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As you know, we recently sent out a general Budget update following the March Budget announcements, but we thought it would be useful to further examine these, and to expand a little on some of the changes specifically affecting companies.
Corporation Tax Rates
As you already know, the rate of corporation tax, which is currently 20% is going to reduce to 19% from 1 April 2017. The change announced in this Budget affects the previously mooted decrease to 18% by April 2020, which has now been further cut to 17%. At first take, this seems generous … but when you consider that the Chancellor has increased costs of employing workers by the introduction of the living wage, along with pensions auto enrolment, then the benefits of the decrease in the corporation tax charge will be somewhat diluted.
Currently, if a company lends money to a shareholder (in a lot of cases the shareholder is very often a director of the company) and this loan is not repaid within 9 months of the end of the company’s financial year then the company pays S455 tax at 25% of the outstanding balance. This tax charge is only reimbursed to the company when the loan is repaid by the shareholder. To discourage shareholders taking out loans instead of paying themselves dividends (this may have been perceived as more attractive following the increase in the dividend rates post 5 April 2016), the Chancellor has increased the tax on shareholder loans to 32.5%, the equivalent to the higher rate on dividend extraction.
There’s good news for companies who are looking to attract external investors, with a new Investors' Relief. A discounted capital gains tax rate of 10% will apply to gains on qualifying shares arising to investors who are not employees or office holders of the company (and who aren't connected with anyone who is). They must hold the shares for a minimum of 3 years and the relief only relates to shares purchased on or after 17 March 2016.
Although the relief is at the same rate as Entrepreneurs' Relief, there are fundamental differences, and Investors' Relief could be attractive for those who have exhausted their entitlement to ER.
The business rates relief thresholds were increased in the Budget which is good news for those that qualify. Until the new thresholds come into play in 2017, businesses in Scotland can still apply for relief under the Small Business Bonus scheme. To remind you, the current relief depends on the combined rateable values of the properties from which you carry out your business, as follows:
Rateable Value of Property Rate Relief
Up to £10,000 100% (i.e. no rates are payable)
£10,001 to £12,000 50%
£12,001 to £18,000 25%
£18,001 to £35,000 25% on each individual property with a rateable value of less than £18,000
If you need any further information on any of these issues then please contact Carol Wright at firstname.lastname@example.org