Business Tax and Investment Incentives

Corporation Tax

Corporation tax rates and bands are as follows:

Capital allowances

The Annual Investment Allowance (AIA) will be increased from the current limit of £50,000 to a new limit of £100,000. This will have effect for qualifying expenditure incurred on or after 1 April 2010 for corporation tax and on or after 6 April 2010 for income tax.

A 100% first year allowance will be introduced for business expenditure on new and unused (not second hand) zero-emission vehicles. The vehicles will need to be of a design primarily suited to the conveyance of goods or burden. For corporation tax the expenditure must be incurred on or after 1 April 2010 and before 1 April 2015, and for income tax it must be incurred on or after 6 April 2010 and before 6 April
2015.

All expenditure on cushion gas, incurred on or after 1 April 2010, will be treated as special rate expenditure qualifying for writing down allowances at 10% per year.

Loans to participators

Legislation will be introduced that will deny a corporation tax deduction for the amount of the release or write-off of a loan or advance of money made by a close company to a participator (or an associate of a participator). This has effect for debt (or part debt) releases or write-offs on or after 24 March 2010.

PAYE schemes

Legislation will be introduced in Finance Bill 2010 to allow HMRC to require a financial security from employers where amounts due under PAYE or NICs obligations are seriously at risk. This is likely to affect those employers who have a history of serious non-compliance in terms of paying late or not paying. The amount of security will be set by HMRC in light of the potential tax liability.

Employer-supported childcare

The conditions for exemption from the chargeable benefit for employer-supported childcare, provided in the form of childcare vouchers or directly contracted childcare, are to be relaxed. The amendments will have retrospective effect for the tax year 2005/06 and subsequent years. This relaxation is to be introduced in order to clarify the position of employers with employees at or near the National Minimum Wage.

Real Estate Investment Trusts (REITs)

UK REITs will be allowed to issue stock dividends in lieu of cash dividends in meeting the requirement to distribute 90% of the profits from the property rental business of the REIT. The legislation will have effect for property income distributions made on or after Royal Assent.

Share schemes

HMRC will now be able to withdraw approval of a Share Incentive Plan (SIP) where alterations to share capital or changes in rights attaching to shares materially affect the value of participants’ plan shares. In addition, corporation tax deductions will not be allowed where companies pay money to SIP trustees to buy shares from directors/shareholders, but no real value is transferred to employees under the SIP. These measures will have effect in relation to payments and alterations made on or after 24 March 2010.

Legislation will be introduced to counter avoidance arrangements which are being used to circumvent the financial limit in Company Share Option Plans (CSOPs). CSOP options granted on or after 24 March 2010 can no longer be over shares in a company which is under the control of a listed company.

Online services

By the end of 2011, HMRC will:

• personalise www.businesslink.gov.uk for those starting up in business and enhance online services for all SMEs, providing better access to relevant tax guidance and flexible tax payment plans to help businesses manage their cash flow
• help start-ups and new employers by introducing a single interactive form to enable businesses to register for multiple taxes online and to authorise tax agents
• provide an online facility that reduces the need for businesses, or their agents, to provide the same information to HMRC multiple times and allows them a single online view of current tax liabilities or repayments due.

Small business rate relief

The Government is to introduce a temporary increase in the level of small business rate relief, so that eligible small businesses occupying properties with rateable values up to
£6,000 will pay no business rates for one year from October 2010. In addition, small businesses benefiting from rate relief taper (rateable values up to £12,000) will receive significant reductions.

Bank payroll tax

Following the announcement in the 2009 Pre-Budget Report, legislation in Finance Bill 2010 will introduce the bank payroll tax. The tax applies, broadly, to banks and building societies on awards of bonuses over £25,000 made to, or in respect of, certain of its employees in the period from 9 December 2009 to 5 April 2010. It will be chargeable at a rate of 50% on the aggregate excess of bonuses of £25,000 or more awarded in the period. There will be no change in the tax treatment of bonuses received by individuals.

The principal changes to the draft legislation already published are:

• clarification of the scope of the legislation in connection with when relevant remuneration is taken to be 'awarded' during the chargeable period
• clarification of the scope of the legislation in connection with the definition of 'taxable company'
• introduction of a 60 day rule for relevant banking employees
• inclusion of detailed machinery provisions for the assessment and the collection of bank payroll tax. These include provisions for penalties and interest.