Business Tax and Investment Incentives

Corporation Tax

Corporation tax rates and bands are as follows:

Financial Year to 31 March 2012 31 March 2011
Taxable profits    
First £300,000 20% 21%
Next £1,200,000 28.75% 29.75%
Over £1,500,000 27% 28%

 

The main rate of corporation tax will be reduced to 27% for the financial year commencing 1 April 2011 (FY 2011). There will be further reductions (by 1% per annum) to take the rate down to 24% by 1 April 2014. The small profits rate will be reduced to 20% for FY 2011.

Capital allowances

The rates of writing down allowances (WDAs) for new and unrelieved expenditure on plant and machinery will be reduced from 20% to 18% per annum for expenditure allocated to the main rate pool, and from 10% to 8% per annum for expenditure allocated to the special rate pool. This will have effect for chargeable periods ending on or after 1 April 2012 for businesses within the charge to corporation tax and on or after 6 April 2012 for businesses within the charge to income tax.

The Annual Investment Allowance (AIA) will be reduced from the current limit of £100,000 to a new limit of £25,000. This will have effect from April 2012.

Consortium relief

In certain circumstances, a member of a consortium may transfer its share of the consortium"s unused losses to another member of its group. The member making the transfer is known as the "link company" and under current rules it must be UK resident. For accounting periods commencing on or after the date the legislation is published, the rules will be extended to allow any company established within the European Economic Area to be a link company.

The legislation will also provide an additional test for determining the maximum amount of losses that may be claimed from a consortium company. This test will be based on the proportion of voting rights and the extent of control the member holds in the consortium.

Corporation tax reform

The Government is to consult on:

  • changes to the rules for foreign branches
  • the reform of the controlled foreign company (CFC) rules
  • the taxation of intellectual property
  • the support research and development (R&D) tax credits provide for innovation.

It also intends to simplify the capital gains rules for groups of companies.

In the autumn the Government will set out a more detailed programme for the reform of the whole corporate tax system.

Business finance

A new Enterprise Capital Fund of £37.5 million will be introduced to provide additional equity finance for small businesses.

The Enterprise Finance Guarantee will be increased to provide £200 million in additional lending for small businesses until 31 March 2011.

Anti-avoidance

Anti-avoidance legislation will be introduced in respect of:

  • use of authorised investments funds (AIFs)
  • the 'derecognition' of income of a loan or derivative.

Carers

The Chancellor has confirmed the Government"s intention to legislate a number of changes previously announced, affecting:

  • special guardians orders and certain kinship carers - measures to ensure that payments to qualifying guardians will be exempt from income tax
  • shared lives carers, including adult placement carers, staying put carers and certain kinship carers - to allow qualifying shared lives carers to claim the same income tax relief as foster carers. The new relief will be known as the qualifying care relief
  • individuals who set aside part of their house exclusively for use under a local authority adult placement scheme - to ensure that entitlement to private residence relief (PRR) is preserved where an adult placement carer uses part of their home exclusively for the purposes of their business as a carer; and
  • foster carers and shared lives carers - to correct technical anomalies in the special capital allowances rules for foster carers, to ensure that the rules operate as intended when individuals start, or finish, qualifying or electing for foster-care relief.

Office of Tax Simplification

The Government has announced its intention 'to restore the UK tax system"s reputation for predictability, stability and simplicity". It has published a discussion document setting out a number of proposals designed to improve the framework for developing, legislating and implementing tax policy.

The Government has also confirmed its intention to create an independent Office of Tax Simplification. More details about this will be published shortly.

The Government also proposes a review of IR35 and small business tax. Further details will be released after the Budget.

 

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