On Wednesday, George Osborne delivered his annual Budget and the announced measures below are likely to be of interest to adtech companies and start-up business. The included links lead to more detailed expert commentary by the Olswang Tax Team.
Corporation tax reduction
The good news for businesses is that corporation tax will come down to 17% from April 2020, which is even lower than the previously announced 18%. This comes with a promise to keep rates of corporation tax under review to ensure that UK tax rates drive growth and investment. The thing to note here, however, is that through various measures the government is increasing the amounts on which that 17% tax rate is charged, to ensure that there is no reduction in the HMRC’s takings. More detail here.
Using tax losses across company groups
There will also be substantial changes to the rules governing the use of tax losses in relation to groups of companies, which in some aspects tighten the regime and in others make it more flexible. More detail here.
Withholding tax on Intellectual Property
The government has announced that withholding tax will apply to a wider range of royalty payments for the use of intellectual property, most likely taking effect from July this year. Withholding tax is not a discrete tax but a tax collected by the person who pays the royalty on account of a tax liability of the recipient. The suggestion is that withholding tax will apply to any payment of a royalty in respect of any form of intangible property (such as trade marks and brand names) unless it is covered by a tax treaty or EU directive. This means that recipients located in a jurisdiction that has a double tax treaty with the UK that states that the UK does not have taxing rights in respect of such royalties, should not ultimately suffer this tax. These planned changes also come with new anti-avoidance provisions in relation to royalties and related payment structures. More detail here.
Capital Gains Tax reduced
The Chancellor has also reduced the rate of capital gains tax (CGT) from 28% to 20% (or for basic rate taxpayers, from 18% to 10%) effective from 6 April 2016 other than in respect of gains on residential property and carried interest. This could mean tax savings for employees holding shares in their employer company. More detail on employee share incentives here.
Entrepreneurs’ Relief improvements
The government is making changes to Entrepreneurs’ Relief and extending it to external investors who make long term investments in unlisted trading companies. The Budget documents dubbed this measure “Investor’s Relief” and it is hoped that it will encourage investment in smaller businesses and start-ups. UK resident individuals are generally subject to CGT on gains arising on the disposal of shares. Entrepreneurs’ relief provides a reduced rate of CGT on qualifying gains. The Budget materials also contained three further amendments to this regime which are aimed at ensuring that previously introduced anti-abuse measures do not negatively impact genuine commercial transactions. More detail here.
This Budget contained an unusually large number of measures in light of the international and media focus on tax at the moment. It is likely that there will be more changes in the future and businesses may have to reassess their structures both in the UK and abroad to ensure that they remain tax efficient.