CORPORATE AND BUSINESS TAX
Construction Industry Scheme
The government has confirmed that the new Construction
Industry Scheme will be introduced on 6 April 2007. Subcontractors may be
entitled to receive payments without deduction of tax if they have satisfied
certain criteria. Otherwise there is a standard deduction rate (currently
18%) for registered subcontractors.
An increasing proportion of
subcontractors in the current scheme do not have their full tax and NIC met by
their deductions. To reduce the additional payments due after the end of the
year, the new scheme will have a standard deduction rate of 20%.
A
higher deduction rate is introduced in the new scheme which allows unregistered
subcontractors to start work. The government has now confirmed this rate will
be 30%. One of the purposes of the higher rate is to encourage
subcontractors to register.
Tax motivated incorporation
The government remains concerned about the tax
motivated incorporation of the self-employed, which involves businesses taking
advantage of structural differences in the tax and NIC treatment that applies
to companies. The government will therefore continue to review ‘how the
system could be modernised, made simpler, more efficient and more
competitive’.
Tax relief for business cars
In March 2006 HMRC and HM Treasury issued jointly a
discussion document about business expenditure on cars.
The proposals
are:
- a new car pool would be introduced in which all
cars would be pooled
- a range of first year allowances depending on a
car’s CO2 emissions, would be introduced
- the annual tax write off for other cars (the
‘writing down allowance’) would be set below the 25% rate available
for other business assets.
As a consequence there would no longer need to be a
specific distinction between cars costing more or less than £12,000.
The government will continue discussions with business and present more
detailed proposals at Budget 2007.
UK Real Estate Investment Trusts (UK-REITs)
Legislation to establish UK-REITs was included in
Finance Act 2006. The regime is open to UK resident companies that are
listed on a recognised stock exchange. Companies that meet the UK-REIT
eligibility criteria will not pay corporation tax on qualifying property rental
income or qualifying chargeable gains.
UK-REITs are required to
distribute at least 90% of the tax exempt profits each year. The
dividends paid out of the tax exempt profits will be treated as property income
in the hands of the shareholders.
Two main changes are proposed to the
regime:
- the conditions to be met by a company when giving
notice and on joining the regime will be relaxed to make it easier for
newly-established companies to become UK-REITs
- it is proposed to extend the exemption from tax on
property income for charities to property income distributions received from a
UK-REIT.
Corporate members of Lloyd’s insurance
market
Where a company has unrelieved trading losses and
transfers its business to another company, the losses may, in certain
scenarios, be transferred to the successor company. Proposals will adapt
the rules which govern the transfer of trading losses by Lloyd’s
corporate members from one company to another company under the same control,
typically as part of a group reconstruction.
The proposals will enable
Lloyd’s corporate members to benefit from the transfer of losses in the
same way as other companies.
Controlled foreign companies (CFCs)
The CFC tax rules potentially apply to tax UK
companies with subsidiary companies operating in low tax jurisdictions. A
proportion of the profits may be subject to UK tax if the profits are not paid
by the subsidiary to the UK company. Following the recent European Court of
Justice judgment in the Cadbury Schweppes case, changes are being made to the
CFC rules, effective from 6 December 2006, to change the law to reflect the
decision.
The changes will relax UK CFC rules by enabling UK
companies to apply to HMRC to disregard those profits of their CFCs that arise
from genuine economic activity in business establishments in other European
Union Member States or certain other states in the European Economic Area.
The government will consult with business in 2007 on a wider package of
reform.
Other anti-avoidance measures
A disclosure regime for tax schemes was introduced in
2004 that has enabled HMRC to respond to avoidance schemes more swiftly.
The government has announced measures, effective from 6 December 2006, to
tackle artificial schemes, brought to light under the disclosure rules. These
schemes which have exploited certain aspects of tax legislation include the
rules on manufactured payments, exchange gains and losses, annual payments,
double taxation relief and lease and leaseback.
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