Continued reduction in the corporation tax rate, removal of associated company rules, creative industries tax relief and a tightening of group profits movement were Budget highlights.
Rates
As announced previously, the main rate of corporation tax will be reduced to 21% from April 2014 and 20% from April 2015. The small profits rate of corporation tax will remain at 20% from April 2014.
Associated companies rules
The government will replace the associated companies rules with simpler rules based on 51% group membership in April 2015. These changes are possible because the vast majority of companies will be subject to a single rate of corporation tax. These rules also prevent a tax advantage arising where companies divide.
Theatre tax relief
A new theatre tax relief, at 25% for qualifying touring productions and 20% for other qualifying productions, will be introduced with effect from 1 September 2014.
Film tax relief
As announced at Autumn Statement 2013, the government will make relief available at 25% on the first £20m of qualifying production expenditure, and 20% thereafter, for small- and large-budget films from April 2014. The government will also reduce the minimum UK expenditure requirement from 25% to 10% and will modernise the cultural test.
Loan relationship and de-grouping charge
Under current legislation, companies in the same group can transfer loans or derivatives on a ‘tax-neutral’ basis – that is, without crystallising losses or bringing gains into charge. The profit or loss on the loan relationship or derivative is not brought into account for tax purposes until the instrument is finally disposed of out of the group.
From 1 April 2014, where a transferee company ceases to be a member of the group within six years of the date of the transfer, there is a deemed disposal and reacquisition of the asset or liability. The effect of this de-grouping charge is that an amount equal to the difference between the notional carrying value and the fair value of the loan relationship or derivative contract is brought into account for tax purposes. In most cases the de-grouping charge applies only to bring credits, not debits, into charge.
Anti-avoidance provision on the transfer of corporate profits
Legislation will be introduced in the Finance Bill 2014 to create a new section 1305A in Chapter 1, Part 20 of CTA 2009. This will provide that, when in substance, the profits of a group company are transferred to a different group company. A main purpose of the arrangements is to secure a tax advantage; for tax purposes the transfer will be regarded as not having taken place.
This measure will apply to payments made on or after 19 March 2014 arising from arrangements entered into on any date.