Member Article

Draft tax legislation published ahead of Finance Bill

The Government has published draft tax legislation ahead of the 2013 Finance Bill, which implements some of the Chancellor’s plans outlined in the Autumn Statement.

For businesses, the Bill will reduce the main rate of corporation tax to 21% in 2014; introduce tax refliefs; raise the annual investment allowance to £250,000; and introduce tax credits for R&D.

Tax refliefs will be implemented across a number of creative sectors including video games, animation, and high-end television work.

Dr Richard Wilson, CEO of video games trade body TIGA, was pleased with the 25% tax relief potential for his sector.

He said: “This is excellent news for the video games industry. The Government has listened to our proposals and adopted the vast majority of our suggestions for the design of Games Tax Relief.

“TIGA is particularly pleased that there is no minimum spend threshold: this will enable start-up studios and small development businesses with smaller budget games to benefit from Games Tax Relief.

“Additionally, it is excellent that the Government has agreed to allow post- release development expenditure including QA costs to be eligible for Games Tax Relief. One of TIGA’s key priorities has been to ensure that the new Games Tax Relief supports the ‘games as a service’ business model. The Government agrees. This is a good day for the UK games industry.”

In accordance with the European Commission, companies will now be able to move to other member states without an immediate tax charge.

Commenting on the Corporation Tax exit charges, David Hammal, tax expert at PwC in Newcastle, said: “It’s positive the Government has now moved to relax the UK rules but the amendments are unlikely to have their intended effect.. It doesn’t appear that the new rules are compliant with the case law.

“This will cause practical problems for companies who move businesses to other member states but who won’t know where they stand. Companies wanting to move will have to continue to rely on their EU rights.”

For the property sector, an annual charge will apply on residential properties valued over £2m owned by companies, partnerships and collective investment schemes.

Liam Bailey, global head of Knight Frank’s Residential Research team, commented: “The pre-announcement of the introduction of an annual charge for £2m+ properties for “non-natural” owners and the extension of CGT to cover some disposals, led to a sharp slowdown in sales activity. Potential purchasers have waited for clarification on the rules before committing to a purchase. In the third quarter, year-on-year £2m-£5m sales volumes were down by nearly a third.

“We now have a clearer idea of the structures which will be subject to the annual charge, CGT and the 15% rate of SDLT, and as a result we anticipate there will be a modest uptick in market activity as buyers who were holding off purchases feel able to commit.”

Commenting on the benefits for companies undertaking R&D, Sarah Goodman of Grant Thornton said: “For companies that innovate, it’s going to be a real bonanza from 1 April 2013. Today’s draft legislation announcements are a great boon for business.

“For large corporates who are making profits, it’s good news because they can continue to claim for research and development (R&D) costs as they have done before. For large corporates who are making losses, it’s even better news as they couldn’t get the cash benefit from the government before but now they can.

“In real terms, it will be worth about 7% of what they spend on R&D, ie if a company spends £1 million, it will get £70,000 in cash back from the government. The payments will be optional until 2016.

“This new legislation will come into effect at the same time as the patent box, which allows companies to apply a reduced 10% corporate tax rate on profits from patents and other IP, rather than the usual 23%*. This is something that Grant Thornton UK has lobbied hard for, so it’s very satisfying to see these announcements yesterday.”

This was posted in Bdaily's Members' News section by Tom Keighley .