On 19th March the Finance Minister, known as the Chancellor in the UK, announced the UK Budget for the year commencing April 2014 and beyond. This is against a background of on target inflation, growing employment and growing GDP. We shall look at the main issues which affect foreign owned businesses in the UK, and consider the opportunities which this Budget presents.
The main rate of Corporation tax is reduced to 21% from April 2014, and will fall again to 20% from April 2015.
There is also a slightly lower rate for this year of 20% for companies with profits below GBP 300,000, and transitional rates for profits between GBP 300,000 and GBP 1.5 Million where the main rate applies in full.
The GBP 300,000 profit limit for the lower rate is divided equally between all the trading companies in the group worldwide. This issue will not apply next year as the rate will be 20% for all companies.
The Annual Investment Allowance (AIA) is the amount of capital expenditure which a company can claim in full against its taxes in any year. From April 2014 to December 2015 this is increased to GBP 500,000 each year, and will fall to GBP 25,000 from January 2016.
Clearly there are investment planning opportunities to be considered with this very favourable tax planning opportunity to set off the whole of large capital expenditure against taxable profits in the next 21 months.
Also, should this create a loss for Corporation Tax purposes, this loss can either be carried forward into future years indefinitely or taken back one year and generate a refund of tax already paid for the previous year.
RESEARCH & DEVELOPMENT
Small and medium sized companies can claim 225% of qualifying R&D costs against taxable profits, and if this results in a loss for tax purposes, these losses can be carried forward and set off against future profits indefinitely. Loss making companies can give up their claim, a process known as surrendering, and receive instead a payment from the UK government of 14.5% of the claim. Alternatively, Corporation Tax losses can be taken back into the previous year and generate a refund of taxes already paid.
The rate of employer’s Social Costs, known as National Insurance or NI in the UK, is 13.80% of salary above GBP 7956 per year. There are no Social Costs on salaries below this level. For 2014 -15 tax year small UK companies will not have to pay to the tax authorities the first GBP 2,000 of their Social Costs in a process referred to as a “holiday”
The main rate of VAT in the UK remains at 20%. A number of essential items including public transport, books and newspapers, children’s clothing and unprepared food have a zero rate of VAT.
The annual sales limit above which a business must register for VAT is GBP 81,000. Businesses which are already registered can de register if their sales fall below GBP 79,000.
We have discussed in an earlier Newsletter the changes which will come into effect across the EU next year concerning sales of certain telecommunication and broadcast services delivered electronically by businesses to consumers. The Distance Selling Regulations will cease to apply to these sales and VAT will be chargeable at the rate applicable in the EU Member State of the customer. In order to avoid each supplier having to register for VAT in each country, all EU Member States will offer a “one stop shop” option and will collect the VAT on behalf of each other. Details are expected to be announced in October this year.
The tax free personal allowance is raised to GBP 10,000 per year from 6th April 2014, and will rise again to GBP 10,500 next year. Income tax on the next GBP 31,865 is at 20%, and then at 40% up to GBP 150,000 of taxable income. Any income above GBP 150,000 per year is taxed at 45%. The tax free personal allowance is reduced where the taxable income exceeds GBP 100,000 per year. Personnel also pay Social Costs on their salary. Again there is a free allowance of the first GBP 7956 up to which no Social Costs are paid. Then the personnel pay 12.0% of salary up to GBP 41,860, and 2.0% on all salary above that.
There are many opportunities for growth and investment in the UK, which receives more Inward Investment from outside the EU than any other EU Member State. Low rates of Corporation Tax, large tax incentives for purchases of machinery and equipment and increases in the amount of tax refunded to loss making businesses which have carried out qualifying R&D projects are only part of the attraction of the UK. Low employment taxes also play a significant part, as does the ability to carry forward company tax losses indefinitely, and also to take a loss back one year and reclaim Corporation tax already paid in the previous year.