Finance Directors and their advisers will be relieved that Chancellor Osborne left corporation tax rates unchanged in his Autumn Statement. Instead, the main emphasis was on measures to increase the overall tax take with the help of measures designed to cut down blatant tax avoidance. The only sectors to see any positive improvements to their tax regimes were film production and onshore oil and gas extraction.
The British Film Industry is now a high profile success story which the government is keen to encourage and from April 2014 the rate of the film tax credit for surrender able losses will be increased to 25% on the first £20 million of qualifying core expenditure, subject to a maximum of 80% of qualifying core expenditure, and 20% thereafter, to a maximum of 80% qualifying core expenditure. The minimum UK expenditure qualification will also be reduced from 25% to 10%.
Meanwhile, the Chancellor is keen to do his bit to get the gas fracking bandwagon barrelling along and has announced a new onshore allowance for any new site which is authorised for development from now on. This will be of particular interest to offshore operators who want to get involved in unconventional gas production on mainland UK.
Turning to some of the specific anti-avoidance measures, the first is designed to prevent tax-motivated allocations of profits in mixed-member partnerships. This follows consultation by the Government on the use of corporate members in partnerships designed specifically as a tax –avoidance device. In a controversial move, this change will take effect on December 5th in order to reduce the risk of revenue loss.
Other measures are designed to clarify existing rules and close down specific schemes rather than to raise significant amounts of new revenue. One blocks avoidance schemes where deductions are claimed for payments between companies in the same group under derivative contracts which are linked to company profits. Another changes debt cap provisions to improve the effectiveness of the World Wide Debt Cap. This involves an alteration to the grouping rules and a change to the regulation-making powers.
Another measure that comes into force as from December 5th involves avoidance schemes using total return swaps. This blocks schemes where deductions are claimed for payments between companies in the same group under derivative contracts which are linked to company profits.
The Government also intends to switch off the partial exemption rules for loan relationship credits of a controlled foreign company that arise from an arrangement with a main purpose of transferring profits from existing intra group lending out of the UK. It also amends the anti-avoidance rule relating to the transfer of external debt to the UK to ensure that the rule works as intended.
Finally, the Chancellor has announced his intention to prevent charities from claiming charity tax reliefs where the charity has clearly been established for tax avoidance purposes. To close this loophole, the definition of a charity for tax purposes will be amended to exclude such charities.
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