bright grahame murray

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Spring Budget 2008

Business tax

Corporation tax rates

The main rate of corporation tax will be 28% for two years from 1 April 2008. The small companies’ rate will be 21% for one year from 1 April. 2008.

Associated companies

For the purpose of a claim for the small companies’ corporation tax rate, companies will normally no longer be treated as associated just because their shareholders are members of the same business partnership. Companies may be treated as associated if there have been ‘tax planning arrangements’.

Enterprise zone allowances (EZAs)

The special allowance for certain buildings in enterprise zones will be withdrawn from April 2011. It will not be subject to the phasing-out rules that will apply to industrial and agricultural buildings allowances from 1 April 2008. Businesses will still be able to claim EZAs up to 31 March 2011 for corporation tax, and 5 April 2011 for income tax. However, the 25% writing-down allowance will be apportioned where an accounting period spans the relevant date. Balancing charges may still potentially arise on disposals after the relevant 2011 date.

Capital allowances plant and machinery

The main rate of writing-down allowance (WDA) falls from 25% to 20% from April 2008. The rate for long-life assets increases from 6% to 10%. There will be hybrid WDA rates for accounting periods that span 1 April 2008 (corporation tax) or 6 April 2008 (income tax).

Thermal insulation and certain other ‘integral features’ of a building will attract capital allowances of 10% a year for expenditure incurred from April 2008. Integral features are electrical, cold water, heating and cooling systems, lifts, escalators and moving walkways, external solar shading and active façades. All expenditure that attracts the 10% allowance will form a special rate pool.

Businesses will be able to claim a WDA of up to £1,000 for each pool, where the balance of unrelieved expenditure in a general capital allowances pool, or the special rate pool, has fallen below £1,000.

The first £50,000 a year of expenditure by a business on most plant and machinery will qualify for a 100% annual investment allowance (AIA). Groups of companies will qualify for only one AIA. Businesses under common control will qualify for a single AIA,assets and integral features can also qualify for AIA.

First-year allowances (FYAs)

The existing 100% FYA for expenditure on cars with very low CO₂ emissions will continue to 31 March 2013 but, from 1 April 2008, only for cars with CO₂ emissions of up to 110g/km. Waste-water recovery and reuse systems are being added to the list of equipment that qualifies for the 100% FYA.

Loss-making companies will be able to surrender losses attributable to 100% FYAs on designated energy-saving or environmentally beneficial plant and machinery. They will receive a cash payment of 19% of the loss surrendered, but it will be subject to an upper limit. Companies can claim this first-year tax credit for expenditure incurred from 1 April 2008.

Trading stock

Business profits for tax purposes will be adjusted where goods are added to or removed from trading stock other than by way of trade. In these circumstances, the cost of, or proceeds from, the stock is replaced by the market value.

Trading loss relief

Individuals who spend on average less than ten hours a week on the commercial activities of their trade will be treated as non-active traders. They will not be able to set their trading losses against their other income if the loss arises as a result of tax avoidance arrangements made after 11 March 2008. There will also be an annual limit of £25,000 on the total amount of trading loss relief that a non-active trader may claim against other income.

Employment-related securities

Provisions effective from 12 March 2008 will clarify the existing legislation that where an employer provides employment-related securities, corporation tax relief can be claimed only on amounts that have been subject to income tax.

Anti-avoidance provisions

Measures will counter tax avoidance in the following instances:

• Businesses that lease in and out the same plant or machinery to exploit any differences in tax treatment that generate a loss.
• Leases of plant or machinery in return for a capital payment.
• Arrangements that give rise to amounts that are interest in substance but which are designed not to be taxable as interest.
• Various schemes intended to avoid or exploit the 2005 ‘shares as debt’ rules.
• Schemes that use a partnership or trust to escape a tax charge under the controlled foreign companies rules, either by using one of the exemptions or by arranging for profits to be earned in such a way that they purportedly fall outside the scope of the rules.
• Arrangements involving companies that sell a trade to crystallise a balancing allowance on plant and machinery used for the trade, which is available to a profitable group that does not intend to carry on the trade in the long term.

The first two of these changes generally have effect from 13 December 2007 and the rest from 12 March 2008.

Corporate intangibles

Anti-avoidance legislation will clarify that, for transactions from 12 March 2008, the effect of the ‘related party’ rules in the corporate intangible assets regime is unaffected by any administration, liquidation or other insolvency proceedings or equivalent arrangements in which any company or partnership may be involved.

Investment manager exemption (IME)

The IME enables non-residents to appoint UK-based investment managers to carry out transactions on their behalf without the risk of exposure to UK tax, subject to certain conditions. New rules will simplify the approach to defining the translations within the scope of the IME and remove one of the conditions that must be met.