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 2010, commencing on 1 April 2010, was fixed in FA 2009. The Finance Bill will set the main rate for financial year 2011 at 28%. The main rate for ring-fenced oil industry profits was fixed at 30% for financial year 2010 and will remain at 30% for financial year 2011.
Corporation Tax Small Profits Rate
There is no change in the small profits rate of corporation tax. The Finance Bill will set the rate for financial year 2010 at 21% and the fraction used in calculating marginal relief will be unchanged at 7/400. The December 2009 Pre-Budget Report announced that an increase in the small profits rate to 22%, originally planned to take effect from 1 April 2009, would be deferred until 1 April 2011
The small profits rate for ring-fenced oil industry profits will be unchanged at 19% for financial year 2010, and the marginal relief fraction for such profits will remain at 11/400.
Legislation will be introduced to put beyond doubt the treatment of certain distributions received by UK companies. Essentially the provisions will confirm HMRC’s existing practice of treating all UK distributions as being of an income nature unless they are specifically excluded. The legislation will have retrospective effect (although companies can elect for the legislation not to apply retrospectively).
Changes in Accounting Standards
Following a period of consultation and draft legislation issued on 12 February 2010, regulation-making powers contained in the rules on loan relationships and derivatives will be extended. The purpose of this is to enable the tax rules to be changed where necessary in line with changes in accounting standards implemented by the International Accounting Standards Board (IASB) and UK Accounting Standards Board (ASB). This legislation will have effect from the date that the Finance Act 2010 receives Royal Assent, but regulations allowed as a result may have retrospective effect.
Interest Harmonisation: Corporation Tax and Petroleum Revenue Tax
Corporation tax and petroleum revenue tax will be brought within the harmonised interest regime introduced in the Finance Act 2009. The new harmonised interest provisions will replace the current range of differing regimes with a single legislative framework for interest chargeable on late payments and payable on repayments and this will apply to all taxes and duties administered by HMRC. Interest will be charged from the date the tax or duty was due to be paid to HMRC until the date it is paid. HMRC will pay interest on repayments from the date the tax or duty was due to be paid or, if later, the date the payment was actually received, to the date the repayment is made. The statutory description of interest for each of these taxes will be ‘late payment interest’ and ‘repayment interest’. These changes will take effect from a date to be specified by Treasury Order. The rules for quarterly instalment payments remain unchanged and do not form part of the harmonised rules that will apply to corporation tax.
Life Insurance Companies: Apportionment of Income and Gains
The apportionment rules relating to life insurance companies will be modified in an attempt to ensure that deferred profits are taxed on an appropriate basis, and to prevent attempts to avoid the application of these rules by transferring non-profit business from one fund to another. This change will take effect from 24 March 2010.