesses with total qualifying assets not exceeding £100,000.
As from April 2014 every business and charity will be entitled to a £2,000 Employment Allowance. Employers will need to confirm their eligibility through their regular payroll process. This confirmation will ensure that up to £2,000 will be deducted from their employers' national insurance contributions (NICs) liability over the course of the year's PAYE payments.
Enterprise Management Incentives (EMI)
As announced at the 2012 Budget, the Government will extend Entrepreneurs' Relief to cover gains made on shares acquired through the exercise of EMI qualifying options. The measure applies to shares acquired on or after 6 April 2012 that are disposed of on or after 6 April 2013. The relief will apply even if the individual does not hold a 5% stake in the company.
Seed Enterprise Investment Scheme (SEIS)
Any investors making capital gains in 2013/14 will receive a 50% CGT relief when they re-invest those gains into SEIS qualifying companies in either 2013/14 or 2014/15.
There will be a change to the legislation so that some eligible companies will not inadvertently be disqualified from taking advantage of the SEIS regime, by virtue of having been established by a corporate formation agent. This will have effect in relation to shares issued on or after 6 April 2013.