The new government has confirmed that Finance (No 2) Bill 2017 will be published once Parliament returns from the Summer recess on 5 September, and will reintroduce a number key corporate tax measures that were included in Finance Bill 2017 but dropped from Finance Act 2017, following Mrs May’s decision to call an election.
It has been announced that the new provisions will be effective from 1 April 2017 as originally planned , such that taxpayers will face the additional complexity of applying legislation retrospectively.
As a brief reminder, the key corporate provisions are set out below.
Reform of the interest deductibility rules for corporate debt
- The amount of interest deductible by UK companies is to be restricted by applying a fixed ratio rule that limits tax relief to 30 per cent of ‘tax EBITDA’ (tax adjusted earnings before interest, tax, depreciation and amortisation) or a group ratio based on net interest as a percentage of EBITDA for the global group; and
- Notwithstanding this, all groups will be able to deduct £2m per annum of their net UK interest expense.
These rules are particularly complex and we would recommend that groups:
- review forecasts and financial data to determine whether the fixed ratio rule is likely to apply and, if so, whether the group ratio rule may provide a more favourable outcome; and
- identify an efficient means of complying with these new rules.
Reform of the corporate loss relief rules
The new rules will:
- provide for greater flexibility for the utilisation of both current year and brought forward losses, where the losses concerned are incurred post 1 April 2017; and
- cap, at 50 per cent, the UK group profits in excess of £5m that can be sheltered by offsetting available losses post 1 April 2017.
We recommend that groups review:
- the calculation of deferred tax on losses to ensure that assumptions regarding utilisation remain valid; and
- forecasts to confirm whether these rules trigger a cash tax liability earlier than previously anticipated.
Extension of the substantial shareholding exemption (SSE)
The scope of this relief on certain disposals of shares is being broadened by:
- removing the requirements relating to the trading status of the company and group that makes the disposal;
- allowing ‘qualifying’ institutional investors access to this relief; and
- relaxing the holding period requirement to 12 months within the previous 6 years (previously 12 months within the previous 2 years).
We recommend that groups:
- revisit both upcoming transactions and those carried out since 1 April to determine whether the new rules apply.
These measures certainly include some good news, but along with the recently enacted hybrid mismatch rules, there is no doubt that they represent a further shift of the UK compliance burden onto the taxpayer.