R&D tax credits
Following consultation, HMRC will:
- introduce voluntary advance assurances lasting three years for smaller businesses making a first claim to R&D tax credits from autumn 2015;
- reduce the time taken to process a claim, from 2016;
- produce new stand-alone guidance aimed specifically at smaller companies, backed by a two-year publicity strategy to raise awareness of the credits;
- publish a ‘roadmap’ in the summer for further improvements to the scheme over the next two years.
The pre-election Finance Bill will contain measures, as previously announced, to exclude from qualifying expenditure the costs of materials incorporated in products that are sold, with effect from 1 April 2015.
UK oil and gas fiscal regime
The fall in the price of oil – due to lower than expected demand but higher than expected supply - has been generally viewed as being positive for the economy, giving a much-needed boost to household incomes. However, North Sea production and investment has been hit heavily, and so it is no surprise that the Chancellor has made a number of changes to the regime in the hope of stimulating the industry.
In addition to the 2% cut announced in the Autumn Statement, the rate of supplementary charge payable on profits from production in the UK or on the UK Continental Shelf will decrease from 30% to 20% with effect from 1 January 2015. The rate of Petroleum Revenue Tax will also reduce from 50% to 35% and have effect for all chargeable periods ending after 31 December 2015.
A new investment allowance will also be introduced to reduce the amount of adjusted ring fence profits that are subject to the supplementary charge. The portion of profits reduced by the allowance will be dependent on a company’s investment expenditure, but will be calculated as 62.5% of that spend. The investment allowance will apply on investment expenditure incurred on or after 1 April 2015 and will replace the existing offshore field allowances, and simplify the existing regime.
In George Osborne’s first Budget in June 2010, the Bank Levy was introduced. In what might be the Chancellor’s last Budget, he announced that the levy will be increased to 0.21% from 1 April 2015. An increase to 0.105% will also be made to the half rate, effective from the same date.
Banks will also be hit by the measure to make customer compensation expenses non-deductible for corporation tax purposes. The government will consult on the details with the aim of legislation in a future Finance Bill, so there may still be time to claim corporation tax relief for compensation.
Anti-avoidance involving capital allowances
A targeted measure has been introduced to prevent businesses from claiming capital allowances for plant and machinery in certain scenarios involving connected parties or sale and leaseback transactions.
The new restriction applies where the business disposing of the asset, or a person with whom they are or have previously been connected, acquired the asset without incurring either capital expenditure or qualifying revenue expenditure. Draft legislation was released on 26 February 2015 and the new restriction takes effect from that day.
The change will mean that, where no capital expenditure is incurred, expenditure qualifying for capital allowances will be restricted to nil unless the plant and machinery was acquired for revenue expenditure, or on its manufacture, at an arm’s-length price.
Corporation tax losses – restriction involving avoidance arrangements
Companies looking to obtain a tax advantage by entering into arrangements to convert brought forward losses into more versatile current year deductions will see those deductions restricted.
The government’s objective is to tackle perceived artificial and contrived arrangements designed to circumvent the corporation tax rules on losses, which are either ring-fenced in a particular company (in group scenarios) or can only be offset against future profits from the same activity (which is the case with trade losses). The measure will take effect for accounting periods commencing on or after 18 March 2015, but will also apply to periods straddling that date. Importantly, the rule applies to arrangements entered into at any time.
The new rules will apply where arrangements result in new ‘in-year’ relief being claimed for a brought-forward loss, when it is reasonable to assume that the value of the tax advantage will exceed any other economic benefits referable to the arrangements. If the rules apply, the company will not be able to offset the relevant carried-forward relief against the amount of profit arising from the arrangement.
HMRC have provided some example scenarios to illustrate their view on whether the new restrictions would apply. Provided there is an underlying commercial purpose behind arrangements, the implication is that the rules would not apply. The example given is of a company within a group which has a large brought forward non-trading loan relationship deficit, and where intra-group loans are routed through the company in order for another group company to carry out a commercial acquisition.
Business rates review
The government is conducting a review of business rates to report by Budget 2016. A discussion paper, here, was published on 16 March 2015.
Energy saving technologies
The list of energy-saving and water-efficient technologies qualifying for enhanced capital allowances of 100% will be updated this summer, subject to state aid approval.
The Landlord’s Energy Saving Allowance will no longer be available beyond 31 March 2015 for corporate landlords and 5 April 2015 for unincorporated landlords of let residential properties.
Review of loan relationships and derivative contracts legislation
Following a review, a post-election Finance Bill will update, simplify and rationalise the legislation on corporate debt and derivative contracts. The changes will include a clearer and stronger link between commercial accounting profits and taxation. They will also include a new relief for companies in financial distress and new rules to protect the regime against tax avoidance.
Office of Tax Simplification (OTS) - review of partnerships
The government has welcomed the final report of the OTS review of partnerships, published in January 2015. It indicates that it will consider or take forward over 70% of its recommendations and that it has already completed work on many of these.
A post-election Finance Bill will amend the simplified expenses regime to ensure that partnerships can fully access the provisions dealing with the use of a home, and with the situation where business premises are also a home.
Capital gains tax – entrepreneurs' relief and academics
The government will consult on the capital gains tax treatment of gains made by academics on disposals of shares in 'spin-out' companies that use intellectual property to which they have contributed. Any necessary legislation will be introduced in a post-election Finance Bill.