Business Tax & Investment Incentives

Trading losses

Trade loss carry back will be extended to a period of three years, with losses being carried back against later years first. After carry back to the preceding year, a maximum of £50,000 of unused losses will be available for carry back to the earlier two years. This will apply to trading losses made by companies in accounting periods ending between 24 November 2008 and 23 November 2010 and to trading losses made by unincorporated businesses in tax years 2008/09 and 2009/10. The £50,000 limit applies separately to the unused losses of each 12 month period or tax year.

Capital allowances

A 40% first year allowance will be introduced for expenditure on qualifying plant and machinery that would normally be allocated to the main capital allowance pool. This will be available to businesses incurring such expenditure in the 12 month period beginning on 1 April 2009 for corporation tax and on 6 April 2009 for income tax.

Qualifying expenditure incurred on cars on or after 1 or 6 April 2009 will now be allocated to one of the two general plant and machinery pools. Cars with CO2 emissions exceeding 160 g/km will be dealt with in the special rate pool and attract writing down allowances (WDA) at 10%. Cars with CO2 emissions of 160 g/km or less will be added to the main rate pool and attract WDA at 20%. Expenditure incurred before April 2009 will continue to be subject to the old 'expensive' car rules for a transitional period of around five years. Cars that have an element of non-business use will continue to be dealt with in single asset pools to enable the private use adjustment to be made, but the rate of WDA will be determined by the car’s CO2 emissions.

Car leases

From April 2009, the rules restricting the amount of car lease rental payments that can be deducted for tax purposes will be changed to a flat rate disallowance of 15% of relevant payments. This will apply only in respect of cars with CO2 emissions exceeding 160 g/km. For leases that commenced prior to April 2009, the previous rules will continue to apply until the end of the lease.

Enterprise Investment Scheme (EIS)

The restrictions on the carry back of income tax relief to the previous tax year will be removed. This will apply to 2009/10 and subsequent years. With effect from 22 April 2009, further changes will be introduced to simplify and improve the EIS rules.

Loan relationships

Where trade debts between connected companies are released after 22 April 2009, the debtor companies will no longer be taxed on the debts released.

For accounting periods beginning on or after 1 April 2009, deductions for interest payable to certain connected foreign companies will now be available on a paid basis rather than on the accruals basis.

Foreign profits

Legislation is to be introduced to ensure that dividends and other distributions received from foreign companies on or after 1 July 2009 will largely be exempt from corporation tax. UK distributions will be exempt to the same extent. Finance expense payable by UK members of a group of companies will be subject to a cap equal to the consolidated gross finance expense of the group. This will apply to amounts payable in accounting periods beginning on or after 1 January 2010. With effect from 1 July 2009 there will be changes to the controlled foreign companies rules and the Treasury Consent rules will be replaced.

Corporate transparency

For accounting periods beginning on or after Royal Assent the senior accounting officers of large companies and large groups of companies will have reporting obligations aimed at ensuring that the accounting systems are adequate for the purposes of accurate tax reporting.

These obligations will be supported by penalties chargeable on the senior accounting officer personally and on the company.

Anti-avoidance

A number of measures will be introduced to tackle anti-avoidance. These will affect:

• Intra-group convertible finance
• Derecognition of income from derivative contracts
• Plant and machinery leasing
• Foreign exchange matching
• ‘Disguised interest’
• Exploitation of qualifying loan interest relief
• Real Estate Investment Trust (REIT) regime
• Double tax relief where foreign tax is repaid
• Receipts derived from a right to receive income.