by Cathy Corns of Mercer & Hole (London, England)
The Autumn Statement was more about confirmation than reformation for business taxpayers. Many of the changes were announced in the Budget in March this year and come as no surprise.
Corporation tax rates
The current rate of corporation tax is 20% and is falling to 19% from 1 April 2017. It is due to reduce by a further 2% to 17% on 1 April 2020. This is good news for companies and the rates remain some of the most competitive in the developed world.
Company loss relief (large companies)
The Government is committed to introducing the loss relief changes originally outlined in their business tax roadmap. Whilst there is not very much detail yet the changes are important.
Broadly it appears that relief for losses arising after 1 April 2017 will be much more flexible in terms of offset on a group basis and against different forms of income. However, the flexibility comes at a price - from 1 April 2017 there will be a 50% restriction on the offset of losses where profits exceed £5 million on a group wide basis.
Corporate interest costs (large companies)
A new restriction flagged in the business tax roadmap is now at the proposal stage. From 1 April 2017, groups with UK interest costs of £2 million or more will have their tax relief restricted to 30% of a group’s earnings or by reference to a group ratio rule based on the net interest to Earnings Before Interest, Taxes, Depreciation and Amortisation (EBITDA) for the worldwide group.
Non-resident companies
The Government is considering bringing all non-resident companies who receive taxable income from the UK into the UK corporation tax regime. At the Spring Budget in 2017, the Government will consult on implementing this change. The idea is to deliver equal tax treatment to ensure that all companies are subject to the rules which apply generally for the purposes of corporation tax. This includes the limiting of corporate interest relief and loss relief.
It is not yet clear what impact these changes will have given that offshore companies already pay income tax at 20% on their UK income profits. However, they do not at present pay tax on any gains on the sale of UK commercial properties and it will be interesting to see if they are now proposing to tax such gains.
Substantial Shareholding Exemption (SSE)
Following consultation, the Government will make changes to simplify the rules, remove the investing requirement and provide a more comprehensive exemption for companies owned by qualifying institutional investors. The changes will take effect from 1 April 2017. Currently the relief applies to exempt gains (and deny losses) on the disposal by a trading parent company of any shareholding over 10% in a subsidiary. Other qualifying conditions apply and we hope to have more detail as to exactly what changes will be made to the legislation in December.
I hope you have found this article useful, if you require any further information please contact Mercer & Hole's Tax Partner Cathy Corns.
