Business Tax and Investment Incentives
Corporation Tax
Corporation tax rates and bands are as follows:
| Financial Year to | 31 March 2016 | 31 March 2015 |
|---|---|---|
| Taxable profits | ||
| First £300,000 | 20% | 20% |
| Next £1,200,000 | 20% | 21.25% |
| Over £1,500,000 | 20% | 21% |
The corporation tax main rate will be 19% for the financial years beginning 1 April 2017, 1 April 2018 and 1 April 2019, and 18% for the financial year beginning 1 April 2020.
Annual Investment Allowance (AIA)
The maximum amount of AIA is currently £500,000 for all qualifying expenditure on plant and machinery from 1 April 2014 for corporation tax and 6 April 2014 for income tax. This limit will be reduced to £200,000 (instead of the previously announced £25,000) with effect from 1 January 2016.
Goodwill
Legislation will be introduced to remove corporation tax relief for companies who write off the cost of purchased goodwill and certain customer related intangible assets. This will apply to accounting periods beginning on or after 8 July 2015, but not in respect of acquisitions made before 8 July 2015.
Any losses arising on a disposal, on or after 8 July 2015, of goodwill that is subject to the new rules, will be treated as non-trading debits and will not be included in the calculation of trading losses.
Corporation tax payment dates
The Government will introduce new payment dates for companies with annual taxable profits of £20m or more. Where a company is a member of a group, the £20m threshold will be divided by the number of companies in the group. Affected companies will be required to pay corporation tax in quarterly instalments in the third, sixth, ninth and twelfth months of their accounting period. This will apply to accounting periods starting on or after 1 April 2017.
Research and development
Legislation will be introduced to make an institution of higher education or a charity ineligible to make a claim for the Research & Development Expenditure Credit in relation to any expenditure incurred on or after 1 August 2015. This change does not affect ‘spin out’ companies used by universities or charities to commercialise their research.
Controlled Foreign Companies (CFCs)
Legislation will be introduced to stop losses and other surplus expenses from being set off against the CFC charge on the profits of CFCs. This will apply to profits arising on or after 8 July 2015.
Venture capital schemes
The Government will, subject to state aid approval, make changes to the Seed Enterprise Investment Scheme (SEIS), Enterprise Investment Scheme (EIS) and Venture Capital Trust (VCT) rules so that:
- companies are prevented from using EIS and VCT investments to acquire a business
- the money raised must be used for the growth and development of the company (or subsidiary company)
- where an individual already holds shares in a company, an issue of new shares will not be eligible for EIS unless the individual has made a risk finance investment in the company before Royal Assent or the individual’s shares in the company (excluding founders’ shares) were a risk finance investment
- companies must raise their first investment under EIS, VCT or other risk finance investment within seven years of making their first commercial sale (or 10 years for a knowledge-intensive company), except where the amount of the investment is at least 50% of the company’s annual turnover, averaged over the previous five years
- the total amount of investment a company may raise under EIS, VCT or other risk finance investment, is capped at £12m (or £20m for knowledge-intensive companies)
- the employee limit for knowledge-intensive companies is increased from 249 to 499 employees
- companies will, from 6 April 2015, no longer need to use at least 70% of SEIS funds before raising funds under EIS or VCT, respectively
- the rule prohibiting the use of money for the acquisition of shares is extended to all investments made by VCTs
- it is clarified that farming outside the UK is not an eligible activity.
The above changes will have effect from Royal Assent except where indicated. A risk finance investment is an investment under EIS, SEIS or Social Investment Tax Relief.
Banks
An 8% surcharge will be levied on the profits of banking companies. This will take effect in accounting periods beginning on or after 1 January 2016.
The bank levy rate will decrease from 0.21% to 0.18% from 1 January 2016 and will continue to decrease each calendar year thereafter until 2021. Also with effect from 1 January 2016, a proportionate decrease to 0.09% will be made to the half rate, with corresponding reductions being made each following calendar year until 2021.
Legislation will be introduced to deny banks and building societies corporation tax relief for compensation payments and associated expenditures, arising on or after 8 July 2015, relating to misconduct issues.
The restriction on the amount of profits that banks and building societies can offset by carried forward losses is to be extended to include savings banks established under the Savings Banks (Scotland) Act 1819. This will have effect from 1 April 2015.
