Corporation Tax Main Rates
There is to be no change in the main rates of corporation tax. The main rate of 28% for financial year 2009, commencing on 1 April 2009, was fixed in FA 2008. The Finance Bill will set the main rate for financial year 2010 at 28%. The main rate for ring fence oil industry profits was fixed at 30% for financial year 2009 and will remain at 30% for financial year 2010.
Corporation Tax Small Companies’ Rate
There is no change in the small companies’ rate of corporation tax. The Finance Bill will set the rate for financial year 2009 at 21% and the fraction used in calculating marginal relief will be unchanged at 7/400. The November 2008 Pre-Budget Report announced that an increase in the small companies’ rate to 22%, originally planned to take effect from 1 April 2009, would be deferred until 1 April 2010.
The small companies’ rate for ring fence oil industry profits will be unchanged at 19% for financial year 2009, and the marginal relief fraction for such profits will remain at 11/400.
Taxation of Foreign Profits
The treatment of foreign profits will be amended so that:
- distributions from foreign companies received on or after 1 July 2009 will largely be exempt from CT;
- finance expense payable by UK companies in accounting periods beginning on or after 1 January 2010 will be subject to a cap equal to the group consolidated gross finance expense;
- with effect broadly for accounting periods starting on or after 1 July 2009 the CFC (superior and non-local) holding company exemptions and acceptable distribution policy exemption will be removed; and
- with effect for transactions undertaken on or after 1 July 2009 the Treasury consents rules are replaced by a post-transaction reporting requirement in relation, broadly, to transactions in excess of £100 million.
Draft anti-avoidance legislation in relation to loan relationships and derivative contracts, published on 9 December 2008, will not now be included in Finance Bill 2009.
Loan Relationships: Connected Companies
Two changes are to be made to the loan relationships rules in relation to connected companies:
- where a trade debt is released, the debtor company will no longer be chargeable on the resultant ‘profit’ (this will apply to releases on or after 22 April 2009);
- there will be a relaxation of the ‘late interest rule’ so that, broadly, it will only apply where the creditor is resident in a ‘non-qualifying territory’ (with the proviso that any abuse will result in anti-avoidance provisions).
This applies for accounting periods beginning on or after 1 April 2009, subject to transitional rules.
Groups: Reallocation of Chargeable Gains
From the date that Finance Act 2009 receives Royal Assent, companies will be able to elect to transfer a capital gain or a loss to another group company irrespective of whether the gain or loss is realised on a disposal to a third party.
This is a simplification of the current provisions contained in TCGA 1992, s 171A which previously only applied if there was a disposal to a third party and operated by deeming an asset to have been transferred intra-group prior to a disposal to a third party. This meant that the election could not be made for certain types of gains and losses (e.g. those arising on a negligible value claim).
These provisions will make it easier for groups to match gains and losses on the disposal of chargeable assets without the need to transfer ownership within the group.
Group Relief: Preference Shares
Where groups of companies issue particular types of preference share capital to external investors, provisions will be introduced in FA 2009 to ensure that such companies can still claim and surrender group relief within their group. These rules will, broadly, apply for accounting periods that commenced on or after 1 January 2008.
Tax Elected Funds
A new regime for UK authorised investment funds and their investors, to be introduced by secondary legislation with effect from 1 September 2009, will treat the investor as having invested directly in the underlying assets where the fund meets certain conditions and makes an election.
A tax elected fund will be required to make distributions of dividends and interest out of its income. UK dividend income will remain non-taxable in the fund and a deduction will be available to the fund for other income that is distributed as interest.
Authorised Investment Funds and Investors in Equivalent Offshore Funds
Secondary legislation is to be introduced in order to give authorised investment funds (AIFs), and UK investors in equivalent offshore funds meeting certain conditions, certainty that transactions appearing on a ‘white list’ will not be treated as trading transactions for tax purposes. There will be measures to ensure that financial traders cannot shelter profits by routing them through an AIF or an equivalent offshore fund. The new rules will apply for AIFs from 1 September 2009 and for equivalent offshore funds from 1 December 2009.
Investment Trust Companies
A new regime is to be introduced for investment trust companies (ITCs) investing in interest-bearing assets and their shareholders. In broad terms the shareholder’s tax position will be the same as it would have been had he or she invested directly in the assets.
The ITC will remain liable to corporation tax on interest income, but will be able to opt to receive a deduction for any interest distributed. The new regime will be introduced by regulations and will apply for interest distributions on or after 1 September 2009.
Real Estate Investment Trusts: Amendments
The Finance Bill will include changes intended to clarify the legislation relating to real estate investment trusts (REITs). The existing legislation relating to the ‘balance of business asset’ test, whereby a REIT has to have 75% of its assets involved in the property rental business, will be amended to provide an accounting-based definition for all REITs. The legislation will also be amended to clarify the provisions relating to the apportionment of funds where an asset has been partly used for a property rental business and partly for non-rental purposes. There will also be changes governing the requirements which have to be met before a company can become a REIT. The changes will apply from 22 April 2009.
Corporation Tax: Agreements to Forgo Tax Reliefs
Legislation will be introduced to ensure that companies entering into arrangements to forgo tax losses or other reliefs (for instance, under the asset protection scheme) do not benefit from the automatic operation of those reliefs under the Corporation Tax Acts. This will apply to qualifying arrangements entered into on or after 22 April 2009.