BUDGET HIGHLIGHTS:
- Corporate tax rate – The Chancellor announced an extra reduction in the corporate tax rate. The rate will fall to 24% in April 2012 rather than 25% as previously indicated. This will be further cut by one percentage point each year so the rate will be 23% in April 2013 and 22% in April 2014. Osborne also hinted at an eventual rate of 20%.
- GAAR – The government will accept Graham Aaronson QC’s recommendation for a general anti-avoidance rule (GAAR) and consult with a view to bringing forward legislation in Finance Bill 2013.
- CFC rules – The government will introduce new controlled foreign company (CFC) rules, effective for CFCs with accounting periods beginning on or after January 1 2013. The new rules include a finance company partial exemption that “in broad terms will result in an effective UK tax rate of one quarter of the main rate on profits derived from overseas group financing arrangements”.
- Patent box – The government will introduce a reduced 10% corporate tax rate for profits attributed to patents. This will be phased in from April 2013.
- Bank levy – The British bank levy will be increased from 0.088% to 0.105% from January 2013. This is to ensure that the levy raises the £2.5 billion ($3.9 billion) it was intended to, and also to ensure that banks “don’t benefit too much from the corporate tax rate reduction”.
- Anti-evasion – The revised UK-Swiss agreement to prevent tax evasion through Swiss bank accounts was signed this week.
- Low Value Consignment Relief– The government will no longer apply relief to low value imports from the Channel Islands, with effect from April 1 2012.
- VAT: online registration and online filing– The government will introduce an online system for VAT registration, de-registration, and changes to business details with effect from October 31 2012. From the same date, certain VAT forms will be removed from the law. The VAT threshold for businesses not established in the UK will be removed from December 1 2012.
- Carbon Reduction Commitment – The governmentwill consult on simplifying the Carbon Reduction Commitment (CRC) energy efficiency scheme to reduce administrative burdens on business. Should very significant administrative savings not be deliverable, the government will bring forward proposals in autumn 2012 to replace CRC revenues with an alternative environmental tax, and will engage with business before then to identify potential options.
- Oil and gas field allowances– the government will introduce a package of measures on field allowances for oil and gas production in the UK. It will introduce a new £3 billion field allowance for particularly deep fields with sizeable reserves targeted at the West of Shetland. It will also increase the allowance for small fields to £150 million and increase the size of field qualifying for the maximum allowance to 6.25 million tonnes tapering to no allowance at 7 million tonnes.
- Oil and gas decommissioning tax relief– The government will introduce legislation restricting the rate of decommissioning tax relief to 20% for Supplementary Charge purposes. Legislation will also broaden the scope of the extended loss carry back rules that apply to companies with ring fence trades so that they apply to losses arising from mineral extraction allowances in respect of decommissioning expenditure, consistent with the definition.
FURTHER READING:
Everything you need to know about the UK GAAR
UK government delays CRC Energy Efficiency Scheme
Why the future of CFC reform is looking bright
Why HMV and Channel Islands’ resistance to scrapping tax relief is futile
REACTION
Kevin Nicholson, head of tax at PwC
“Overall this Budget has some good headline measures that will support business and growth. But there’s definitely unfinished business on the detail of the tax system. Cutting corporation tax further will do much to change perceptions and improve confidence. The Chancellor made encouraging noises about reform of the tax system but the Budget itself had a more short term focus. To simplify and streamline the UK tax system is not the work of an afternoon and continual efforts will be needed.”
Richard Woolich, tax partner at DLA Piper
“The reduction in the main rate of corporation tax by two percentage points to 24% in April, doubling the cut previously announced, is a positive step on the road to giving the UK one of the most – if not the most – competitive corporation tax regimes, alongside the reduction in the top rate of income tax, the redrafting of the CFC rules and the patent box."
Jeremy Cape, partner at SNR Denton
“The Chancellor did not see a distinction between tax evasion and aggressive tax avoidance, calling both “repugnant”. He is pushing ahead with the GAAR and has made it clear that retrospective legislation may become more common.”
John Cridland, CBI director-general
“The Chancellor has also painted a clearer vision of how the UK will earn its living and, by seizing the opportunity to make sure our corporate tax system is more internationally competitive, he has sent a powerful signal to companies to invest, do business and create jobs in the UK. An extra 1% off corporation tax this year could make a big difference to investment intentions.”
Martin Lambert, head of corporate and international tax at Grant Thornton
“With corporation tax at 22%, finance companies under the new CFC regime will pay just 5.5% from 2014. Really worth looking at.” (via Twitter)
Matthew Barling, banking partner at PwC
“As banks continue to deleverage, the Government’s commitment to meeting the £2.5 billion revenue target from the bank levy means there is a real danger of further rate rises in the future. While on the one hand the Chancellor is advocating the importance of predictability of the tax system, this does not seem to be the case for the banks. Yet another change in the rate is not a good advert for the predictability of the UK tax system in the financial services sector.”
David Hughes, tax partner at Allen & Overy
“It remains to be seen whether Graham Aaronson’s GAAR will survive the consultation intact or whether the proposed GAAR will have to be substantially modified during the consultation to address the business community’s concerns, not least that the proposed GAAR could cause uncertainty of tax treatment and is therefore likely to be an impediment to business. The government has indicated that the GAAR is to apply to SDLT as well as income tax, capital gains tax, corporate tax and petroleum revenue tax.”
Richard Mannion, national tax director at Smith & Williamson
“Neon lights of a cut in corporation tax and top rate of income tax give the impression that the country is open for business; however, we would like to see the Chancellor do more to help enterprise when he can. Hemmed in and obliged to remain fiscally neutral, the Chancellor did as much as he could but his hands were tied by the difficult economic backdrop.”
