A major boost to UK competitiveness was announced today by the Chancellor, with a wide ranging package of tax reforms to:
– enable UK businesses to compete more effectively
– make the tax system easier and cheaper to comply with
– ensure a fairer share of tax for the UK.
The package builds on the extensive reforms already made by the Government to modernise the corporate tax system for the 21st century.
The Government’s aim is to make the UK the best competitive environment for business in the world.
Developments in technology and communications are opening up new markets and opportunities, and increasing international competition. Businesses need more flexibility in their structures and operations to meet the new challenges.
Proposed tax changes will help UK businesses compete effectively in the new global market place.
– Changes to the rules for group relief and chargeable gains will give companies more freedom to structure in ways that suit their business rather than in ways driven by the tax system.
– Consultations will take place with a view to improving business efficiency by providing rollover relief for gains on the disposal of substantial shareholdings held by companies.
– Reforms to double taxation relief will help branches of international businesses avoid being taxed twice.
– To reflect the increasing importance of intellectual property to business, the scope of the intellectual property review will be broadened to take in the possibility of introducing tax relief for the costs of purchasing goodwill and other intangibles.
– Sales of intellectual property will be exempted from stamp duty to help boost R&D and foster an environment in which invention and innovation is encouraged.
– A new tax relief for the cost of acquiring capacity in submarine telecommunications cables (known as IRUs) will help open up the online world to competition.
– Changes in the tax treatment of “ratchet loans” (loans with interest rates linked to profits) will give companies easier access to the finance they need to compete effectively.
– Waste disposal firms taking over sites previously run by another waste disposal operator will be entitled to tax relief for their predecessor’s site preparation expenditure.
– The new tonnage tax regime, announced in August last year, will help the UK shipping industry turn the tide of prolonged decline.
– As announced in January, improvements in the tax treatment of companies that draw up their accounts in a foreign currency will be introduced to increase the attraction of the UK as a base for group financial and treasury operations, and reduce the need for costly hedging arrangements.
Making the tax system easier and cheaper to comply with
Unnecessary and outdated tax rules that detract from business efficiency are to be cut.
The Government is aware that requirements and controls in the tax system can lower profitability and reduce competitiveness. The Government keeps these burdens under continuous review, and has decided that it can now relax a number of them.
– Changes to the capital gains rules will allow companies to match gains and losses without the current need to move assets around the group prior to disposal. And certain groups with large property holdings will be able to agree 31 March 1982 valuations with the Inland Revenue in advance of properties being sold.
– Relaxation of the overseas life assurance business rules will help life insurance companies expand and compete more easily in overseas markets.
– A reduction of 1 per cent in the rate of interest charged on corporation tax paid late under the instalment arrangements, will bring it more closely into line with commercial rates. And a doubling (from 5000 pounds to 10000 pounds) in the de-minimis limit for companies that have to pay corporation tax in quarterly instalments will take around 1,000 companies out of instalments altogether.
– The rules for double taxation relief will be made clearer and more certain by legislating various practices concerning the calculation of underlying tax.
– The abolition of a withholding tax on international bond interest will sweep away unnecessary tax rules for UK international bond markets. They will be replaced by simpler and less burdensome requirements to provide information to the Inland Revenue.
– There will be consultation later in the year about modernising the rules for deduction at source from royalties. The aim will be to make it easier for businesses to get access to the intellectual property on which improving competitiveness will increasingly depend.
– The modernisation of the complex rules about exchange gains and losses, derivatives and loan relationships (corporate and government debt) will be addressed in a technical discussion paper to be issued later in the year.
Ensuring a fairer share of tax for the UK
While facilitating business efficiency and promoting its competitiveness, the Government is determined that businesses operating in the UK should pay their fair share of tax.
Measures announced today reflect the Government’s resolve to ensure that the rules that protect the tax base keep up to date with developments in the domestic and global economy.
– The anti-avoidance rules for controlled foreign companies (CFCs) involved in UK tax avoidance will be strengthened and updated to take account of developments in the way that multinationals are organised and do business.
– Changes in the double taxation relief rules will limit the use of so-called “mixer companies” to shelter low taxed foreign profits from UK tax. Together, the double taxation relief reforms and the CFC changes will help level the playing field between the taxation of domestic and foreign source income, freeing up companies to make decisions about investment and structure for commercial rather than tax reasons.
– New rules for the taxation of insurance reserves will bring insurance companies and members of Lloyds into line with other companies, and bring the UK treatment more into line with that in other major insurance markets.
– Changes for life insurance businesses will ensure that reliefs are not used to avoid tax where borrowings finance investments whose returns benefit from tax exemptions.
– A range of stamp duty avoidance devices will be stopped. So too will a property based avoidance device involving rent factoring.
– VAT changes will counter tax avoidance by Non-Established Taxable Persons (NETPs). The new rules will prevent companies avoiding tax on the disposal of assets in the UK, and will help level the playing field between UK-based and foreign leasing companies.
– New penalties for failure to meet key requirements of the VAT investment gold scheme will help protect legitimate businesses.
NOTES FOR EDITIORS
1. Further information is contained in the following Inland Revenue Budget Notes and Press Releases and Customs & Excise Budget Notices:
REVBN2A Group relief
REVBN2B Internationalisation of CG group rules
REVBN2C Taxation of substantial shareholdings held by companies
REVBN2D Double taxation relief
REVBN2E Mobile phone licences
REVBN2F Loans with interest rates linked to profits
REVBN2G Company gains
REVBN2H Overseas life assurance business
REVBN2I Quarterly payments of corporation tax
REVBN2J International exchange of information
REVBN2K Controlled Foreign Companies
REVBN2L Insurance and Lloyd’s
REVBN2M Rent factoring
REV5 Stamp duty
CEBN44/2000 VAT anti-avoidance
CEBN21/2000 VAT investment gold
2. The tonnage tax is subject to agreement with the European Commission as a notifiable state aid. A Regulatory Impact Assessment on the tonnage tax is available on the internet at www.inlandrevenue.gov.uk or from Cheryl Scott at the Inland Revenue on 020 7438 6583.
Taxman lines up early exit from doomed Concentrix tax credits deal, as HMRC faces intense scrutiny from MPs
Crowe Clark Whitehill , the top 20 accountancy firm, has announced the promotion of Chris Mould to partner
The latest opinions from Accountancy Age on Making Tax Digital, and outline plans to evolve the UK's corporate governance regime
Five million taxpayers are ow using digital personal tax accounts (PTA) as part of the making tax digital strategy, HMRC said