Budget 2016 – Corporation Tax

Loans to participators

The loans to participators rules aim to prevent owners of close companies avoiding Income Tax and National Insurance contributions by remunerating themselves through loans or advances that are not repaid, rather than taking dividends or salary. For loans, advances and arrangements made on or after 6 April 2016, the rate of tax payable by close companies on such loans will be increased from 25% to 32.5%.

Corporation tax rates

The corporation tax rate has been cut further to 17% from 1 April 2020. The current rate of 20% will reduce to 19% from 1 April 2017 and to 17% from 1 April 2020.

Corporation tax loss relief

The government will introduce two changes from 1 April 2017. Firstly, the rules will be made more flexible so that losses carried forward can be used against profits from other income streams or other companies within a group. Secondly, the government will only permit 50% of the profit to be reduced by losses carried forward. However as this restriction will only apply to profits in excess of £5 million, 99% of all companies are unaffected. For groups, the £5 million allowance will apply to the group.

Making sure large companies can’t artificially shift profits out of the UK

Some large companies use excessive interest payments to reduce the tax they pay on their profits in the UK. Relief on interest payments will now be capped at 30% of UK earnings, with exceptions for groups with legitimately high interest payments.

Over the next 5 years, the government will raise nearly £8 billion from large companies and multinationals through changes to the rules on interest and other measures, including:

• introducing rules to prevent multinational companies avoid paying tax in any of the countries they do business in
• taxing outbound royalty payments better – these are fees for using intellectual property like patents and copyrights – meaning multinationals pay more tax in the UK
• making sure offshore property developers are taxed on their UK profits