Corporate tax changes
Among other changes, the budget:
- Extends and doubles the annual investment allowance to £500,000 (from £259,000) for certain plant and machinery expenditures from April 2014 to December 2015
- Increases the research and development (R&D) credit for small-and medium-sized enterprises to 14.5% (from 11%) on qualifying expenditures incurred on or after April 1, 2014
- Introduces an anti-avoidance measure to counter arrangements where profits are transferred between group companies for tax avoidance purposes, for payments made on or after March 19, 2014.
In its budget, the U.K. reaffirms support for the 15 Actions in the OECD's Action Plan on BEPS, but makes the following key points:
- Strengthening CFC rules (Action 3) - Having recently reformed its CFC rules, the U.K. does not anticipate that the rules will require more substantive changes
- Limit base erosion via interest deductions (Action 4) - In the design and application of any structural interest restriction rules (e.g., earnings-stripping rules or interest allocation across the group), it is important to carefully consider the effect on infrastructure projects and the financial sector
- Counter harmful tax practices (Action 5) - This action focuses on how to more clearly define the requirement for 'substantial activity' in a jurisdiction for companies to qualify for preferential tax regimes. The U.K. believes that most of the activities currently qualifying for the U.K. Patent Box would meet any substance test
- Country-by-country reporting template and transfer pricing documentation (Action 13) - The U.K.'s view is that the aim of country-by-country reporting should be to provide tax authorities with high-level information to help them efficiently identify and assess risks without imposing a significant compliance burden on businesses.
Previously announced U.K. measures effective in April 2014
As a reminder, several U.K. tax measures coming into effect next month.
New corporate rates
The corporate tax rate for profits falls to 21% (from 23%) in April 2014 (before being unified with the small profits rate at 20% in April 2015). This change was announced in the U.K.'s 2013 budget.
The following measures are also effective in April 2014:
- Artificial use of dual contracts by non-domiciles (effective April 6)
- Offshore employment intermediaries (effective April 6)
- Partnership tax rules, rules change (effective April 6)
- Amending loss relief provisions (effective April 1).
For more information, contact your KPMG adviser.
Information is current to March 25, 2014. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500