Corporation Tax rates
The Chancellor confirmed the Corporation Tax rates previously announced: 19% for three years from 1 April 2017, then 17% from 1 April 2020.
The Chancellor responded to widespread protests that the business rates revaluation exercise coming into effect in April 2017 will lead to very significant increases for many small businesses. Although the Government has responded that the overall effect of the revaluation is revenue neutral, and there are ‘more winners than losers’, the Chancellor has made money available to relieve the pain for many of those who would suffer sharp increases. Three measures were announced:
- For small businesses losing Small Business Rate Relief, limiting increases in their bills to the greater of £600 per year or a set ‘real terms transitional relief cap’.
- Providing English local authorities with funding to support £300 million of discretionary relief, to allow them to provide support to individual hardship cases in their local area.
- Introducing a £1,000 business rate discount for pubs with a rateable value of up to £100,000, subject to State aid limits for businesses with multiple properties, for one year from 1 April 2017.
The system of revaluations will be considered in more detail before the next exercise that is due to take place in 2022.
Smaller income tax traders are permitted to use a simplified ‘cash basis’ to compute their taxable profits, rather than ‘accruals accounting’. This has been based on the VAT registration threshold (£83,000 during 2016/17), but for 2017/18 entry to the scheme will be allowed for Income Tax businesses with turnover up to £150,000 (£300,000 for Universal Credit claimants). The exit threshold will be increased to £300,000.
The Finance Act 2017 will also legislate for a simple list of disallowed expenditure for traders using the cash basis and to clarify the rules for moving between the cash basis and accruals accounting. For 2017/18, traders will be able to compute their profits using either the old or the new rules.
Reform of tax reliefs
From April 2017, there will be significant changes to the corporate tax reliefs for interest payments and for losses brought forward. There will be a restriction on interest deductions for large groups, which have net interest expense of more than £2 million, net interest expense of more than 30% of UK taxable earnings, and a UK net interest to earnings ratio that is greater than that of the worldwide group.
From the same date, companies and groups with profits over £5 million will suffer a restriction on the amount of profits that can be offset by brought forward losses. Only 50% of current profits will be eligible for relief. On the other hand, all companies and groups will enjoy greater flexibility in offsetting losses brought forward arising from 1 April 2017: these will be useable against profits from different types of income and profits of other group companies.
Substantial Shareholding Exemption
From 1 April 2017, the exemption from Corporation Tax for certain disposals of at least 10% shareholdings in other companies will be simplified, removing the requirement that the investing company carries on a trade and providing a more comprehensive exemption for companies owned by qualifying institutional investors.
Appropriations to trading stock
Companies with capital assets standing at a loss have been able to convert that loss to a revenue item, eligible for more flexible tax relief, by transferring the asset to trading stock and making a tax election. From 8 March 2017, this election will only be available where the result is a trading profit. An asset standing at a loss must be appropriated at market value, creating a capital loss for tax purposes.