You and your business

• Corporation tax
• Capital allowances
• Research and development tax relief
• Film tax relief
• Sale of lessor companies
• Tax and financial instruments
• Bank payroll tax
• Anti avoidance
• Stamp duty land tax avoidance schemes
• Biofuels duty
• Climate change levy
• Stamp duty
• Insurance premium tax (IPT)

Corporation tax

The Chancellor announced a one year deferment for the increase in the small companies' corporation tax rate which remains at 21%.

Capital allowances

The only significant change announced to the existing capital allowance regime is bringing in a 100% first year allowance for expenditure on new electric vans thus bringing them into line with electric cars and cars with very low emission levels of 110g/km or less. The allowance has effect for expenditure incurred on or after 1 April 2010 for corporation tax and 6 April 2010 for unincorporated businesses.

The Government temporarily introduced an enhanced first year capital allowance of 40 per cent for expenditure incurred in 2009/10, however this will come to an end as planned in April 2010.

An anti avoidance measure was also announced which will prevent tax avoidance in circumstances where there are tax-motivated sales of companies which have plant and machinery tax written down values of in excess of the corresponding book values. This measure has effect for transactions on or after 9 December 2009.

Research and development tax relief

A restriction which denied the enhanced tax relief for research and development expenditure unless the claimant company held the derived intellectual property has been removed for expenditure incurred by a SME company in an accounting period ending on or after 9 December 2009.

Film tax relief

The Pre Budget Report removes an unintended anomaly which had restricted the tax credit in certain circumstances. Generally this anomaly arose where the film production was spread over two or more accounting periods and there was an overseas expenditure element. This amendment to the rules has effect for accounting periods on or after 9 December 2009.

Sale of lessor companies

The Chancellor has announced an option for lessor companies when they are sold to be able to elect for an alternative treatment from that prescribed in the 'Sale of Lessor Companies' legislation. The option will allow such companies to escape the immediate charge but alternatively to ensure that tax is levied on the leasing business following the sale. The measure is effective for transactions on or after 9 December 20009.

At the same time an anti avoidance measure has been introduced to deal with lessor companies owned by consortia. There was a weakness in the existing legislation which could be exploited by changes in indirect control within the consortium. This has been blocked for transactions on or after 9 December 2009.

Tax and financial instruments

Following the proposed amendments to IAS 39 regarding financial instruments and the consequent anticipated amendment to the UK's own standard FRS 26 dealing with this topic the Chancellor has announced that legislation will be introduced in the Finance Bill 2010, to ensure that the tax treatment of the effects of these new accounting standards still results in a fair and efficient tax charge. This will have effect for company accounting periods starting on or after 1 January 2010, but changes to the tax regime will only apply once the accounting changes have been finalised.

Bank payroll tax

This much anticipated measure will affect both banks and other financial institutions as well as groups of companies which include such businesses. The tax will be payable by the employer at a rate of 50% in cases where an individual employee receives either a discretionary or contractual bonus in excess of £25,000. This measure will affect bonus payments made on or after the time of the announcement on 9 December 2009 until 5 April 2010. There is an exemption for contractual bonus entitlements where the payer has no discretion as to the amount because of a contractual obligation existing prior to 9 December 2009. The measure will include anti-avoidance rules to be announced. The special tax charge will not be an allowable deduction from profits for corporation tax purposes.

Anti avoidance

A number of anti-avoidance measures were also announced in this Pre Budget Report including the following:

• Risk-Transfer schemes: Companies have in some cases chosen to over or under hedge foreign currency exposure in such a way that there is an effective transfer of risk to the Exchequer. This was achieved by fragmenting the transactions around the group and in some cases obtaining a larger tax loss than the overall economic cost to the group. In future such losses would be ring fenced and will only be available for use against the hedging arrangements. This has effect for accounting periods beginning on or after 1 April 2010 with special rules for accounting periods straddling that date.
• Index linked gilts: Companies which have taken advantage of the tax free return on gilts where the increase in value is within the RPI movement will no longer be able to do so on any gilts held on or after 9 December 2009 if they are not economically exposed to the inflation linked return.
• Leasing of plant and machinery: Legislation will be introduced to counter two types of schemes. The first involves lessor companies generating tax losses by claiming capital allowances without bringing in the rental income into charge to corporation tax. The second involved converting a temporary tax timing advantage into a permanent one by selling the rights to the future rental income. Both of these schemes are blocked where either the expenditure on the plant and machinery was incurred or a rebate of rentals becomes payable on or after 9 December 2009 or the business ceases to be chargeable to corporation tax on or before that date.

 

Stamp duty land tax avoidance schemes

A raft of announcements was made extending the Disclosure of Tax Avoidance Schemes (DOTAS).

Certain disclosure to HM Revenue and Customs with regard to property schemes is required and these announcements relate to the users of all SDLT avoidance schemes, for both commercial and residential property. These announcements, which largely apply to residential property with a value of at least £1 million, are targeted at promoters of tax avoidance schemes including accountancy firms! These changes are due to take effect no later than 1 April 2010.

Biofuels duty

The current 20 pence per litre (ppl) duty differential for biodiesel and bioethanol will cease from 1 April 2010 and duty will in future be charged at the same rate as main road fuels. As previously announced main road fuels will increase on 1 April from 2010 to 2013 by 1ppl above indexation in each year.

A relief scheme is to be introduced so that producers can continue to benefit from a 20 ppl differential in relation to biodiesel produced only from waste cooking oil. The scheme which will last for two years will allow producers to offset an allowance of 20 ppl against the duty that is payable.

Climate change levy

The reduced climate change levy is to be amended from 20 to 35 per cent on and after 1 April 2011.

Currently climate change agreements provide facilities in energy intensive sectors with an entitlement to pay a 20 per cent reduced rate of climate change levy. Facilities claim the reduced rate by certifying to their energy suppliers the extent of their entitlement to the levy relief. The requirement to give new certificates takes effect on and after 1 April 2011 and are required to be given by the completion of the claimant's first annual review after 1 April 2011.

Stamp duty

As previously announced HM Revenue and Customs will not seek to apply the 1.5 per cent stamp duty or stamp duty reserve tax (SDRT) when new shares are first issued to an EU clearance service or depository receipt system.

On 1 October 2009, HM Revenue and Customs announced that it proposed to ensure that, following the decision of the European Court of Justice in HSBC Holdings Plc and Vidacos Nominees Limited v Commissioners for HM Revenue and Customs, movements of securities between clearances and depositary receipt systems bear their fair share of tax by changing the law with effect from that date.

Legislation will be introduced in the Finance Bill 2010 to remove the exemptions for transfers where companies and depositary receipt issuers arrange a scheme under which new shares are issued to an EU clearance service or depositary receipt system without the payment of a 1.5 per cent stamp duty or SDRT and the shares are subsequently transferred to a depositary receipt system or clearance service outside the EU.

Insurance premium tax (IPT)

With effect for payments on or after 9 December 2009 measures are introduced with regard to an avoidance scheme involving an 'administration fee' charged under a separate contract. The legislation brings certain fees charged under a separate contract in connection with personal lines insurance into the scope of IPT.

The measure applies only to charges made in connection with insurance contracts with private individuals. Charges made for services provided in connection with insurance contracts with businesses and other organisations are not covered.