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CORPORATION TAX |
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Countering leasing schemes See TM ¶166, 501 Rental rebates Where a lessor refunds rental payments to a lessee under a non-long funding lease these are tax-deductible. However, from 9 December 2009 the deduction available will be limited to amounts that have been included as the lessor’s income less any finance charge elements and payments for services and taxes. This is intended to counter a scheme enabling a tax loss to be generated where there is a commercial profit. The disallowed element of a rebate will be considered to be a capital loss to the extent that the total rebate exceeds the cost of the asset. This loss can only be utilised against any gain arising on that asset. Restriction on capital allowances A measure will be introduced, effective from 9 December 2009, to restrict the amount of capital allowances that a lessor can claim where it has entered into an arrangement that results in the expected economic value in the lease being less than the capital expenditure incurred at the time of purchase. This will include any residual value, adjusted for any rebates, where the lease is an operating lease. This measure is designed to ensure that no loss should be generated from such a transaction, as the maximum amount on which allowances can be claimed will be limited to the expected return on the asset, limited to the actual cost involved. Restrictions on capital allowances on successions See TM ¶252 Following changes announced in July 2009 further additions have been made to rules, effective from 9 December 2009, applying when ownership of a company is transferred (or where partners or consortium members change their respective interests) where the main, or one of the main, purposes of the transaction is to gain a tax advantage. In essence the rules apply where a company: » has not fully claimed available capital allowances on plant and machinery and as such the tax written down value of the asset exceeds its net book value shown in the accounts; and » it is then sold from one group to another. It may be that after this the plant is sold to a third party at its market value so securing a significant balancing allowance. The group could then use this to relieve other profits. Alternatively the resultant increased allowances are claimed, resulting in a loss that is intended to be surrendered within the group. From 21 July 2009 losses secured in such a way via the balancing allowance were restricted for groups where the target company was purchased from another group so that the losses could only be used against the profits that would have arisen if the original transfer had not taken place. From 9 December 2009 this will extend to the situation where an unincorporated shareholder sells a company to a group. Allowances for electric vans See TM ¶327 Pending receiving State Aid approval a new 100% first-year allowance will be introduced for businesses which incur expenditure on new, unused, electric vans. It is envisaged that this will apply to expenditure incurred on or after 1 April 2010 for companies and 6 April 2010 for those subject to income tax. Changes to research and development criteria See TM ¶798 Finance Bill 2010 will introduce legislation to remove the necessity for a small or medium-sized enterprise to own any intellectual property arising from its research in order to secure additional relief for qualifying expenditure. This will apply for expenditure incurred in an accounting period ending on or after 9 December 2009. Changes to debt cap rules See TM ¶877 As previously announced (see TN10/03 Item 1) there are several changes being made to the debt cap rules prior to the introduction of the regime on 1 January 2010. These will be introduced in Finance Bill 2010 but will still take effect from the commencement of the new regime. Power to amend loan relationship rules See TM ¶880 As the taxation of loan relationship profits relies on the accounting treatment of them, any changes in these standards will likely alter the tax treatment. As the International Accounting Standards Board is currently consulting on the relevant standards, a new power will be introduced to allow the government to make changes to the rules by way of statutory instrument within specific boundaries. This will allow the government to react quickly to any changes, as opposed to any amendments having to be made in the annual Finance Bill cycle. When an instrument is made it will apply from the beginning of the calendar year in which it is passed. Rates See TM ¶1342, 9962 The rise in the small companies rate of corporation tax will be postponed for a further year, leaving the rate for FY2010 at 21%. There will also be consultation on the introduction of a “Patent Box”. Although detailed proposals have yet to be published this is expected to entail income from patents being identified and taxed separately at a proposed rate of 10%. It is intended that the legislation for this will be in Finance Bill 2011 but the regime will not commence until April 2013. Sale of lessor companies – alternate treatment and consortia See TM ¶1800+ Currently where a company carrying on a leasing business is sold there is a charge levied on an amount equal to the excess of the balance sheet value of the assets held over the tax written down value. This is to claw back capital allowances given in the original group where the economic reality supports it. However, the current economic climate has resulted in a number of purchasing groups being unable to utilise the corresponding deduction. From 9 December 2009 (with the legislation being introduced in Finance Bill 2010) an election, to be made by the lessor company itself, will be possible that will result in no charge being applied prior to the change of ownership, in return for forgoing the corresponding deduction and ring-fencing the leasing trade in question. This will ensure that deferred profits are then taxed as they arise in future years. Further anti-avoidance is also to be introduced to ensure that where consortium members hold their interests in the consortium company indirectly, the general consortium rules will apply to ensure the full recapture charge is made.
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