The budget insert for the CT600 company tax return, initially issued in March 2017, has been updated to include further information on changes affecting the return. The changes cover announcements made in the 2016 Autumn Statement and measures in the 2017 Spring Budget that affect the financial year beginning on 1 April 2017. Some proposals from the autumn statement will be included in the Finance Bill (No 2) 2017. The main changes include the following:
Corporation tax rate
The main corporation tax rate is reduced from 20% to 19% with effect from 1 April 2017. There is no longer a separate small profits rate so this main rate applies to all companies (except profits that are ring fenced e.g. income and gains from oil extraction industries in the UK and the UK continental shelf which are subject to a 19% rate). The rate applying to unit trusts and open ended investment companies is 20%.
Loss relief
In relation to losses arising after 1 April 2017 a company will be able to offset losses carried forward against profits from different types of income and profits from other group companies. The use of losses carried forward will however be restricted so they cannot reduce profits arising on or after 1 April 2017 by more than 50% if the profits of the company or group are above GBP 5 million.
Patent box – cost sharing arrangements
The patent box rules are adjusted for accounting periods beginning on or after 1 April 2017 to ensure that where research is carried out collaboratively by two or more companies under a cost sharing arrangement the companies are treated for tax purposes in the same way as they would be if they had organised their research and development in a different manner. Periods straddling 1 April 2017 need to be split for this purpose.
Substantial shareholding exemption
The condition that the investing company must be a trading company or part of a trading group is to be removed with effect from 1 April 2017. Also the condition that the investment must have been held for a minimum of twelve months in the two years preceding the sale is being extended to a continuous period of twelve months in the preceding six years. The condition that the company in which the shares are sold should continue to be a qualifying company immediately after the sale is to be withdrawn except for a sale to a connected party.
Deduction for corporate interest expense
Legislation is to be introduced to restrict the deduction for net interest expense and other similar financing costs with effect from 1 April 2017. The rules will replace the existing debt cap rules. The rules will not apply to groups with less than GBP 2 million of net interest expense within the scope of corporation tax in a year. Where a period of account straddles 1 April 2017 the group will have to split the results of the period to apply the new rules from 1 April 2017.
Appropriations to trading stock
With regard to appropriations to trading stock from 8 March 2017 an election to convert losses attributable for a period when an asset was a capital asset into (more flexible) trading losses will be removed so that the election will only be available where the appropriation into trading stock at market value would give rise to a chargeable gain and not a loss. A loss in these circumstances would therefore remain as a capital loss and remain within the chargeable gains rules for offset in the future.
Other
Other changes include the following:
- A deduction will be available for direct contributions to grassroots sports up to a maximum of GBP 2,500 per year;
- Eligible museums and galleries will be able to claim tax relief for qualifying expenditure on new exhibitions, including exhibitions that go on tour, effective from 1 April 2017 until 31 March 2022;
- A 100% first year allowance will be available for expenditure on electric charge point equipment for expenditure incurred on or after 23 November 2016 until 31 March 2019 (for corporation tax) or 5 April 2019 (for income tax).
