Reduction in mainstream rate of corporation tax to 20% from 1 April 2015
It has long been the chancellor’s objective to unite the main rate of tax with the small profits rate. As well as the out and out tax saving, this measure will eliminate some complexity for smaller organisations, as from April 2015 it will no longer be necessary to perform marginal relief calculations for companies with annual profits between £300,000 and £1.5m.
It is worth noting that the legislation implementing both this additional cut, and the previously announced reduction to 21% in April 2014, is to be included in Finance Bill 2013. The implementation dates will need to be taken into account when determining the rates of tax to be used for deferred tax reporting under both UK GAAP and international accounting standards where relevant.
Changes to R&D tax relief
As announced in 2011’s Autumn Statement, the government will introduce a new ‘above the line’ (ATL) credit for large company R&D investment from next month.
The headline rate of the ATL credit will be 10%, increased from the 9.1% rate proposed in last year’s Budget. The ATL credit is designed to make R&D relief more visible to those making investment decisions and provide greater cash flow support to companies that have yet to achieve profitability. This is because the credit will be cash payable, as opposed to the current system of having a super-deduction for qualifying expenditure. If a company decides not to join the regime, then it can continue to claim R&D relief under the current large company scheme until 31 March 2016, after which the ATL credit will become mandatory.
New measures on government procurement
Businesses that tender for government contracts greater than £5m will need to comply with new public procurement measures which are intended to deter avoidance. The government will publish and implement updated public procurement guidance on 1 April 2013 to require potential government suppliers to declare specified previous occasions of tax non-compliance.
Base erosion and profit shifting
The government confirmed its support of the OECD’s work on base erosion and profit shifting. The OECD is looking at transfer pricing and the allocation of profits between different territories, particularly digital goods and services. The target is to have a plan for changes finalised within two years. All multinationals should monitor the progress of this initiative closely.
The General Anti-Abuse Rule (GAAR)
As first reported in December 2012, the GAAR is to be legislated for in Finance Bill 2013. The measures will apply to arrangements entered into on or after the Finance Bill receives Royal assent, which is normally around mid-July. Whilst the stated intention of the GAAR is to enable HMRC to counteract the most abusive tax schemes, it remains to be seen precisely where the line will be drawn. Financial directors must watch this legislation carefully and be aware of its implications as it comes into law.
Jonathan Hornby is a managing director at Alvarez & Marsal Taxand UK