Patent box
The government will issue a consultation initiative in May 2011 on the introduction of a 10% corporation tax for income from patents. It is proposed that legislation will be contained in the Finance Bill 2012.
Increase in rate of deduction for SMEs claiming R&D relief
The government has announced two future increases in the rate of additional deduction given to SMEs which claim R&D relief. Both increases are subject to State Aid approval. They are as follows:
· From 1 April 2011, an increase in the rate of additional deduction from 75% to 100%, giving a total deduction of 200%. The relevant legislation will be contained in the Finance Bill 2011.
· From 1 April 2012, an increase in the rate of additional deduction from 100% to 125%, giving a total deduction of 225%. The relevant legislation will be contained in the Finance Bill 2012.
Decrease in rate of deduction for SMEs claiming vaccine research relief
To allow for the increases in rates of R&D relief described above, the government has also announced a decrease in the rate of deduction given to companies that are SMEs which claim vaccine research relief. Specifically:
· From 1 April 2011, a decrease in the rate of vaccine research relief available to SMEs from 40% to 20%. The relevant legislation will be contained in the Finance Bill 2011.
· From 1 April 2012, SMEs will be prevented from claiming vaccine research relief at all. The relevant legislation will be contained in the Finance Bill 2012.
Response to consultation and simplification of rules relating to R&D relief
The government has also announced that it intends to simplify the legislation relating to R&D tax credits by:
· Abolishing the rule limiting a SME company's payable R&D tax credit to the amount of PAYE and national insurance contributions it pays.
· Abolishing the £10,000 minimum expenditure condition for all companies.
· Amending the rules governing the provision of relief for work done by subcontractors under the large company scheme. The changes will have effect from 1 April 2012 and will be effected by provisions contained in the Finance Bill 2012. Controlled foreign companies
Full reform
The government published a discussion document on reform of the CFC rules in January 2010. Among other things, the discussion document set out possible approaches to reform the treatment of intellectual property (IP), with the aim of more effectively targeting situations where there is a risk of erosion of the UK tax base. The new CFC rules will be legislated in spring 2012 with a consultation to be issued in May 2011. It is anticipated that the new regime will be more targeted and will bring within the charge to UK corporation tax only the proportion of the profits of CFCs that have been artificially diverted elsewhere. There will be a partial exemption for finance companies, resulting in a charge of only one-quarter of the full rate of UK corporation tax. By 2014, this will equate to an effective rate of tax of 5.75%, the main corporation tax rate having been reduced to 23%.
In the meantime, the Finance Bill 2011 will amend the CFC rules to, among other things:
· Exempt certain intra-group trading transactions where there is little connection with the UK and, therefore, it is unlikely that UK profits have been artificially diverted.
· Exempt CFCs with a main business of IP exploitation where the IP and the CFC have minimal connection with the UK.
· Introduce a statutory exemption which runs for three years for foreign subsidiaries that, as a result of a reorganisation or change to UK ownership, come within the scope of the CFC regime. Unlike the December 2010 proposal, this will include those that are not currently CFCs but have previously been so, making the exemption available to previously UK-headed groups if they return to the UK. The interim changes will have effect for accounting periods beginning on or after 1 January 2011 (not 1 April 2011, as set out in the December 2010 draft legislation). However, the extension to the transitional rules for holding companies will be treated as always having had effect.
All articles are for general purposes and guidance only and do not constitute legal or professional advice. Copyright 2010 Anassutzi & Co Limited. All rights reserved. Information may be shared or reproduced only if accompanied by the author’s name and bio.
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