In a high spectacle Budget that set out the Government’s fiscal response to coronavirus and the commitment to £175bn of infrastructure expenditure, there was no showstopping corporation tax announcement.
A number of measures were announced that taxpayers will have been expecting. Most notable is the confirmation that the corporation tax rate will remain at 19 per cent, rather than reducing to 17 per cent from April 2020. This was announced during the election campaign as a measure to help the country ’live within its means’. Given the 19 per cent corporation tax rate is one of the lowest within the G20, this measure is uncontroversial. However, businesses should be aware of the impact not only on cash tax liabilities, but also on accounting deferred tax provisions.
Innovation reliefs also received a welcome boost. The RDEC rate will be increased from 12 per cent to 13 per cent from 1 April 2020, providing a net cash benefit on qualifying expenditure of 10.53 per cent. Whilst welcome, this change will predominantly benefit larger business. It is unclear whether the Government intends that, if the EU state aid rules will not apply in the future, the SME regime will also be made more generous. One announcement which may be of interest to those claiming under the SME regime is that the cap on the payable R&D tax credit, due to be introduced from 1 April 2020 and limiting claims to 300 per cent of relevant liabilities due under PAYE, has been deferred for 12 months pending further consultation.
Capital allowances was another area tweaked, with an increase in the structures and buildings allowance from 2 per cent to 3 per cent per annum (effective from April 2020) and changes to the capital allowances available on cars.
The increase in structures and buildings allowances is welcome, but unlikely to influence investment decisions for many businesses. The time taken to obtain full tax relief has been accelerated from 50 years to just over 33 years, but this is still a long period of time. For zero emission vehicles, the 100 per cent first year allowance has been renewed until March 2025, but the CO2 emissions thresholds for determining whether cars obtain the first year allowance, or 18 per cent or 6 per cent writing down allowances, are to be significantly reduced from April 2021.
Maximising capital allowances claims remains a key element of managing corporation tax liabilities, so discuss any significant capital expenditure with your usual RSM contact.
The Chancellor confirmed that the digital services tax will be introduced from April 2020. For those unfamiliar with this tax, it will apply only to some of the largest online businesses. However, those affected will be relieved that the tax will now be collected annually, rather than quarterly as originally planned.
The Budget documents provide hope that there may be some simplification to two notoriously complex areas of corporate tax, the intangible fixed asset regime and the hybrid mismatch rules. However, the detail will need to be reviewed to ascertain the precise implications of these proposals.
Those businesses most affected by the coronavirus outbreak may benefit from the Government’s commitment to provide support through the availability of ‘time to pay’ arrangements where adverse cashflows make it difficult to pay taxes as they fall due. Contributions to statutory sick pay and business rates reliefs may also help to mitigate the worst effects of the current crisis.
Finally, a surprise announcement was that from April 2021, large businesses (those with more than £200m turnover or £2bn balance sheet total) will be required to notify HMRC where they make tax filings relying on uncertain legal interpretations which HMRC is likely to challenge.
This is an interesting measure that will undoubtedly generate a dilemma for both advisers and taxpayers. Without clear additional guidance and robust legislation, there will be significant uncertainty over what to disclose. This is clearly another measure aimed at closing the tax gap whilst putting the burden of disclosing to HMRC onto the taxpayer. Will HMRC have capacity to review these reports given that 2,000 people have been designated into a special unit to handle additional requests for time to pay arrangements?
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