The chancellor's 2016 Budget, together with HMRC's Business Tax Roadmap which was published alongside the budget documents, announced and confirmed a number of changes relating to corporation tax.
At a glance
From 6 April 2016
- The tax charge on outstanding loans to participators (s455 CTA 2010 tax) will increase to 32.5% for loans, advances and arrangements made on or after 6 April 2016.
- Close company distributions: the Transactions and Securities legislation will be amended as announced in the Autumn Statement and a Targeted Anti Avoidance Rule introduced; the government will respond to the consultation on this issue later this month.
From April 2017
- Losses brought forward will be relievable against other income streams and profits from other group companies.
- Personal Service Companies (PSCs) working in the public sector will be have their income taxed transparently as if the PSC is an employee.
- There will be a new relief for museums and galleries for temporary and touring exhibition costs.
Reliefs and Exemptions
- There will be a consultation on the possible reform of the Substantial Shareholdings Exemption.
Small company tax reform
- The government will accept or consider nearly all of the OTS' recommendations on small company taxation. The OTS will continues to develop the design for a look-through taxation system: the creation of a new business entity and a new simple business model that protects the assets of the self-employed.
- The OTS is to be commissioned to review the options to simplify the computation of corporation tax.
- The introduction of the new payment schedule for companies with profits over £20 million is delayed, and will now apply for accounting periods starting on or after 1 April 2019.
- Tax deductibility of interest will be restricted from 1 April 2017 to a maximum of 30% of a group's earnings before interest, tax, depreciation and amortisation (EBITDA). The restriction will only apply to groups with a net UK interest expense of more than £2 million.
- From 1 April 2017 companies will only be able to use carried forward losses against 50% of their profits in excess of £5 million. For groups, this limit will apply to the whole group. From 1 April 2016 the amount of profit that banks can offset with pre-April 2015 carried-forward losses is restricted to 25%.
- Rules will be introduced to address hybrid mismatch arrangements from 1 January 2017.
- Payments for the use of intangible assets such as trademarks and brand names made to overseas persons will be subject to withholding tax. Withholding tax will also apply to royalty payments that are connected with the activities of UK permanent establishments of overseas companies. These changes will be effective from the date of royal assent.
- Transfer pricing guidelines will be updated in line with the BEPS project and there will be a consultation about further changes.
- The patent box nexus approach will be introduced.