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More rules on avoidance but will taxpayers get more
certainty
More benefits for going green
Other issues affecting corporates
Investment structures go European
Who has extra cash to spend?
More rules on avoidance but will taxpayers get more
certainty
Anti-avoidance rules regarding the artificial transfer
of income to capital gains
As had been pre-announced the Government has confirmed that it
will be reforming the anti-avoidance legislation which affects
transactions in securities. The backdrop for the reforms was to
simplify the legislation after a recent consultation noted that of
6,000 clearance applications received in 2008, just 2% were
rejected. The new legislation, which we are still awaiting
sight of, will bring in a new 'fundamental change of ownership'
exemption designed to remove the uncertainty surrounding whether
the legislation applies on a company sale.
However, the legislation will still include a motive test and the
number of companies to whom the legislation can apply will be
widened significantly in a move seen by many as an attempt to stop
planning, which has sought to recharacterise income as capital
gains. This planning became more popular with the introduction of
the higher rate of income tax of 50% which stretched the tax saving
available in extracting funds from a company as capital rather than
as a distribution.
Avoidance of Stamp Duty Land Tax (SDLT)
There are numerous planning techniques available which seek to
mitigate the liability to SDLT through the use of a
partnership. The Chancellor has today announced changes to
the legislation which will widen the remit of the current
anti-avoidance legislation to prevent the perceived artificial
transactions.
Changes to approved share schemes
Generally under approved share option schemes, the share options
issued to employees must be over shares in a company which is not
under the control of another company. The only exception to this
was for company share option plans (CSOPs) where the controlling
company was listed. By issuing share options in a subsidiary rather
than the listed parent company, it was possible to manipulate the
CSOPs' £30,000 per employee share value limit. This exception has
now been removed which means that any share options must be issued
over shares in the parent and not in the subsidiary.
There were also amendments announced to payments made by companies
to trustees of Share Incentive Plans. Instead of the general
corporation tax deduction which is currently available, a motive
test will be added and corporation tax relief will be denied if the
main purpose or one of the main purposes of making the payment is
to obtain a corporation tax deduction.
More benefits for going green
There have been increasing amounts of tax incentives for
businesses to invest in green technology in recent years and the
Chancellor's Budget announcement includes some further green
measures designed to benefit businesses and their employees.
Enhanced capital allowances for energy saving and water
efficient plant and machinery
The Chancellor
announced a number of minor changes to the list of items of energy
saving and water efficient plant and machinery which qualify for a
100% first year allowance (FYA).
No announcement has been made as to the date these changes will
take effect, but consideration should be given to this announcement
before investing in these types of green assets.
Enhanced capital allowances for zero-emission
vans
It was also announced that a 100% FYA would be
introduced for zero-emission vans, broadly those powered entirely
by electricity or hydrogen fuel-cell. This will be available for
qualifying vans purchased in the five year period commencing on 6
April 2010 for sole traders and partnerships and 1 April 2010 for
companies.
This announcement extends the proposals for 100% FYAs for electric
vans announced in the 2009 Pre-Budget Report and brings the tax
treatment of zero-emission vans in line with that of similar
cars.
No benefit in kind for employees provided with zero and low
emission vehicles
A benefit in kind is assessed on
employees when they are provided with a company car or van for
private use. These benefits (calculated as a percentage of the list
price for cars, and a flat rate for vans) are subject to income tax
on the employee and liable to Class 1A national insurance
contributions for the employer.
In the 2009 Pre-Budget Report, the Chancellor announced that there
would be no benefit in kind for employees provided with electric
cars and vans for the 5 years from 6 April 2010. The Chancellor's
announcement today extends this provision to include all
zero-emission cars or vans (broadly those powered entirely by
electricity or hydrogen fuel-cell).
For the same five year period, a new reduced percentage of 5% will
be applied for the purpose of benefits in kind on any car with a
CO2 emissions figure of 75g/km or less.
Other issues affecting corporates
Capital distributions
The introduction of
the new dividend regime for companies from 1 July 2009 saw an
unexpected change in HMRC's view over the treatment of capital
distributions.
This created uncertainty for companies where the nature of a
dividend was in doubt, for example, when they reduced their share
capital and then paid a dividend to their parent company from the
newly created reserves. The government has now announced that all
distributions will fall under the new dividend regime, unless there
are specific provisions to treat them as capital. This will clear
up the current uncertainty experienced by companies in this
area.
Consortium relief
Consortium relief allows the
transfer of losses between companies in certain circumstances,
where one company has a shareholding in another, but it does not
have sufficient control over it to qualify for group relief. Where
the relationship between these two companies is through another
company (a link company) then the current legislation states that
the link company must be within the scope of UK tax.
A recent case heard at the UK First Tier tax tribunal found that
the current UK consortium relief provisions, which require the link
company to be within the scope of UK tax, was contrary to EU law.
The government has announced that it intends to rectify this
position by amending the current legislation to allow the
consortium relief where the link company is resident in the EU or
the European Economic Area.
At the same time, legislation will be introduced to stop artificial
arrangements that use different classes of consortium share to give
a member of a consortium company access to a greater proportion of
losses.
Associated companies consultation
The government recently consulted on proposals to change the
associated company rules as they apply to the small companies' rate
of corporation tax. In his 2010 Budget, the Chancellor has
confirmed that the new associated rules will be introduced in the
2011 Finance Bill and come into affect from 1 April 2011.
Corporation tax rates
As previously announced in the
2009 Pre-Budget Report the small companies' rate of corporation tax
will remain at 21% for the 2010 financial year, with the
anticipated rise to 22% being deferred until 1 April 2011.
The main rate of corporation tax remains at 28%.
Investment structures go European
Enterprise Investment Schemes (EIS) and Venture Capital Trusts
(VCTs) aim to promote investment in smaller trading companies and
offer significant tax benefits to investors in qualifying
companies. Enterprise Management Incentive (EMI) is a share scheme
designed to help smaller companies recruit and retain key
employees, providing income tax and national insurance advantages
to those employees.
Over recent years, various changes have been made to these schemes
in order to ensure that they comply with EU law. The Chancellor
announced some further changes in his Budget, commencement of which
will be dependent upon when the relevant legislation is
introduced.
Qualifying trade requirement
The current
rules for EIS, VCTs and EMI require a qualifying trade to be
carried on wholly or mainly (broadly being more than 50% of the
total qualifying activities) in the UK. The Chancellor has
announced that this wholly or mainly requirement will be replaced
with a requirement for the company or group to have a permanent
establishment in the UK.
Although there are various other conditions which need to be met,
this change should open up these valuable reliefs to companies with
significant international operations.
Enterprises in difficulty
For EIS and VCT
relief, shares will need to be excluded from qualifying if the
company would be an 'enterprise in difficulty' under EU
guidelines.
Although there is no strict EU definition of what constitutes an
'enterprise in difficulty', the guidelines regard this to be where
'an enterprise is unable to stem losses which will almost certainly
condemn it to going out of business in the short or medium
term'.
Trading of VCT shares
There is currently a
requirement for the VCT's shares to be listed on the official UK
list. The Chancellor has announced that this will be extended such
that the shares must be listed on a European Union Regulated
Market.
Who has extra cash to spend?
The annual investment allowance (AIA) was introduced with effect
from April 2008 and this entitles businesses to claim 100% of the
cost of qualifying plant and machinery (broadly any plant or
machinery except cars) against their profits, up to a maximum of
£50,000 per annum.
The Chancellor announced in his Budget that the AIA will be
increased to £100,000 with effect from 6 April 2010 for sole
traders and partnerships, and 1 April 2010 for companies. There
will be special rules to pro rata the available AIA for businesses
with an accounting period that spans these effective dates.
The Chancellor announced that, due to this change, 99% of small
businesses will be able to deduct the entire cost of their
investment in plant and machinery in the year of expenditure.
However, you would have to question how many small businesses spend
more than £50,000 per annum in plant and machinery and therefore
how many small businesses will really be affected by this
change?
In addition to the extension of the relief, anti-avoidance
provisions will be introduced to limit the amount of loss relief
from a property business which an individual can off set against
their general income, where a claim for AIA has been made by that
business. These provisions are set to apply only where arrangements
are in place, the main purpose, or one of the main purposes of
which is to obtain the relief for the property business loss
against the individual's general income. The anti-avoidance
provisions will apply to losses arising as a result of such
arrangements entered into on or after 24 March 2010.