The United Kingdom’s Summer Budget 2015 disclosed plans to trim the country’s main corporate tax rate in two steps.
The rate is scheduled to be cut to 19% in 2017 and to 18% in 2020 from the current 20%.
The U.K. already has the lowest corporate tax rate in the G20. The new reduction is aimed at increasing the nation’s competitiveness and attracting more investment.
In other major tax proposals in the budget, the government plans to:
Make the Office of Tax Simplification (OTS) permanent and expand its role. The OTS would advise the government on how to deliver a simpler tax system.
Continue to clamp down on tax avoidance, planning and evasion, as well as increase resources for HM Revenue and Customs (HMRC) to ensure that individuals and organizations pay the tax that is due. The government plans to:
- Triple the number of criminal investigations HMRC can undertake into complex tax crime, concentrating on wealthy individuals and companies,
- Give HMRC the power to acquire data from online business intermediaries and electronic payment providers to help identify businesses that are trading but not declaring or paying tax, and
- Introduce a general antiabuse rule penalty and tough new measures for “serial avoiders,” which would include publishing the names of people who repeatedly use failed tax avoidance schemes.
Remove the ability of companies to use U.K. losses and “reliefs” against a controlled foreign corporation (CFC) charge. That’s aimed at improving the effectiveness of the CFC regime in both deterring the diversion of profits and in taxing profits that are diverted.
Amend legislation relating to trading stock and intangible assets to ensure that disposals made other than in the normal course of business are brought into account for tax purposes at full open market value. This amendment would stop corporate groups from using a transfer pricing override to manipulate the value of assets in intergroup transfers.
Reform the banking tax. This would be done with a long-term roadmap for the taxation of banks designed to maintain the balance between the unique risks faced by banks, the considerations of U.K. competitiveness, and the banks’ ability to support the broader economy. It involves three steps:
- The introduction of a new 8% tax on banking sector profit starting on January 1, 2016,
- The introduction of a phased reduction in the rate of the bank levy, from 0.21% to 0.10% between 2016 and January 2021, and
- A change in the bank levy’s scope from January 1, 2021, meaning that U.K.-based banks are levied on their U.K. balance sheet liabilities.
Introduce legislation to help ensure that sums from carried interest will be charged to the full rate of capital gains tax, with only limited deductions being permitted. The legislation is intended to stop investment fund managers from using tax loopholes to avoid paying the correct amount of capital gains tax on their profits from the fund (also known as carried interest).
Abolish permanent nondomiciled individuals. These “non-doms” are individuals who live in the U.K., but consider their permanent home to be elsewhere. The U.K. rules currently allow non-doms to pay U.K. tax on their offshore income only when they bring it into the U.K. Under the new rule, anyone who has been a resident in the U.K. for 15 of the past 20 years will be considered U.K.-domiciled for tax purposes.
Replace the dividend tax credit (which reduces the amount of tax paid on income from shares) with a new £5,000 tax-free dividend allowance for all taxpayers starting in April 2016. Tax rates on dividend income will be increased.
As a result, those with significant dividend income will pay more tax, while investors with modest income from shares will see either a tax cut or no change in the amount of tax they owe.
The road ahead. The carried interest and losses and reliefs proposals went into effect starting July 8, 2015, with no grandfathering.
A consultation process on performance-linked rewards paid to asset managers will close on September 30, 2015. Legislation is expected to be effective in April 2016.
Other proposed changes are scheduled to take effect for accounting periods starting on or after January 1, 2016.
The proposal on nondomiciled individuals is scheduled to go into effect in April 2017.