Following George Osborne, the Chancellor of the Exchequer’s Autumn Statement last Wednesday, the government has released its draft Finance Bill 2013, confirming that legislation will be introduced to: reduce the main corporate income tax (CIT) rate to 21%; adopt a general anti-abuse rule (GAAR), though this has been delayed to come into force following royal assent to the Finance Bill, rather than from April 1 2013; increase the bank levy rate from 0.105% to 0.130% from January 1 2013; provide reliefs for the creative sector; and implement new R&D incentives.
The corporate tax cut was welcomed by taxpayers, their advisers and industry bodies.
“The cut in corporation tax was a pleasant surprise and emphasised his commitment to making the UK the most attractive large economy,” said Kevin Nicholson, head of tax at PwC.
“The cut in corporation tax should maintain the UK’s position as the leading destination in Europe for inward investment and help ensure that the major pharmaceutical companies that play a crucial role in the life sciences ecosystem maintain a presence in the UK,” said Steve Bates, chief executive officer of the BioIndustry Association.
However, one adviser questions why related and complimentary incentives have not been introduced.
“Taking the main rate of corporation tax down from 22% to 21% does mean Britain is open for business,” said Simon Massey, of Menzies, the accountancy firm. “But given that this reduction works so well, the government’s insistence on such high personal tax rates and punitive national insurance charges is all the more puzzling.”
Draft Finance Bill announcements
Today’s draft Bill identifies that on top of the corporate tax cut, the government will raise the bank levy in 2013, as well as providing legislation to introduce a taxable above-the-line R&D tax credit of 9.1% for large company R&D expenditure incurred on or after April 1 2013.
The tax credit will be fully payable to companies with no corporation tax liability and will be introduced alongside the existing super-deduction from April 1 2013 before replacing the super-deduction from April 1 2016.
The new credit will make the UK a more attractive place for companies to invest in R&D activity.
As announced in Finance Bill 2012, and following an extensive consultation period, today’s draft Finance Bill also confirmed that 2013 will see legislation to provide new tax reliefs to support investment in the production of animation, high-end television and video games.
Aside from such incentives, anti-avoidance was the Chancellor’s focal point for both the Autumn Statement and subsequent draft Finance Bill, with amendments to the GAAR announced today.
The main changes relate to the double reasonableness test, “the wording of which,” says the draft Bill, “has been clarified to ensure the GAAR operates as intended”. The list of example indicators of abusive tax arrangements has also been amended and the revised legislation adds an example indicator of non-abusive arrangements.
Finally, the draft Bill clarified that “the GAAR has effect in relation to any tax arrangements entered into on or after the date of Royal Assent to Finance Bill 2013” rather than coming into force from April 1 2013.
Autumn Statement and draft Finance Bill reaction
When the Autumn Statement was released last week, Nicholson commented that it was a Budget rather than a typical Autumn Statement, and with the amount and depth of Osborne’s announcements, it is hard to argue with that view.
On the whole, however, most taxpayers and advisers have reacted positively to the majority of measures that were confirmed today.
Will Arrenberg, of Herbert Smith Freehills, said the Autumn Statement continued the theme of recent years, with many measures “aimed at meeting two distinct, but complimentary, policy objectives”.
“On the one hand the government, mindful of international competition for jobs and resources, is intent on creating a favourable tax environment for business – so we have the announcement of a further reduction in the main rate of corporation tax,” said Arrenberg. “On the other hand the crackdown on tax avoidance continues, with measures aimed at closing tax loopholes, as well as renewed confirmation that a GAAR will be introduced next year. The overall message seems clear: the UK will provide businesses with a competitive tax regime, but the quid pro quo is that businesses are expected to play by the rules.”
