In this year’s Budget, the UK Government claims that “in the face of a steep and synchronised global downturn”, it has introduced measures of “targeted discretionary support” for the economy, particularly to help businesses’ short-term cash-flow and adjustment towards renewed economic growth. As part of this targeted strategy, the UK Government has focussed on the following tax measures for businesses which are being implemented in the Finance Bill 2009, expected to receive Royal Assent this summer, or in related regulations:
- small companies’ corporation tax rate: this rate will be maintained at 21% for this tax year.
- enhanced trade loss relief: for UK tax purposes, a business may relieve trading losses against profits and obtain a tax repayment to support cash-flow using a number of options. One such option is to carry back trading losses against profits arising in its previous 12 month accounting period. As part of the UK’s Pre-Budget Report 2009 released on 24 November 2008, this carry-back was extended temporarily for one year so that a business could carry back losses against profits arising in the preceding year and in the two previous periods, but only up to a maximum of £50,000. This relief has now been extended until 24 November 2010, although it is only expected to have a material impact for small businesses/companies.
- tax payments: two different measures have been introduced here:
- HMRC launched a new service in November 2008 designed to assist viable businesses unable to pay their tax (including employers’ National Insurance Contributions) by agreeing in suitable circumstances reasonable time-to-pay arrangements/deferral of tax without surcharges. As part of the Budget 2009, this service has been extended to support businesses which are currently making losses or expect to do so this year and which are genuinely unable to pay their outstanding liabilities in respect of last year’s profits.
- the Finance Bill 2009 also introduces voluntary Managed Payment Plans (“MPPs”). These will assist smaller businesses’ cash-flow by allowing the spreading of income tax or corporation tax payments through equal monthly instalments payable over a period of up to 12 months straddling the normal due dates, but without the normal interest and penalty consequences of late payment. As MPPs will require changes to HMRC’s systems, it is expected that this will not be operational before April 2011.
- VAT: to stimulate the economy and customer spending, with effect from 1 December 2008, the standard UK VAT rate was temporarily reduced from 17.5% to 15%, although it is expected to increase back up to 17.5% as of 1 January 2010.
- foreign profits package: as announced in the Budget 2009, the exemption for foreign dividends received by all companies (small companies were initially to be excluded from benefit) takes effect in respect of dividends received on or after 1 July 2009, balanced by:
- complex restrictions to interest deductions on worldwide group debt (taking effect for accounting periods beginning after 1 January 2010)
- the removal of some exemptions from the controlled foreign company (CFC) rules (for accounting periods starting after 1 July 2009); and
- a new reporting regime to replace Treasury Consent rules (taking effect after Royal Assent).
The rules on CFCs may have to be reformed further and will be subject to further consultation.
- first-year capital allowance: a first year capital allowance against taxable income will be available at 40% (rather than the normal 20% per annum allowance) to all businesses in respect of expenditure incurred from April 2009 to April 2010 on qualifying plant & machinery. This will be in addition to the Annual Investment Allowance of the first £50,000 spent on plant & machinery. The temporary return of this allowance will not apply to expenditure on e.g. long life assets, integral features, cars, assets for leasing etc.
- intellectual property: the UK Government is intending to review evidence for changes to the taxation of innovative activity in the UK, including intellectual property. The review will consider the relative attraction of the tax system to global firms when they consider where to locate R&D activity and the possible impact of any tax reforms on the location of investment and employment (as well as where IP assets are held) and on tax receipts. The proposed approach is intended to be published before the 2009 Pre-Budget Report this winter.
Various other measures have been introduced with the aim of reducing costs of tax compliance as well as measures to improve the availability of finance to credit-worthy small and medium sized enterprises such as the Enterprise Finance Guarantee, involving the provision of Government guarantees on loans to viable businesses. As a final note, more recently, a consultation has been announced on enhancing business rescue/insolvency procedures in order to help UK businesses emerge stronger through the global economic downturn. This consultation paper was published on 15 June 2009 and includes proposals such as extending the option of a moratorium on creditor action to larger businesses (currently only available to small businesses).