UK Budget 2016: What large companies need to know

Economic analysts have affirmed that the 2016 Budget represents a significant departure from the government’s previous approach. Until this year, tax reforms and other policies brought about as part of every year’s Budget favoured large companies at the expense of SMEs, but this is no longer the case. Large UK companies are likely to be affected by two key measures:

• Changes on how losses are treated from a fiscal point of view: this year’s Budget entails a mixed bag of measures with regards to corporate tax loss relief. On the one hand, the UK executive has introduced a more flexible approach to the tax treatment of losses. As of April 2017, British businesses will be allowed to carry forward any corporate losses against trading profits, and these may be used not only by the company that incurred such losses, but also by any other companies that belong to the same group. This is generally perceived as a positive measure that could improve the cash flow of up to 70,000 companies, but the benefits are countered by a significant limitation in the amount of profits that can be offset against losses. The new limits are set at 25 per cent for financial institutions and 50 per cent for companies. Because the new limits only apply to profits that exceed the £5 million mark, large companies are the most likely to be affected.
• Changes to the tax deductibility scheme: the Chancellor announced that as of next month UK companies will only be allowed to deduct debt interest on the first 30 per cent of their corporate profits. The new cap is meant to target multi-nationals operating in the UK and to limit profit shifting or sheltering, but it will also affect some of the biggest UK corporations.

On a positive note, British companies involved in the oil and gas sector (which mostly consists of large firms) will benefit from the abolition of the Petroleum Revenue Tax (rated at 0% as of January 2016), a 50% reduction on Supplementary Charges (which will go from 20 per cent to 10 per cent), the allocation of £20 million in funds set aside for exploration activities, and the provision of tax relief for decommissioning expenses. Moreover, fuel duty has been freezed at 57.95p / litre.

UK Budget 2016: Good news for British SMEs

During 2015, SMEs accounted for more than 33 per cent of the total turnover generated by the private sector. A great deal of the new measures announced in this year’s Budget are geared towards boosting this figure even further between now and 2020. Some of the most significant changes include:

• A new Stamp Duty Land Tax rate scheme, which favours owners of lower-priced commercial properties. The new Stamp Duty Land Tax bands are 0 per cent on transaction values ranging between £0 and £150,000; 2 per cent on transactions of between £150,001 and £250,000; and 5 per cent on transaction values exceeding £250,000.
• Higher and basic Capital Gains Tax rates have been reduced to 20 and 10 per cent in each case. This reduction means that SME owners will have access to a higher percentage of the profits made on the sale of corporate assets and will have a larger amount of capital available for re-investment.
• VAT registration threshold increased by £1,000 to £83,000. The new measure will exempt approximately 2,000 small companies from the registration process.
• The allocation of an additional £200 million to the Help To Grow lending scheme, which caters to small and medium-sized companies who have trouble obtaining a loan from traditional sources. Moreover, the loan guarantee scheme known as Enterprise Finance Guarantee (also aimed at British SMEs) will be extended for a further 2 years.

Sources:

https://www.gov.uk/government/publications/Budget-2016-documents/Budget-2016

http://www.telegraph.co.uk/business/2016/03/15/budget-2016–how-did-business-rate-the-chancellor/

http://www.investorschronicle.co.uk/2016/03/16/shares/news-and-analysis/budget-why-large-companies-will-be-hit-by-tax-changes-Ya6Bacv9zZIryFWVvtDEYN/article.html

http://www.accountancyage.com/aa/opinion/2451434/budget2016-osborne-tips-the-scale-in-favour-of-small-firms