By service

Overview of corporate tax changes

The Chancellor announced today a variety of measures targeted at businesses investing in plant, equipment and trading premises. 

After campaigns by the CBI and the British Chamber of Commerce, it appears that the Chancellor has listened and the Annual Investment Allowance (AIA) has been increased from £200,000 to £1m for a period of two years, commencing on 1 January 2019. The AIA effectively provides businesses with 100 per cent tax relief on qualifying capital expenditure incurred within the AIA limit.

Whilst the vast majority of businesses’ expenditure doesn’t exceed the AIA, this measure is aimed at trying to encourage more investment, and keep the UK tax regime as competitive as possible in a post-Brexit world.

In addition to the increase in AIA, a new tax relief targeted at businesses building new trading premises has been announced. This will allow businesses to obtain tax relief (albeit over a 50 year period) on building expenditure that currently wouldn’t qualify for tax relief – again another positive step to encourage investment in the UK for the longer term.

Tax Relief for investment has to be paid for somehow, and this comes through one of the biggest tax raising measures announced by the Chancellor – the taxation of the digital economy.

It was announced that for the largest digital business (with global turnover above £500m), where value is generated through user interaction (the so called “Google tax”) a new digital services tax will be introduced from 1 April 2020. This will be a new 2 per cent tax on the revenue of certain digital businesses to ensure the amount of tax paid in the UK is reflective of the value they derive from their UK users.

Whilst the UK government will continue to consult and work with the OECD, the announcement clearly sets out that the UK is taking the taxation of the digital economy very seriously, and won’t wait around for the OECD to deal with the issue.

Care is needed to ensure that the legislation is properly drafted and targets those businesses it is intended for – without over complicating the already complex tax environment for the many.

Another announcement made was to limit the utilisation of capital losses to bring the rules in line with the utilisation of trading losses. For those companies with large capital losses brought forward (in excess of £5m), that now generate a large capital gain, this could have significant implications for them and they will pay more tax as a result.

There were then two further measures announced which will make future acquisitions and disposals of businesses more attractive for corporate shareholders.

Firstly, in what appears to partially reverse a change in 2015, the government will introduce tax relief for the cost of goodwill in the acquisition of businesses with ‘eligible intellectual property’ from April 2019. 

It will also alter the regime’s degrouping charge so that a charge will not arise where degrouping is part of a transaction that qualifies for Substantial Shareholding Exemption (SSE), which is a welcome change that removes a long known issue in reconstructions of IP rich businesses, and aligns IP with other assets that already benefit from this relief. These changes will have effect from 7 November 2018.