Corporation Tax rates
All companies now pay Corporation Tax at the single rate of 20%. This rate will drop to 19% on 1 April 2017. The Government now proposes to reduce the Corporation Tax rate to 17% from 1 April 2020, rather than the previously announced 18%.
Companies with profits over £1.5 million pay Corporation Tax in quarterly instalments. Those with profits over £20 million will see the timing of those instalments accelerated by four months for periods beginning on/after 1 April 2019 (not 2017 as previously proposed).
Corporation Tax losses
Companies that make losses may change their operations so that they move into a completely different area of trade. In such cases the losses made in the early period can become trapped and unusable, as tax law prevents the loss from being set against a different trade.
From 1 April 2017 such restrictions on the use of losses will be lifted. A company will be able to carry forward losses to use against profits made from any activity. This is a very welcome change particularly for small businesses with more than one activity.
Companies with profits over £5 million will only be able to relieve losses against 50% of their profits. The £5 million threshold will apply across a group of companies.
When a company which is controlled by its directors, or by five or fewer shareholders, makes a loan to a shareholder, it must pay an extra Corporation Tax charge, currently set at 25% of the loan. The Corporation Tax charge is payable if the loan is outstanding nine months after the year-end, and can be reclaimed when the loan is repaid or waived.
This Corporation Tax charge will rise to 32.5% for loans made on and after 6 April 2016. This has aligned this tax charge with the dividend tax payable by higher rate taxpayers in 2016/17. Loans made to a charity will be exempt from this tax charge.
Interest deduction for companies
The UK tax rules permit companies to deduct an unlimited amount of interest paid on loans taken out for business purposes. These rules are now due to change for large multinational businesses. This may help to level the playing field between smaller companies and large multinationals, which can borrow from related companies in other countries.
The Government is to cut business rates. From 1 April 2017 the doubling of small business rate relief from 50% to 100% will become permanent. Businesses with a rateable value of £12,000 or less will not pay business rates from that date and tapered relief will be available to businesses with a rateable value between £12,000 and £15,000. The threshold for the standard business rates multiplier will increase to £51,000.
Capital allowance for cars
Until April 2018, businesses purchasing new cars with CO2 emissions below 75g/km are able to claim a 100% first year allowance. The 100% first year allowance for low emission cars is to be extended for another three years, until April 2021. However, the qualifying emissions threshold will fall to 50g/km from April 2018.
The threshold for cars eligible for the 18%pa rate of capital allowances will be reduced from 130g/km to 110g/km from April 2018. Cars with emissions above this threshold are only eligible for 8%pa rate of capital allowances.
Business Premises Renovation Allowance
The Business Premises Renovation Allowance (BPRA) comes to an end on 31 March 2017 for corporation tax and on 5 April 2017 for income tax. The Government has confirmed that this scheme will not be extended beyond these dates.