Yesterday’s announcements by the Chancellor of the Exchequer were, for the most part, par for the course with a smattering of incentives for businesses. The main points to note were:

Venture Capital Scheme Adjustments

The Government will introduce legislation doubling both the limit on which the EIS investments for ‘knowledge intensive’ companies (KICs) and the individual investor limits for investment in these companies. The annual limit for individuals investing under EIS will be increased to £2 million provided anything above £1 million is invested in KICs. The annual on EIS and VCT limit on the amount of tax-advantaged investments a KIC may receive will also be increased to 10 million.

It was also announced that investment relief will be focused on companies where there is a real risk to capital being invested, all investments will now be counted towards the lifetime fundings limit for companies receiving investments under schemes, and the government will consult on a new knowledge-intensive EIS fund structure.

R&D Relief

It was further announced that the rate of the R&D expenditure credit would be increased from 11% to 12% from 1 January 2018, which may be offset against Corporation Tax or carried forward.

Indexation Relief Freeze

Corporate indexation allowance on capital gains disposals will be frozen from 31 December 2017. This means that there will be no relief available on the portion of a gain that represents inflation from this date when calculating future chargeable gains.

Non-residence and Property

Gains realised by non-residents on disposals of commercial property or an interest in property deriving its value from UK property, and gains realised by widely held non-resident companies on disposals of residential property will in future all be subject to UK tax. Furthermore, from April 2020, income that non-resident companies receive from UK property will be charged to corporation tax rather than income tax, as will gains on disposals of UK property.

SSE/Share Reconstruction Provisions Amended

Measures were announced to enable certain share reorganisations to occur without immediately bringing into charge certain postponed chargeable gains with effect from 22 November 2017. The substantial shareholding exemption (SSE) for gains of companies will be amended to avoid unintended chargeable gains being triggered where a UK company incorporates foreign branch assets in exchange for shares in an overseas company. The ‘no disposal’ treatment for share exchanges is to be applied when determining whether there has been a disposal which would end the postponement of tax, regardless of whether the shares in the overseas company qualify for SSE.

Tax on Royalties

The Government will publish a consultation on 1 December 2017 with a view to introducing income tax on certain royalty payments as well as proposals for wider measures affecting the digital economy. From April 2019, withholding tax obligations will be, subject to any relevant double taxation treaty provisions, extended to royalty payments, and payments for certain other rights, made to low or no tax jurisdiction in connection with sales to UK customers.

Restriction on Double Taxation Relief

In relation to the availability of Double Taxation Relief (DTR), provisions affecting Companies which have permanent establishments in other jurisdictions will come into effect for accounting periods beginning on or after 22 November 2017. If a UK company with a permanent establishment abroad incurs losses attributable to that permanent establishment, the total DTR available is reduced in line with any use of these losses against other income.

Future Consultations

A number of important future consultations will be conducted, on employment status, the personal service company and other intermediaries taxation regime (IR35) in the private sector, VAT grouping and reverse charges in the construction sector and on the taxation of leasing transactions.

Overall, the changes with most significance are those which will affect businesses with a non-UK dimension, such as the changes to gains on disposal of UK property by a non-resident, and the expansion of SSE to cover an overseas share exchange.

For further details on how the Autumn Budget may affect your business, please contact a member of our Tax team.

Yesterday’s announcements by the Chancellor of the Exchequer were, for the most part, par for the course with a smattering of incentives for businesses. The main points to note were:

Venture Capital Scheme Adjustments

The Government will introduce legislation doubling both the limit on which the EIS investments for ‘knowledge intensive’ companies (KICs) and the individual investor limits for investment in these companies. The annual limit for individuals investing under EIS will be increased to £2 million provided anything above £1 million is invested in KICs. The annual on EIS and VCT limit on the amount of tax-advantaged investments a KIC may receive will also be increased to 10 million.

It was also announced that investment relief will be focused on companies where there is a real risk to capital being invested, all investments will now be counted towards the lifetime fundings limit for companies receiving investments under schemes, and the government will consult on a new knowledge-intensive EIS fund structure.

R&D Relief

It was further announced that the rate of the R&D expenditure credit would be increased from 11% to 12% from 1 January 2018, which may be offset against Corporation Tax or carried forward.

Indexation Relief Freeze

Corporate indexation allowance on capital gains disposals will be frozen from 31 December 2017. This means that there will be no relief available on the portion of a gain that represents inflation from this date when calculating future chargeable gains.

Non-residence and Property

Gains realised by non-residents on disposals of commercial property or an interest in property deriving its value from UK property, and gains realised by widely held non-resident companies on disposals of residential property will in future all be subject to UK tax. Furthermore, from April 2020, income that non-resident companies receive from UK property will be charged to corporation tax rather than income tax, as will gains on disposals of UK property.

SSE/Share Reconstruction Provisions Amended

Measures were announced to enable certain share reorganisations to occur without immediately bringing into charge certain postponed chargeable gains with effect from 22 November 2017. The substantial shareholding exemption (SSE) for gains of companies will be amended to avoid unintended chargeable gains being triggered where a UK company incorporates foreign branch assets in exchange for shares in an overseas company. The ‘no disposal’ treatment for share exchanges is to be applied when determining whether there has been a disposal which would end the postponement of tax, regardless of whether the shares in the overseas company qualify for SSE.

Tax on Royalties

The Government will publish a consultation on 1 December 2017 with a view to introducing income tax on certain royalty payments as well as proposals for wider measures affecting the digital economy. From April 2019, withholding tax obligations will be, subject to any relevant double taxation treaty provisions, extended to royalty payments, and payments for certain other rights, made to low or no tax jurisdiction in connection with sales to UK customers.

Restriction on Double Taxation Relief

In relation to the availability of Double Taxation Relief (DTR), provisions affecting Companies which have permanent establishments in other jurisdictions will come into effect for accounting periods beginning on or after 22 November 2017. If a UK company with a permanent establishment abroad incurs losses attributable to that permanent establishment, the total DTR available is reduced in line with any use of these losses against other income.

Future Consultations

A number of important future consultations will be conducted, on employment status, the personal service company and other intermediaries taxation regime (IR35) in the private sector, VAT grouping and reverse charges in the construction sector and on the taxation of leasing transactions.

Overall, the changes with most significance are those which will affect businesses with a non-UK dimension, such as the changes to gains on disposal of UK property by a non-resident, and the expansion of SSE to cover an overseas share exchange.