CORPORATION TAX

Corporation Tax Main Rates

The main rate of corporation tax, chargeable when a company’s profits exceed £1.5m, will be 28% with effect from 1 April 2009. The main rate applicable to profits of companies from certain oil and gas ring fence activities will remain unchanged at 30% from 1 April 2009.

Corporation Tax Small Companies’ Rates

The small companies’ rate of corporation tax will be increased from 20% to 21% with effect from 1 April 2008. The fraction used in calculating marginal small companies’ relief will become 7/400 but there will be no change to the lower and upper profit limits of £300,000 and £1.5m.

The small companies’ rate applicable to ring-fence profits from certain oil and gas activities will remain at 19% from 1 April 2008, and there will be no change to the marginal small companies’ relief fraction of 11/400 for such profits.

Associated Companies Rules

Changes will be made to the associated companies rules as they apply to the small companies’ rate (SCR) of corporation tax. The changes will amend the definition of ‘control’, solely for the purposes of SCR, to ensure that the rights or powers held by business partners will be attributed only when there have been tax planning arrangements involving the shareholder or director and the partner to secure a tax advantage by virtue of greater relief under the SCR rules. These changes will apply with effect from 1 April 2008.

Research and Development and Vaccine Research Relief Schemes

The following amendments are to be made to the Research and Development (R&D) scheme and the Vaccine Research Relief (VRR) scheme.

Research and Development relief scheme:

• from a date to be announced the rates of R&D relief are to be increased to 175% for SME’s and 130% for large companies (previously 150% and 125% respectively);
• the amount of relief available under the SME scheme is to be restricted to Euro 7.5m per R&D project. Vaccine Research Relief (VRR) scheme:
• the amount of relief available under the VRR scheme will be reduced to 40% (currently 50%);
• the amount of relief available under the VRR scheme is to be restricted to Euro 7.5m per R&D project;
• large companies will have to make a declaration concerning the incentive effect of any relief they are claiming under the VRR scheme.

In addition, legislation will be introduced to prevent companies from claiming R&D and/or VRR relief if their most recent accounts are not prepared on a going concern basis.

Controlled Foreign Companies: Anti-avoidance

Finance Bill 2008 will include provisions to block a number of artificial avoidance schemes that rely on the use of a partnership or a trust to escape a controlled foreign company (CFC) charge either by misusing one of the exemptions from the CFC rules or by arranging for profits to be earned in such a way that they purportedly fall outside the scope of the rules. The changes will have effect on or after 12 March 2008. For changes that are relevant to an accounting period, the measures will provide that, for accounting periods that straddle that date, the accounting period will be split into periods before and from that date with the changes only having effect to the second part of that accounting period.

Corporate Intangible Assets Regime: Anti-avoidance

Finance Bill 2008 will include provisions to clarify that the effect of the ‘related party’ rules in the corporate intangible assets regime in FA 2002, Sch 29 is unaffected by any administration, liquidation or other insolvency proceedings or equivalent arrangements that any company or partnership may be involved in. The measure will have effect for transactions made in respect of intangible assets (including royalties becoming payable) on or after 12 March 2008.