15 Apr 2014

Corporation Tax

Although the main rate of corporation tax has been set at 19% from 1 April 2017 (which is to reduce further to 17% by 2020) the ring fence Corporation Tax rate applicable to upstream oil and gas profits remains at 30%.

Corporation Tax is levied on the profits of all companies carrying on business in the UK. For those carrying on exploration and production (E&P) activities (excluding such activities if they relate to supplying services to the E&P companies) in the UK and the UK Continental Shelf, separate rules known as the ring fence rules (RF) apply.

The book profits of such companies are adjusted to give immediate 100% relief for most capital expenditure; trading RF losses carried forward can be uplifted by 10% for up to maximum of 10 periods; capital gains can generally be exempted provided the proceeds of sale are reinvested in the UK E&P business; there are tight transfer pricing controls; losses and relief from other activities cannot be used to reduce the RF tax payable; there are generous loss carry back provisions for losses generated by decommissioning costs; and any profits are taxed at the special 30% rate.

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Read more about Corporation Tax.

30 Sep 2010

Corporation Tax

£ per year (unless stated)2010-112011-122012-13
£0-£300,000
21%20%20%
£300,001 - £1,500,000Marginal ReliefMarginal ReliefMarginal Relief
£1,500,001 or more
28%26%24%

22 July Emergency Budget

The Budget announced annual reductions to the main rate of corporation tax. The main rate of corporation tax will be reduced to 27 per cent in 2011-12, with further reductions to 26 per cent in 2012-13, 25 per cent in 2013-14 and 24 per cent in 2014-15.

The Budget also announced a reduction in the small profits rate of corporation tax to 20 per cent from April 2011.

* The small profits rate was due to rise to 22 per cent in 2011-12, as announced originally at
Budget 2007 and deferred to 2011-12 at 2009 Pre-Budget Report.

Bank levy
The Budget further announced that a bank levy based on banks’ balance sheets will be introduced, effective from 1 January 2011. It is proposed that the levy will be set at a rate of 0.07 per cent, with a lower initial rate of 0.04 per cent in 2011.

The 2009 Pre-Budget Report announced that a rise in the small companies’ rate to 22% would be deferred until 2011-12.

Marginal relief eases the transition from the small companies’ rate to the main rate for companies with profits between £300,000 and £1,500,000.

The profits limit may be reduced for a company that is part of a group or has associated companies. The small companies’ rate and marginal relief do not apply to close investment holding properties.

Rates for financial years starting on 1 April

 20082009201020112012
Small Companies Rate*21%21%21%20%20%
Small Companies Rate can be claimed by qualifying companies with profits at a rate not exceeding£300,000£300,000£300,000£300,000£300,000
Marginal Small Companies Relief Lower Limit£300,000£300,000£300,000£300,000£300,000
Marginal Small Companies Relief Upper Limit£1,500,000£1,500,000£1,500,000£1,500,000£1,500,000
Marginal Small Company Relief (MSCR) Fraction7/4007/4007/4003/2001/100
Main rate of Corporation Tax28%28%28%26%24%
Special rate for unit trusts and open-ended investment companies20%20%20%20%

The main rate of Corporation Tax applies when profits (including ring fence profits) are at a rate exceeding £1,500,000, or where there is no claim to another rate, or where another rate does not apply.

* For companies with ring fence profits (income and gains from oil extraction activities or oil rights in the UK and UK Continental Shelf) these rates differ. The small companies’ rate of tax on those profits is 19 per cent and the MSCR fraction is 11/400 for financial years starting 1 April 2008, 2009 and 2010. The main rate is 30 per cent for financial years starting on 1 April 2009 and 2010.

Company taxes on profits from UK Oil and gas production

£ per year (unless stated)
2009-102010-112011-122012-13
Ring fence corporation tax main rate30%30%30%30%*
Supplementary charge10%10%20%30%
Petroleum revenue tax50%50%50%50%

* Petroleum Revenue Tax is deductible in computing profits chargeable to ring fence corporation tax and supplementary charge.

The Supplementary Charge has applied from 17th April 2002 to the UK upstream profits of companies in the oil industry.  It is based on ring-fence CT income as adjusted for financing costs.  The charge commenced in April 2002 at 10 %.  This was increased to 20% from 1st January 2006.

Legislation was introduced in 2009 to include:

  • changes to the ring fence corporation tax (RFCT) and Petroleum Revenue Tax (PRT) rules to facilitate change of use activities where North Sea assets and infrastructure are reused for purposes other than oil and gas production.
  • Amendments to the chargeable gains rules to make it easier to allow companies to transfer their UK and UKCS assets to those most able to  maximise the potential of those assets.
  • An extension to the PRT rules that provide relief for decommissioning costs to cover the situation where, as a result of licence expiry, a company is no longer a licensee. In addition, changes will be made to the PRT legislation to reduce the compliance burden and further simplify the regime.
  • Amendments to the RFCT legislation to fully align the definition of a consortium with the general corporation tax (CT) definition.

The change of use measures have had effect respectively for RFCT in relation to expenditure incurred on or after 22 April 2009; and for PRT in relation to chargeable periods beginning after 30 June 2009.

Capital Allowances

From 1 April 2008 for corporation tax, and 6 April 2008 for income tax, changes were made to the rates of capital allowances. Allowances for plant and machinery reduced to 20%, allowances for long-life assets increased to 10% and a new classification of features integral to a building was be introduced at a rate of 10%. The amount of relief claimable under industrial and agricultural buildings allowances was reduced by one quarter, as part of phasing them out in full by 2011. First-year allowances for small and medium-sized enterprises will be replaced by a new Annual Investment Allowance of £50,000 for most businesses regardless of size, giving relief on 100% of the first £50,000 of expenditure.  This was increased to £100,000 for 2010-11.

Loss making companies investing in plant and machinery which qualifies for Enhanced capital allowances for environmentally beneficial and energy saving technologies can surrender losses from qualifying expenditure for a cash payment of 19% of the expenditure, subject to a cap of the higher of £250,000 or a company’s PAYE/National Insurance Contributions liabilities.

From April 2008, the rate of research and development tax credits rose from 125% to 130% for large companies and from 150% to 175% for SMEs.

R & D Tax Credit

 2009-102010-112011-122012-13
SME Rate175%175%200%200%
Large Company Rate130%130%130%130%

For businesses investing in plant and machinery between April 2009 and April 2010, legislation in Finance Bill 2009 introduced a new temporary 40 per cent first-year allowance (FYA) for expenditure on general plant and machinery. That is expenditure on plant and machinery that would normally be allocated to the main capital allowance pool.

Capital Allowances

 2009-20102010-20112011-122012-13
Main writing down allowance20%20%20%18%
Special rate writing down allowance10%10%10%8%
Temporary first year allowance40%000
Annual Investment Allowance£50,000£100,00000

Tax relief for business expenditure on cars

New rules for tax relief for business expenditure on cars were introduced from 1 April 2009 for businesses in the charge to Corporation Tax and 6 April 2009 for businesses in the charge to Income Tax. The rate at which qualifying expenditure on cars can be written down against profits will depend on the car’s CO2 emissions. Expenditure on cars with CO2 emissions exceeding 160 g/km will be allocated to the special rate capital allowances pool and attract 10% writing-down allowance (WDA). Expenditure on cars with CO2 emissions of 160g/km or less will attract 20% WDA in the main plant and machinery pool. The associated rules which disallow a proportion of car lease rental payments have also been amended in line with the new capital allowances rules.

Construction Industry

There are special tax rules that apply to businesses in the construction industry that can require a deduction of tax at source on payments by a “contractor” to a “Sub-contractor”.  The current rate of deduction is 18%.

Before they can get paid at all under the Scheme, subcontractors must hold either a Registration Card or a Subcontractors Tax Certificate.  To obtain either of these a subcontractor must first be registered with the Inland Revenue.

Subcontractors who meet certain qualifying conditions will be issued by the Inland Revenue with Subcontractors Tax Certificates, enabling them to be paid gross. Those who do not will be issued with Registration Cards.

The deduction, when made, applies to all payments for labour and is an amount on account of the subcontractor’s tax and National Insurance contribution (NIC) liability.

What is meant by “Construction operations“.

An update to the rules of the scheme.

Business Rates

Updated property values for business rates take effect from 1 April 2010 (revaluation for business rates   takes   place   every   five   years).   The   multiplier for   2010-11   is   reduced to   compensate,   so   that total revenue from business rates remains the same in real terms. The standard multiplier includes a supplement on the small business multiplier to fund small business rate relief (SBRR). Budget 2010 announces   a   temporary   increase   in   the   level   of  small   business   rate   relief   for   one   year,   from   1 October 2010.

Business Rates

 Rate per pound of a business property's rateable value
2009-102010-11
Standard Multiplier48.541.4
Small Business Multiplier48.140.7