OPINION GUEST COMMENT
CHRIS ROMANS, partner and private business expert at PwC in the Midlands, looks ahead to the Chancellor’s Budget statement on 21 March and examines how the government plans to support business.
The future of growth and UK tax reform
‘Among the changes expected this year is corporate tax reform to update the controlled foreign company (CFC) regime’
A
t the start of 2012, Midlands businesses are likely to have many questions about the future of the UK economy and prospects for growth in the year ahead.
What benefits could corporation tax reform bring to your
business? How will the Government be supporting enterprise and entrepreneurship? And what will it be doing to ensure the UK escapes the current debt crisis in the eurozone? When the Chancellor delivered his Autumn Statement last
November, he spoke of doing more to support businesses and help industry to create jobs. In particular, the draft Finance Bill 2012 legislation has the clear aim of making the UK a more attractive place to do business and delivering a more competitive tax system. It aims to do this by simplifying reliefs and allowances and tackling avoidance. Simplification of the UK tax system is not going to be
easy, however. According to PwC’s Paying Taxes report, published last October, the UK is currently ranked 18th amongst 183 countries in terms of the ease of paying taxes - so there is plenty of room for improvement. Among the changes expected this year is corporate tax
reform to update the controlled foreign company (CFC) regime. This reform will pave the way for a whole new approach to dealing with overseas subsidiaries of UK companies for tax purposes. Thanks to a new ‘gateway test’, some large companies
may find they have been filtered out and no longer fall under the regime. For others, so-called ‘safe harbours’ could provide a more straightforward means of exempting overseas profits.
While consultation on this proposed reform is ongoing, the ideas outlined could bring real benefits in terms of reducing the burden of compliance and creating a more attractive tax environment for multinational companies and inward investors. Changes to research and development (R&D) tax credits
will affect many small and medium-sized enterprises (SMEs), in addition to larger companies. In particular, for SME claims, the rate of relief will increase to 225 per cent and the current cap on PAYE and National Insurance liabilities will be removed from 1 April this year. There are likely to be further announcements regarding this relief in the forthcoming Budget on 21 March. The Patent Box is good news for businesses with
patented IP in the UK or for companies that are considering patenting their technology in the future. From 1 April 2013, a 10 per cent tax rate will apply to UK profits attributable to patented inventions. The 10 per cent tax rate applies to the company’s
worldwide profits, which are attributable to the patented invention and qualifying profits can include money made from licensing, disposals of patent rights and the sale of products which include patented inventions. The draft Finance Bill legislation has been broadly well
received and businesses will be looking forward to the further clarification on its proposed measures next month. While complex and far-reaching in focus, we must hope that further consultation in some areas of the Bill will bring greater clarity and help to turn its benefits into reality as quickly as possible.
FEBRUARY 2012 CHAMBERLINK 5
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