Corporation tax rates
As announced previously, the main rate of corporation tax, which applies to companies with profits of more than £1.5 million, will to fall to 23% from 1 April 2013 and 21% from 1 April 2014.
New in the Budget today was the news that from 1 April 2015, the rate will fall again to 20%. This is the same as the small companies rate (which applies to companies with profits up to £300,000), and the two rates will be unified at that point, so the UK will have a single rate of corporation tax for the first time since 1973.
Until the rates are merged, companies with profits between £300,000 and £1.5 million pay a marginal rate of tax.
No changes to capital allowances were announced in the Budget.
In the Autumn Statement last December, the Annual Investment Allowance (the amount that companies can spend on capital equipment and claim a full deduction in that year) was increased to £250,000 (from £25,000) from 1 January 2013 for a two year period.
Tax for small unincorporated businesses
As announced in Budget 2012, small unincorporated businesses will be able to use a cash basis for working out their taxable profits from 2013-14.
They will also be able to use simplified flat rates to calculate certain business expenses.
Businesses with receipts of less than the VAT registration threshold (which will be £79,000 from 1 April 2013), or twice that if they receive the Universal Credit, will be allowed to join the scheme. They have to leave the scheme when receipts are more than twice the VAT registration threshold.
Loans to director/shareholders (s455 Loans to Participators)
The employer beneficial loan provisions are often used by small limited companies (‘close companies’) to loan money to director/shareholders to delay personal tax payments – as long as the loan is paid back within 9 months of the year end of the company, there is no tax charge. If the loan is not repaid, then a ‘s455’ charge kicks in, which means that 25% of the value of the loan must be paid to HMRC by the company. This charge is repayable to the company after the loan is repaid.
Hidden in the background documents to the Budget is the news that there will be restrictions where loans are repaid to the company and withdrawn again within a short period, or where there are arrangements or an intention to make further loans when the loan is repaid – so it may no longer be sufficient to repay the loan one day and draw it again a day or two later. These restrictions come in to force today.
In more detail, a new rule (the “30 day rule”) will be introduced to deny the relief if within a 30 day period repayments of more than £5,000 are made to the close company in respect of amounts which have given rise to a charge to tax and amounts are then redrawn
In addition, even if the 30 day rule does not apply to deny relief, relief will be denied if there are amounts (loans, advances of money from the close company or through an extraction of value) outstanding amounting to at least £15,000 and at the time of a repayment there are arrangements, or an intention, to redraw an amount and an amount is subsequently redrawn