No major changes were announced (subject to legislation to be published on 5 December), but we set out below a brief summary of the announcements which are relevant to corporates in the IPT sector.

Patent box

The UK patent box regime allows companies to elect to have relevant IP income earned from their patented inventions taxed at a lower rate of 11% (10% from April 2017), compared with the normal corporation tax rate of 20% (19% from April 2017). The government intends to include in the Finance Bill 2017 specific provisions for the application of the patent box regime to R&D undertaken by companies collaboratively under a "cost sharing arrangement". The new provisions will take effect for accounting periods commencing on or after 1 April 2017.

R&D expenditure credit ("Above the line" credit)

The R&D expenditure credit (also known as the "above the line" R&D tax credit) was introduced by the government in 2013 to replace the old "large companies" R&D relief (completely phased out since April 2016). Large companies may claim a repayable 'above the line' credit equal to 11% of their qualifying R&D expenditure. The credit may then be set against the company's corporation tax liability.

To further increase the attractiveness of the UK as a location for large company R&D investment, the government will look at ways to build on the "above the line" R&D tax credit, though no specific proposals or details have been announced.

Corporation tax losses

At present trading losses can be surrendered within groups in the year in which they arose, or can be carried forward for future years only by the company in which they arose. The government will legislate for proposals it made earlier this year so that:

  • a company that incurs losses on or after 1 April 2017 will be able to carry forward those losses and set them against profits of different activities, or against the profits of another company within the same group; and
  • the amount of a company's or group's profit that can be relieved by carried forward losses will, from 1 April 2017, be restricted to 50% of any profits in excess of £5m.

Interest deductibility

As previously announced in the 2016 Budget, with effect from April 2017, the government will cap the amount of corporation tax relief for interest at the higher of (A) 30% of UK EBITDA; and (B) the worldwide group's net ratio of interest to earnings (subject to a group-wide de minimis of £2m net interest costs).

People had been hoping that the changes would be softened and delayed given the European Union has announced a more generous version of the same rules for 2019 (two years later) but the government has ignored those concerns.

Foreign companies

The government has announced that it is considering bringing all non-resident companies receiving UK income into the corporation tax regime. Currently, non-UK resident companies which trade in the UK (through a UK permanent establishment) are subject to corporation tax; whilst those without a UK trade may only be liable to income tax on certain UK source income (eg rental income, interest and royalties).

The policy drive behind this announcement is to ensure "equal tax treatment" for all taxpayers and the consultation will consider the options for implementing the proposals, including the restrictions on corporation tax losses and interest expense deductibility referred to above.