The UK Finance Bill (No.2) Bill was introduced into parliament on 24 March 2015. The Bill contains measures announced in the budget proposals for 2015 together with some measures that were announced earlier such as the new rules for banks and the increase in the bank levy.

Important changes contained in the Finance Bill include the measures helping the UK oil and gas industry by introducing the oil and gas investment allowance, cutting the supplementary charge by 12% and reducing the rate of Petroleum Revenue Tax to 35%.

Research and development expenditure

Clause 27 of the Finance Bill increases the additional deduction for research and development (R&D) expenditure incurred by small and medium enterprises (SMEs) from 125% to 130% with effect from 1 April 2015.

The combined benefit from the normal R&D expenditure tax deduction and the increased deduction is therefore a total of 230%. Clause 28 of the Finance Bill provides for the restriction in the amount of consumable items included in expenditure qualifying for the R&D tax credit in certain situations. The provision will apply where the taxpayer sells the products of its R&D activity as part of its normal business. The cost of materials incorporated in products that are then sold by the taxpayer will not be part of the expenditure eligible for R&D tax relief.

The rate of Research and Development Expenditure Credit (RDEC) for large companies increases from 10% to 11% with effect from 1 April 2015.

Diverted Profits Tax

A significant measure announced earlier and introduced in Part 3 of Finance Bill is the Diverted Profits Tax that will charge multinational groups to UK tax on profits that are artificially diverted away from the UK. The rate of the tax is to be 25% and it will be introduced with effect from 1 April 2015. The tax is intended to combat structures used to avoid the rules on permanent establishments and transfer pricing, for example by using related companies as conduits to tax havens.

Country by Country Reporting

Clause 122 of the Finance Bill gives the UK Treasury the power to make regulations for implementing the guidance of the OECD on country by country reporting. This would be part of the transfer pricing documentation prepared by the parent company of a multinational group. The Bill refers to the guidance on country by country reporting published by the OECD in 2014 or any document replacing that guidance. Regulations issued by the UK Treasury may require reporting entities to provide information at specified times, for specified periods and in the form and manner that the regulations will specify. The regulations when issued are likely to be close to the format of the OECD template

The guidance on country by country reporting issued in 2014 by the OECD requires the preparation of a template for reporting income, earnings, tax and other economic data on a country by country basis. The information required by the OECD template would include total employment, capital, earnings and tangible assets in each country where the group operates. The identity of each entity in the group would be listed with a description of its business activities.

Film and TV tax relief

Clauses 29 to 31 of the Finance Bill contain the changes in respect of tax relief for films and certain high-end TV and animation productions. The film tax relief is currently given at 25% on the first GBP 20 million of expenditure and at 20% on expenditure above GBP 20 million. The Finance Bill now increases the relief to 25% for all qualifying expenditure. Clause 30 of the Bill provides for the extension of the television tax relief to the makers of children’s television programmes, these being programmes where the primary audience is aged under 15.

Clause 31 reduces the minimum UK spending requirements for the television tax relief from 25% to 10%, for all qualifying television programmes.

Capital gains on disposals of UK residential property by non-residents

Clause 37 and Schedule 7 of the Bill extend capital gains tax to gains made by non-residents on the disposal of an interest in UK residential property. This applies to non-resident individuals, trustees and other persons who would be subject to capital gains tax if they were UK resident. UK capital gains tax will also apply to certain non-resident companies disposing of UK residential property.

VAT refunds for certain charities

Clause 66 of the Bill allows certain charities to obtain a VAT refund in relation to their non-business activities with effect from 1 April 2015. The charities that could claim VAT refunds are palliative care charities; search and rescue charities and charities that support them; air ambulance charities and medical courier charities.