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Changes to Structures and Buildings Allowance

The new structures and buildings allowance (SBA) allows for tax relief on qualifying capital expenditure on new non-residential structures and buildings. The relief applies to the qualifying costs of building and renovating commercial structures.

The relief was introduced with effect from 29 October 2018 and applies where all contracts for the physical construction works are entered into on or after that date. The legislation to provide for this new relief was laid before Parliament and came into force on 5 July 2019 with retrospective effect.

As a result of the consultation process, some features have been amended, including those relating to short-term leaseholds, eligible pre-trading costs, periods of disuse, and reducing claimants’ administrative burdens.

The relief is available at an annual rate of 2% on a straight-line basis (over 50 years). No relief is available where parts of the structure qualify for other allowances, such as Plant & Machinery allowances.

The SBA is intended to support business investment in constructing new buildings, including necessary preparatory costs, and the improvement of existing ones, as well as improving the international competitiveness of the UK’s capital allowances system.

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Research and Development tax reliefs

There are two schemes for claiming relief for R&D expenditure. The schemes are known as the Small or Medium-sized Enterprise (SME) Scheme for smaller companies, and the Research and Development Expenditure Credit (RDEC) scheme for large companies.

Large companies can currently claim a 12% RDEC also known as an 'above the line tax credit' for qualifying expenditure. The 12% rate applies to expenditure incurred on or after 1 January 2018. The RDEC allows companies to claim an enhanced Corporation Tax deduction or payable credit on qualifying R&D costs. The RDEC replaced the large company scheme that was withdrawn in April 2016.

The SME scheme offers more generous reliefs. SMEs can currently claim R&D tax credits of 230% for expenditure. However, SMEs can elect to claim relief under the RDEC scheme if they are unable to claim relief under the SME scheme because of a grant or subsidy, or because they are carrying out subcontracted R&D work. A company is usually defined as an SME if staff headcount is less than 500 and either turnover is less than €100m, or balance sheet total is less than €86m.

If a company is seeking to develop or solve scientific or technological uncertainty for the benefit of their 'sector', then you may qualify for R&D tax reliefs. It should be noted that only certain costs are available for relief.

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Treatment of fees for nominee directors

A nominee director is someone who acts as a non-executive director on the board of a company. This person is normally appointed to act on behalf of another person or company and is effectively their representative on the board. For example, a shareholder, creditor or interest group. There can be conflicts of interest that arise for someone in this position.

Where a director of Company A is appointed to the Board of Company B as a nominee of Company A, and hands over his fees from Company B to Company A, those fees may be assessed on Company A rather than on the director provided certain conditions are satisfied.

These conditions (in Regulation 27 of the Social Security (Contributions) Regulations 2001) broadly mirror those laid out in Extra Statutory Concession (ESC A37), where an individual in receipt of fees paid in respect of a directorship can treat that income as trading income of a partnership or a company rather than as his or her employment income.

The Inspector dealing with the accounts of the company to which the fees are handed over, will decide whether those fees are to be treated as income of that company.

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Corporate Capital Loss Restriction

Under current rules up to 100% of chargeable gains can be set against carried-forward capital losses. For accounting periods ending on or after 1 April 2020, large companies and unincorporated associations who accrue chargeable capital gains will only be able to offset up to 50% of those gains using carried-forward allowable (capital) losses. The measure is subject to anti-avoidance rules that took effect from 29 October 2018.

There will be an allowance that means the first £5 million of profits can be offset with carried-forward losses before the 50% restriction is applied. This allowance is in tandem with the Corporate Income Loss Restriction (CILR). This will ensure that over 99% of companies are unaffected by the restriction. The new measure is expected to impact about 200 corporates each year who will pay additional tax as a result of this measure.

These rules are in line with the CILR for carried forward income losses that was introduced in 2017 and the new capital losses rules effectively mirror the income losses rules. Transitional rules will apply to companies with accounting periods that straddle the 1 April 2020 implementation date.

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Loss buying restrictions

Under qualifying circumstances, Corporation Tax (CT) relief is available where your company makes a trading loss. The trading loss can be used by offsetting the loss against other gains or profits of your business in the same or previous accounting period. The loss can also be set against future qualifying trading income.

However, there are restrictions on ‘loss-buying’. This describes the situation where a person buys a trading company wholly or partly for its unused trading losses rather than solely for the inherent value of its trade or assets. The new owner usually introduces new activity into the company to try to keep its entitlement to relief for losses.

The legislation governing this area can result in all the company’s unused carried- forward trading losses being cancelled where either:

  • within any specified period, there is both; a change in the ownership of a company, and a major change in the nature or conduct of a trade carried on by the company,

or

  • there is a change in ownership of a company at a time when the scale of its trading activities has become small or negligible.

For accounting periods beginning on or after 1 April 2017, the specified period is 5 years beginning no more than 3 years before the change in ownership occurs.

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Non-resident company liability to Corporation Tax

Under the current rules non-resident companies with a trading business in the UK are liable to pay UK Corporation Tax on their profits made through a permanent establishment/branch or agency. This includes trading income and any income from property or rights used by, or held by or for, the permanent establishment/branch or agency (except dividends or other distributions received from companies resident in the UK) as well as certain chargeable gains falling within TCGA92/S10B.

There are a number of differences in the taxation of non-resident companies as opposed to resident companies. For example, a non-resident company:

  • is not liable to account for ACT on distributions made before to 6 April 1999,
  • cannot have 'franked investment income',
  • cannot have surplus franked investment income for the purposes of ICTA88/S242,
  • cannot set trading losses against dividend income to augment its trading income for the purposes of absorbing losses brought forward.

Any UK-source income received by a non-resident company which does not carry on a trade in the UK through a permanent establishment/branch or agency is subject to UK Income Tax on any UK-source income. Any Income Tax due is calculated at the basic rate only without any allowances, subject to any applicable Double Taxation Agreement. It is expected that corporate landlords will become subject to Corporation Tax on their income and gains from 6 April 2020.

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Company Unique Taxpayer References

The Company Unique Taxpayer References (UTR) is the primary identifier for the company and should be used whenever HMRC is contacted and when tax returns are filed.

When a new limited company is registered, Companies House will inform HMRC of the new company and a UTR (ten-digit number) will be issued. HMRC will then issue a letter to the company's registered address outlining important information about registering the company online for Corporation Tax and filing Company Tax Returns.

The letter, which will be sent to the companies registered address, will also contain the company’s ten-digit UTR. The number can also be found on other documents issued by HMRC such as form CT603 ‘Notice to deliver a company Tax Return’, Depending on the type of document issued the reference may be printed next to the headings 'Tax Reference', 'UTR' or 'Official Use'.

It is possible to locate a company UTR by making a request online at https://www.tax.service.gov.uk/ask-for-copy-of-your-corporation-tax-utr.

HMRC will send the number by post to the company’s registered address as shown at Companies House.

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Pre-trading expenses for a rental business

There are special rules for the pre-trading expenses of a rental business. If the expenses were in relation to a letting, then a deduction may be allowed where the following conditions are met:

  • The expenditure is incurred within a period of seven years before the date the rental business is started, and
  • The expenditure is not otherwise allowable as a deduction for tax purposes, and
  • The expenditure would have been allowed as a deduction if it had been incurred after the rental business started.

This means that, to be allowable, the expenditure must be incurred wholly and exclusively for the purposes of the rental business and must not be capital expenditure. HMRC gives the example whereby rent paid to lease the first rental business property could be allowable under these special rules if it is due before the property is first let, provided the property was acquired solely for the purposes of the rental business.

However, no relief would be allowed where pre-trading expenses were not incurred wholly and exclusively for the purposes of the rental business. Capital expenditure does not qualify for relief but there are also other special rules for capital allowances. Qualifying pre-commencement expenditure is treated as incurred on the day on which the customer first carries on their rental business.

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Companies eligible for Group Relief

Corporation Tax relief may be available when a company or organisation makes a trading loss. Companies that are eligible for Group Relief can transfer losses and certain other deficits to companies within the same group by means of Group or Consortium Relief. The use of Group Relief allows losses arising in the accounting period to be surrendered to a group company for that period. In addition, losses that arose on or after 1 April 2017 and are carried forward to a later accounting period may be surrendered as Group Relief for carried-forward losses.

Companies attempting to either surrender or claim losses for Group Relief or Group Relief for carried forward losses must meet the required conditions.  For companies to be members of the same group, one company must be a 75% subsidiary of the other, or both must be 75% subsidiaries of a third company. The definition of '75% subsidiary' requires one company to have direct or indirect beneficial ownership of at least 75% of the ordinary share capital in another. There are also further qualifying tests that may apply for Group Relief purposes.

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Dealing with property income losses

Where a property business makes a loss, the loss can usually be carried forward and set against future rental business profits.

HMRC’s guidance is clear that any losses made in one rental business, cannot be carried across to any other rental business the customer carries on at the same time in a different legal capacity.

There is no special claim required to carry forward the losses and the losses can be carried forward indefinitely until full relief for the losses can be given.

Under some limited circumstances, the property losses can be set against general income of the same year or the following year. However, where a property business claims loss relief against general income, they must take the full amount of the loss available up to the amount of their general income.

There are exceptions to the loss relief rules for properties that are let on uncommercial terms (for example, at a nominal rent to a relative).