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Budget 2016 Corporation Tax changes

Lower rates

The rate of corporation tax was already set to come down to 18% from 1 April 2020 but it has now been further reduced to 17%. This will leave companies with more funds for investment or returns to shareholders.

Flexibility with losses

Historically, the use of corporation tax losses brought forward has been restricted to use against future profits generated by the same company. Use within a group was not allowed and strict rules applied as to which type of income could be offset by which type of loss. A recent tax case challenged this restrictive approach with the taxpayer successfully offsetting losses in a previous business against profits of a business in to which the activities were subsumed. Rules for losses incurred on or after 2017 will be more flexible; in future businesses will be able to use carried forward losses against profits from other income streams or from other companies within the group.

Whilst this sounds like very good news, unfortunately there is currently no detail available to be able to make any further comment on this.

Corporation Tax - large company restrictions

However, it is not such good news for large companies. For these purposes a large company is defined as one with profits on a standalone or group basis of £5 million. The use of losses brought forward will in future be restricted to 50% of profits in any given year.

The Government is also continuing its drive against tax avoidance with further measures proposed on multi-nationals: -

Interest relief in the UK will be capped at 30% of taxable earnings where the interest cost exceeds £2 million
Income tax withholding at 20% will be extended to cover payments on all intangible assets e.g. trademarks and brand names

If you would like further information please contact Cathy Corns or Jacqui Gudgion or your usual Mercer & Hole contact.



Date: 17th March, 2016
Author: Cathy Corns


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