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Tax Connect Flash | United Kingdom: Budget Tax Developments

03/04/2012

The UK Treasury released its annual budget report on 21 March. The main changes likely to affect non-residents are as follows:

  • The main rate of corporation tax has been further reduced to 24% (currently 26%) from next month. This will further drop to 23% in 2013 and then again to 22% in 2014. This is clearly good news for UK companies, but may be of interest to overseas companies holding controlling interests in UK companies, since relevant “controlled foreign companies” (CFC) rules may start to apply. The small companies rate remains at 20% and a new cash basis for calculating tax for small unincorporated businesses will be introduced from April 2013. 

  • The 50% top rate of income tax for individuals with income in excess of £150k is to be reduced to 45% from April 2013, with some consequential changes to the availability of tax reliefs. 

  • The new UK CFC rules are published in the Finance Bill 2012 and will become law in July. 

  • Concerning the FIS and banking sectors are the increase of The UK Bank Levy to the full rate of 0.105% from 1 January 2013, the amendment of this levy to ensure JVs are correctly treated and the introduction of powers to determine the tax treatment of regulatory capital instruments issued in accordance with the Basel III and CRD IV proposals. 

  • Unexpectedly the UK has introduced a higher 7% rate of stamp duty land tax (SDLT) on residential property purchases over £2m and a 15% rate on acquisitions by non-natural persons aimed at preventing the avoidance of SDLT through the “enveloping” of high-value residential real estate in (non-UK) companies. It is proposed that existing corporate structures will be subject to an annual SDLT levy. There is also an intention to extend the UK capital gains tax regime to such non-UK resident companies. These changes are likely to affect the investment strategy of foreign investors in residential real estate or foreign executives moving to London. 

  • Financial support is being made available to promote the technology and life sciences sectors, including: 
    - further steps towards the implementation of the UK Patent Box regime from April 2013, which will apply a reduced 10 per cent rate of corporation tax for profits attributed to patents and similar types of intellectual property; 
    - introducing an ‘above the line’ R&D tax credit from April 2013 with a minimum rate of 9.1 per cent before tax. Loss-making companies will be able to claim a payable credit. The Government will be consulting on the detailed design of the credit shortly and final rates will be decided following consultation; and 
    - tax relief for the video games, animation and high-end television industries (subject to State aid approval). 

  • There is further support for both start-up businesses and investment in certain areas, as follows: 
    - the promotion of bank lending by providing state guarantees for banks in return for granting lower interest rates to small businesses, and an increase in the amount of non-bank funding available through the Business Finance Partnership; 
    - £3bn of oil and gas field allowances targeted at the West of Shetland, provision for the support of brown field investment and long-term certainty on decommissioning relief; and 
    - 100% plant and machinery allowances for investment in certain areas. 

  • Legislation is included in Finance Bill 2012 which requires non-UK businesses making taxable supplies in the UK to register for UK VAT, irrespective of the value of supplies made. 

  • From 1 October 2012, VAT will be extended to products currently exempt or zero-rated, including the supply of self-storage and alterations to listed buildings (to align with the existing VAT treatment of repairs). Most controversial is the proposed VAT on certain hot food, including pastries and sandwiches. 

  • The UK is to move to a tax regime that ensures operators anywhere in the world pay gambling duties on gross profits generated from customers based in the UK. 

  • It is intended that a General Anti-Abuse Rule (GAAR), already recommended in a published report, is implemented in the 2013 Finance Act.

Contacts

Richard Croker 
Partner - CMS Cameron McKenna

Henry Bolton 
Senior Associate - CMS Cameron McKenna

Authors

Richard Croker
Richard Croker
Partner
London
Henri Bolton