Corporation tax rates
All companies now pay corporation tax at the single rate of 20%. This rate will drop to 19% on 1 April 2017. As announced at Budget 2016 the Government is commited to reducing the corporation tax rate to 17% from 1 April 2020. Good news for all.
Tax deductibility of corporate interest expense
Following consultation, the government will introduce rules that limit the tax deductions that large groups can claim for their UK interest expenses from April 2017. These rules will limit deductions where a group has net interest expenses of more than £2 million, 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 worldwide group.
This may help to level the playing field between smaller companies and large multinationals, which can borrow from related companies in other countries.
Reform of loss relief
Following consultation, the government will legislate for reforms announced at Budget 2016 that will restrict the amount of profit that can be offset by carriedforward losses to 50% from April 2017, while allowing greater flexibility over the types of profit that can be relieved by losses incurred after that date. The restriction will be subject to a £5 million allowance for each standalone company or group.
For the vast majority of companies the changes will be welcome as will allow greater flexibility in utilising losses incurred after 1 April 2017.
Bringing non-resident companies’ UK income into the corporation tax regime
The government is considering bringing all non-resident companies receiving taxable income from the UK into the corporation tax regime. At Budget 2017, the government will consult on the case and options for implementing this change. The government wants to deliver equal tax treatment to ensure that all companies are subject to the rules which apply generally for the purposes of corporation tax, including the limitation of corporate interest expense deductibility and loss relief rules.
This change will mainly effect non-resident companies holding UK based let properties who are currently liable to UK income tax rather than corporation tax.
Museums and galleries tax relief
The government will broaden the scope of the museums and galleries tax relief announced at Budget 2016 to include permanent exhibitions so that it is accessible to a wider range of institutions across the country. The relief will take effect from 1 April 2017.
For further advice, please contact Stu Brown.