Over the summer months, advisers should ensure that businesses affected by the FA 2012 VAT changes update their VAT accounting systems to ensure application of the correct rate of VAT to affected goods and service. Anyone preparing a CT600 for a UK company with a foreign subsidiary will find the guidance within the latest version of the CT600 guide helpful. Action is required in anticipation of the proposed above the line tax credit and the patent box regime. There is also the matter of responding to consultations, including the consultation on the proposal to cap unlimited income tax relief.
Finance Act 2012 received Royal Assent on 17 July 2012 and the summer months provide an opportunity to introduce future administrative requirements and to reflect on notable client opportunities.
One of the more immediate administrative tasks will be for those VAT registered businesses impacted by the changes applying from 1 October 2012. Over the summer months, affected businesses will therefore be required to update their VAT accounting systems to ensure application of the correct rate of VAT to affected goods and services.
The Budget has, however, generated an abundance of opportunities. With the headline corporation tax rate eventually falling to 22% from 1 April 2014, companies should consider whether profits might be deferred to future years to take advantage of the reduction in tax rates. GAAP rules permitting, companies should now be considering for example, whether to bring forward proposed capital expenditure (and associated capital allowances), or deferring income streams from, eg, government contracts. The reduction in headline rates, coupled with controlled foreign companies reform, patent box and research and development credits provide plenty of opportunities to increase a business’s return on investment.
CFC compliance
The new controlled foreign company (CFC) regime legislated in FA 2012 is a detailed and complex regime which will require careful working through to assess the impact for any UK company with an overseas subsidiary.
HMRC has recently published a new version of CT600B Controlled foreign companies (and bank levy) supplementary pages and guidance within the latest version of the CT600 guide. This guidance covers both the current and the new CFC rules. For the new rules applicable to accounting periods beginning on or after 1 January 2013 any CFC that satisfies the tax exemption, the excluded territories exemption or the low profit margin exemption does not need to be included on the return pages and goes on to detail what information needs to be included on the supplementary pages.
Anyone preparing a CT600 for a UK company with a foreign subsidiary with an accounting period falling into the new CFC rules will welcome this guidance.
IP ownership structures
The changes to the R&D regime, the proposed above the line (ATL) tax credit and the patent box regime now provide an attractive IP tax regime. Whilst consultation is still underway as regards the ATL credit we have the framework for the patent box regime. With a headline rate of 10% on worldwide profits attributed to patents it offers real tax cost savings. Importantly, the patent box regime provides a reasonable lead-time as it applies to income arising after 31 March 2013. A significant amount needs to be done both in relation to broad ownership structures and detailed IP ownership and protection issues. In particular, action is required in reviewing:
Consultations
The other major opportunity that the summer period provides is time to reflect on the potential impact of proposed changes that are the subject of consultations. Some will provide little time to undertake necessary restructuring due to the vagueness of the proposals. Others seem to be clearer. Consultation on the proposal to cap unlimited income tax relief at £50,000 or 25% of income, whichever is the greater, will run until 5 October. The document lists ten currently uncapped reliefs but those that are probably encountered most frequently in practice are:
The proposal originally covered charitable donations but HM Treasury announced in May that they would not in fact be capped. Although this has placated many critics of the proposal, there could still be many situations where the cap will apply, particularly the proposed unlimited restriction of trading losses that can be carried forward and set-off against future profits from the same trade. The cash flow impact of being unable to set a loss in full against general income may however be disastrous for a struggling business and will undoubtedly be quoted in responses to the consultation.
David Wilson, Technical Associate Director, Baker Tilly
