Corporation Tax rates
The Corporation Tax rate was previously set to fall to 17% from 1 April 2020. However, the Government decided to keep the rate unchanged at 19% for at least the two years from 1 April 2020 in order to make funds available for the NHS.
Capital Allowances on plant
The Annual Investment Allowance, on which a business can claim 100% relief on the cost of purchasing plant and machinery, was increased to £1 million for two years from 1 January 2019. It will fall back to the previous limit of £200,000 on 1 January 2021. There are complex rules where a period of account straddles the change, so anyone planning to spend more than £200,000 per year on plant should take advice to avoid the pitfalls.
At present, there are 100% first year allowances for cars with CO2 emissions of up to 50g/km. This was to run until 31 March 2021, then to be replaced by the normal rules for cars, which only enjoy writing down allowances (WDAs). The Budget provides that 100% allowances will continue to apply to wholly electric cars and goods vehicles (no emissions) until April 2025. From April 2021, cars with emissions up to 50g/km will be eligible for 18% WDAs (currently up to 110g/km); cars above that level will only qualify for 6% WDAs.
Capital Allowances on buildings
Structures and Buildings Allowance was introduced for expenditure on construction of new non-residential structures and buildings (not land) on or after 29 October 2018. The allowance was initially set at a flat rate of 2%. There is no balancing adjustment on a sale – the purchaser takes over the remainder of the allowances and the writing down period.
The rate is increased from 2% to 3% from 1 April 2020. Where a chargeable accounting period straddles this date, the allowance will be time-apportioned (e.g. it will be 2.5% for a 12 month period to 30 September 2020).
As previously announced, from April 2020 the offset of companies’ brought forward capital losses will be restricted. Only 50% of gains will be eligible to be relieved by brought forward losses, but there will be unrestricted use of the first £5m of total losses brought forward (capital and income losses combined), which means that 99% of companies will not be affected.
Research and Development (R&D)
Large companies carrying out qualifying R&D are eligible to claim ‘Research & Development Expenditure Credit’ (RDEC), a percentage of qualifying expenditure that can be set against taxable profits. The rate of RDEC will increase from 12% to 13% for expenditure incurred on or after 1 April 2020.
The Government had intended to introduce a measure to prevent what is regarded as ‘abuse of the R&D relief for small and medium enterprises’ by restricting the payable tax credit to the amount of the company’s PAYE liability for the period. Following representations from industry, this has been deferred until 1 April 2021 and will be subject to further consultation. The Chancellor also announced a consultation on whether expenditure on data and cloud computing should qualify for R&D tax credits.
A new way of giving tax relief to companies for intangible assets such as patent rights was introduced in 2002. At that time, a distinction was made between assets that had been created before and after the change of rules. Where a company acquired ‘pre-2002’ intangible assets from a related party, the relief did not apply. This distinction will be removed for acquisitions of intangible property from related parties on or after 1 July 2020. There are transitional provisions to deal with transactions between 11 March and 30 June 2020.
Enterprise Zones (EZ)
Enhanced capital allowances for investment in new plant or machinery within designated Enterprise Zones were introduced in 2012, originally for 5 years from the designation of an area as an EZ, later extended to 8 years – so an EZ designated in 2012 would expire in 2020. These 100% first year allowances will now be made available in all designated areas until at least 31 March 2021.