Business tax

Corporation tax rates
The main rate of corporation tax will remain at 28% from 1 April 2010 and the small companies’ rate continues at 21% for 2009.

First year allowances
A new temporary first year allowance (FYA) of 40% will apply to expenditure on general plant and machinery above the first £50,000 a year that qualifies for the annual investment allowance. The allowance is available to individuals carrying on a qualifying activity (normally trades, professions and ordinary property businesses), as well as companies and partnerships.

For companies, the FYA applies to qualifying expenditure in the 12 months from 1 April 2009. For individuals and partnerships, the expenditure must occur in the 12 months starting on 6 April 2009.

Some expenditure does not qualify, such as cars, assets for leasing, long-life assets and integral features of buildings.

Expenditure on designated environmentally beneficial equipment already qualifies for a 100% FYA under schemes for energy-saving and water efficient technologies. Some changes are being made to the equipment included in the schemes and to the criteria. New lists will be published later in 2009.

Think ahead Get the timing right for your investment in new business equipment. Businesses of any size generally benefit from immediate tax relief on the first £50,000 a year spent on most types of equipment. Expenditure over £50,000 in a year qualifies for the 40% first year allowance for 2009/10 only.

Business expenditure on cars
The Government has confirmed proposals under which the rate of capital allowances on business cars will depend on the car’s CO₂ emissions. Expenditure on cars with CO₂ emissions of 160g/km or less will generally attract writing down allowances of 20% a year. Expenditure on cars with higher CO₂ emissions will attract only 10% allowances. Very low emission cars may attract a 100% FYA.

The special rules that restrict the amount of car rentals deductible for tax purposes will be reformed. There will be a flat rate disallowance of 15% of leasing payments for cars with CO₂ emissions exceeding 160g/km. However, there will be no restriction where the car is leased for a period of no more than 45 days. A business that hires a car to lease to a customer for more than 45 consecutive days will not be subject to any restriction. Leases that started before the commencement date of the new rules will remain subject to the previous rules until the end of the lease.

The proposed legislation includes specific anti-avoidance rules to restrict balancing allowances in certain circumstances. The new rules started on 1 April 2009 for companies and on 6 April 2009 for individuals and partnerships.

Trading losses
The period for which businesses can carry back trading losses has been temporarily extended by two years. Businesses can currently carry back unlimited trading losses against profits of the preceding year. For a temporary period, businesses will be able to carry back losses of up to £50,000 a year against profits of the two years before the preceding year. Losses must first be set against the preceding year’s profits, then any balance up to £50,000 can be carried back further, setting the losses against the later of the two years first.

The measure applies to company accounting periods ending between 24 November 2008 and 23 November 2010 and for the tax years 2008/09 and 2009/10 for unincorporated businesses.

Foreign profits and losses

• From 1 July 2009, dividends received from foreign companies will be largely exempt from corporation tax. Until now they were taxable.
• Changes are being made to the controlled foreign companies regime to remove the exemptions for ‘acceptable distributions’ and certain holding companies. The new rules take effect for periods starting after 30 June 2009, with transitional provisions.
• The Treasury Consents rules for certain transactions involving subsidiary companies resident outside the UK will be repealed and replaced by a post-transaction reporting requirement from 1 July 2009.
• There will be a cap on tax relief for finance expenses payable by UK members of a group of companies for accounting periods beginning after 31 December 2009.
• New currency conversion rules will affect companies that compute their profits and losses in a currency other than sterling. Where such losses are set against the profits of another period, the losses may be converted into sterling at the same exchange rate as the profits or may be carried forward or back in the same currency.
• The amount of double taxation relief on a dividend must match the corporation tax rate in periods that straddle 1 April 2008, when the corporation tax rate was reduced to 28% (from 30%).

Saver Choose the right company car and reduce your tax. You can set the full cost of buying a new company car against your company’s profits this year, if you choose one from over 50 models with CO2 emissions of 110g/km or less. In contrast, cars with higher emissions just qualify for a 10% or 20% annual writing down allowance. What’s more, the driver will benefit from a lower income tax charge on the benefit in kind.

Groups of companies
New rules will make it easier for groups to match gains and losses on disposals without the need to transfer assets between group companies. From Royal Assent, companies will be able to transfer the actual gain or loss without the current restrictions for deemed transfers of assets.

Changes to the definition of a group will ensure that companies issuing particular types of preference shares to external investors will not lose the ability to claim and surrender group relief. It will therefore be more difficult to break a group structure inadvertently. The changes will generally apply to accounting periods beginning after 31 December 2007.

Personal accountability
Senior accounting officers of large companies (those defined as not ‘small’ or ‘medium-size’) will have to certify annually that their company’s accounting systems are adequate for reporting tax accurately or they will have to specify any inadequacies. The obligations, which will apply to returns for accounting periods beginning on or after Royal Assent, will be supported by penalties on the officer personally as well as on the company.

Saver Get paid for filing PAYE returns over the internet. If you have fewer than 50 employees and you submit your 2008/09 end of year PAYE return to HMRC over the internet, you will receive a tax-free cash incentive of £75. The deadline is 19 May. You need to register in advance.

Loan relationships
The corporation tax rules on the late payment of interest between connected companies are being relaxed. For accounting periods beginning after 31 March 2009, interest will be deductible under the normal corporation tax rules as it accrues unless the creditor is located in a tax haven.

The release of a trade debt between connected persons after 21 April 2009 will not give rise to a tax charge on release. The position is thus aligned with the general loan relationship provisions.

Business rates
Businesses will be able to spread the payment of the 2009/10 inflation increase in business rates over three years, as announced on 31 March 2009. Those affected by the end of the 2005 transitional relief scheme will also be able to spread the increase in their bills over three years. Certain businesses facing significant backdated business rates bills issued before 31 March 2010 can pay over eight years interest-free, as announced in the 2008 Pre-Budget Report.

From 1 April 2009, the threshold at which business rates are charged on empty property in England has been temporarily increased from £2,200 to £15,000 until 31 March 2010, also as announced in the 2008 Pre-Budget Report.