United Kingdom: 2015 Budget Announced
On 24 March, the UK Chancellor of the Exchequer, George Osborne, presented the final budget prior to the country’s parliamentary general elections. The respective Finance Bill 2015 was enacted on 26 March. Subsequent to this enactment, and the Conservative Party win in the UK general election, a further budget is expected to be presented on 8 July 2015. However, in the meantime, the key tax measures announced in the pre-election budget are outlined below:
- The main rate of Corporation Tax (‘CT’) will be maintained at 20% for the financial year starting 1 April 2016. As previously announced the main CT rate will drop from 21% to 20% with effect from 1 April 2015 to equal the existing small profits CT rate.
- The Annual Investment Allowance, which currently allows for a one-off tax deduction of up to £500,000 for expenditure on qualifying capital equipment, was expected to be reduced in this Budget to £25,000 from 1 January 2016; this reduction was not introduced by this Budget and will now be addressed in the 2015 Autumn Statement instead.
- The UK’s Research and Development (‘R&D’) enhanced tax deduction / tax credit regime has been amended. With effect from 1 April 2015, small and medium sized businesses will be able to claim a tax deduction for 230% of R&D expenditure (up from 225% currently), or alternatively all businesses can claim a taxable credit for 11% of the qualifying expenditure (previously 10%).
- Country-by-country reporting will be introduced, along the lines of the model proposed by the Organisation for Economic Co-Operation and Development (‘OECD’) as part of their review of Base Erosion and Profit Shifting (‘BEPS’). The new rules will require multinational enterprises to submit a high level annual report to the UK tax authority showing the amount of their global revenue, profit before tax, tax paid and accrued, plus data on the number of employees, capital and tangible assets in each place. Similar provisions are likely to be introduced in other OECD/G20 countries taking part in the BEPS review in due course.
- A new Diverted Profit Tax (‘DPT’) regime has been introduced, effective from 1 April 2015. The measures are intended to counteract certain arrangements used to divert profits from the UK by avoiding a UK taxable presence and/or by other arrangements between connected entities specifically designed to avoid tax. The tax will be at a rate of 25% of the diverted profits relating to UK activity and further details on the operation of this new regime will be published shortly.
- Anti-avoidance legislation effective from 18 March 2015 has been introduced to prevent companies from entering into certain arrangements in order to convert historic tax losses of restricted use into current year deductions.
- In compliance with the UK’s obligations under the EU Directive on Administrative Co-operation, the Government will implement the UK`s Automatic Exchange of Information Agreements shortly after Budget 2015, effectively replacing the current regulations for reporting to the US under the FATCA regime.
- On indirect tax, the zero rate, reduced rate (5%) and standard rate (20%) of VAT remain unchanged, however from 1 April 2015 the VAT registration and de-registrations thresholds will each be increased by £1,000 to £82,000 and £80,000 respectively.
- Amendments will mean that businesses will no longer be allowed to take account of foreign branches when calculating how much VAT incurred on costs can be reclaimed in the UK. This will affect partly exempt UK businesses; they will have to implement the change from the beginning of their next partial exemption tax year falling on or after 1 August 2015.