Company taxation

Tax rates and allowances

As previously announced and enacted in Finance Act 2021, the rate of corporation tax will remain at 19% for 2022/23, but there will then be an increase to 25% from April 2023 applying to profits over £250,000. The rate of the diverted profits tax will rise at the same time to 31% to maintain the differential with mainstream corporation tax.

Finance Act 2021 introduces a small profits rate (SPR) of 19% for companies with profits of £50,000 or less from April 2023. Companies with profits between £50,000 and £250,000 will pay tax at the main rate reduced by a marginal relief providing a gradual increase in the effective corporation tax rate. The lower and upper limits will be proportionately reduced for short accounting periods and where there are associated companies. The SPR will not apply to close investment-holding companies.

For details of the bank surcharge, see Bank Surcharge below.

For a table of the main tax rates and allowances for 2022/23, see our HMRC tax rates and allowances page.

Corporate re-domiciliation

A key feature of the Chancellor’s Budget was attracting more overseas investment; part of that plan includes making it easier for companies to move to the UK through a new re-domiciliation regime. Re-domiciliation has been implemented in around 50 other countries and jurisdictions including Canada, New Zealand and several US states. However, it is not currently possible for a company to transfer incorporation to the UK and retain the same legal identity. Accordingly, the government has launched a consultation seeking views on the introduction and implementation of a re-domiciliation regime to provide for companies to re-domicile and subsequently relocate to the UK.

The government’s rationale for re-domiciliation is to attract foreign companies to relocate to the UK by enabling continuity of operations through a shift in a company’s place of incorporation whilst maintaining its corporate history, management structure, assets, IP and property rights, contracts, and regulatory approvals. Currently, a relocation of a foreign entity to the UK can trigger complex, lengthy and costly administrative or regulatory issues, including re-negotiations of contracts, or might result in complex group structures having to be maintained when they may otherwise be rationalised. However, it should be noted that for a company to redomicile, generally it must be also be permitted in the company’s originating jurisdiction. As noted above, this currently stands at 50 countries and jurisdictions, however some of these do not have outward re-domiciliation as part of their regimes or are limited to investment funds only (such as Singapore and Ireland).

Generally, the government is keen to understand the degree to which these issues currently pose barriers for companies, and how a re-domiciliation regime would help overcome them. Additionally, the consultation seeks to assess the demand for such a regime, the advantages (and disadvantages) of re-domiciliation and, in generally which aspects to replicate or avoid from other implemented regimes. Questions within the consultation request suggestions for appropriate checks and entry requirements, including solvency criteria and whether additional powers for the registrar are necessary. Moreover, HM Treasury and HMRC are also considering, and have requested responses as to whether changes are required to UK tax law as well as any implications that a re-domiciliation regime may have in respect of:

• avoiding UK tax;
• material risk of loss importation;
• capital gains and intangible asset base cost on inward re-domiciliation;
• personal taxation for owners of companies;
• stamp taxes on shares and securities; and
• VAT.

The deadline for responses to the consultation is 07 January 2022.

Notification of uncertain tax treatment by large businesses

Following two consultations, the government has confirmed it will introduce legislation in Finance Act 2022 to place an obligation on large businesses to notify HMRC when they take a position in their tax filings which is subject to uncertain tax treatment.

The regime will require large businesses to notify HMRC of any uncertain tax treatments, defined by reference to specified triggers, where the aggregate tax advantage is £5m or more in a year. It will apply to corporation tax, income tax (including PAYE) and VAT. The new regime is due to be introduced with effect for relevant returns filed on or after 1 April 2022.

It was expected that there would be three triggers. However, the government has now confirmed that initially only two of the three proposed triggers will apply. The two triggers that will apply are as follows.

• Where a provision has been made in the accounts for the uncertainty; or
• Where the tax treatment applied is not in accordance with HMRC’s known position.

The government has stated that it is committed to further consideration of the third proposed trigger (where there is a substantial possibility that a tribunal or court would find the taxpayer’s position to be incorrect in material respects) for possible inclusion later. This is a welcome narrowing of the requirements (at least initially) as the third proposed trigger was the most subjective and therefore contentious during the most recent round of consultation.

The regime is a significant tax development that will affect all large businesses in the UK. At the very least, it will require further due diligence and add to the administrative and compliance burden of the tax function. Although the rules do not come into force until April 2022 – and may still change in their passage through the Finance Bill – businesses should already be considering their approach given that the rules may well be relevant to transactions being entered into now.

Abolition of cross-border group relief

Following the UK’s exit from the EU, the government is bringing the group relief rules relating to EEA-resident companies into line with those for non-UK companies resident elsewhere in the world.

As a result of the controversial ECJ decision in Marks & Spencer, claims involving companies established in the EEA are currently subject to more favourable loss relief rules. Having now left the EU the UK is no longer required to maintain these rules.

Accordingly, the government has announced that it will repeal the legislation that permits EEA based companies to surrender losses as group relief to UK companies. The government will also amend legislation to restrict the circumstances in which EEA companies can surrender as group relief losses of UK permanent establishments. This measure is intended to align the group relief rules for EEA companies with those for non-UK companies established in other jurisdictions.

The measure will have effect for accounting periods ending after 27 October 2021. Where a company’s accounting period straddles this date, it will be deemed as separate accounting periods for these purposes.

Structures and buildings allowance

Businesses claiming Structures and Buildings Allowance (SBA) are currently required to hold an allowance statement containing certain information to be eligible to claim SBA. SBA was introduced with effect from 29 October 2018 aiming to relieve costs for new structures and buildings used for qualifying purposes.

Under current SBA rules, the allowance statement includes certain details such as the date that the building is first brought into non-residential use (which is typically the date from which the SBA allowance period of 33 and one-third years commences). However, where qualifying expenditure is incurred (or treated as incurred under the simplification rules) after the building is brought into non-residential use, the allowance period starts from this later date. The government is proposing to introduce a requirement for the allowance statement to include the date that qualifying expenditure is incurred in situations where the allowance period commences from this later date.

This new measure will allow businesses to more easily and accurately assess their entitlement to SBA, ensuring subsequent owners do not stop claiming SBA earlier than they are entitled.

Annual investment allowance

The limit of the annual investment allowance (AIA) will be temporarily increased from £200,000 to £1,000,000 for qualifying expenditure on plant and machinery incurred during the period from 1 January 2022 to 31 March 2023.

The AIA was introduced from April 2008 and a permanent limit was set at £200,000 from 1 January 2016. The AIA was previously temporarily increased to £1,000,000 for two years from 1 January 2019 and then, following the Spring 2021 Budget, for an additional year from 1 January 2021. Legislation will be introduced in Finance Act 2022 to maintain the current temporary £1,000,000 AIA limit for an additional one year and three months from 1 January 2022, which will align the end of the temporary AIA limit with the end of the super-deduction.

DPT and interaction with CT closure notices

The government has announced an amendment to the legislation to ensure that taxpayers can still use certain relieving provisions to amend their company tax returns and bring taxable diverted profits into charge to corporation tax during the Diverted Profits Tax (DPT) review period. This measure also legislates to ensure the interaction of DPT review periods and the closure of a corporation tax enquiry functions as intended. This amendment is very timely given the recent decision of the First-tier Tribunal in the case Vitol Aviation UK Ltd v HMRC.

To recap, DPT was introduced in 2015 to prevent the avoidance of UK tax by multinationals operating in the UK by deterring and counteracting activities that divert profits from the UK to low tax jurisdictions. DPT is imposed at a penal rate currently set at 25% on diverted profits but which is set to increase to 31% from April 2023. It is common for taxpayers with transfer pricing enquiries to also receive DPT charging notices and therefore, to have to manage a CT enquiry in parallel with a DPT review for the same period. Often the outcome of a DPT review is the calculation of diverted profits which are typically equivalent to the transfer pricing adjustment which should be made for CT purposes. The taxpayer is required to pay the DPT upon HMRC issuing a charging notice and then engage with HMRC to agree on the appropriate amount of diverted profits during a 15 month review period.

The amendment now allows the taxpayer up to 14 months (instead of 12 months) of the review period following the issuance of a DPT charging notice to be able to amend their CT return by making a transfer pricing adjustment to reduce the amount of DPT due. This means the amount is not taxed at the DPT penal rate and instead is only subject to the CT rate.

In addition, a new section in the legislation is introduced where a taxpayer has received a charging notice for DPT for an accounting period and the 15 month review period has not ended. In this case, HMRC will not issue a final or partial closure notice in relation to the CT return and the taxpayer cannot apply for a tribunal direction for HMRC to issue a closure notice until the review period has ended. This change directly targets the conclusion of the Vitol case as it appears to allow HMRC to refuse issuing closure notices on CT returns until the DPT position is finalised. This is contrary to the Tribunal’s decision where the continuing DPT review period should not be a reason to deny issuance of a closure notice.

This conflicting view from HMRC’s change to the legislation and the Tribunal on the Vitol case only seeks to highlight that the interaction between DPT review periods and open CT enquiries will continue to be a complex area which will depend on the specific facts and circumstances of each taxpayer. Taxpayers will need to carefully navigate the legislation, HMRC guidance and case law to consider their tax management strategy in these situations.

MAP decisions relating to DPT

The government has announced that DPT will be included as part of the list of taxes in respect of which, subject to the terms of the relevant double tax treaty between the UK and the corresponding territory, a Mutual Agreement Procedure (MAP) outcome can potentially be implemented with effect from 27 October 2021. DPT has always been defined as a separate, standalone charge on diverted profits and is not income tax, capital gains tax or corporation tax and hence not covered by double tax treaties. Therefore, it has not been possible to make it the subject of a MAP to provide the taxpayer relief on double taxation suffered or address the issue which is contrary to the double tax treaty in respect of the transaction subject to DPT.

Historically, many DPT cases may often be concluded as a transfer pricing assessment covering corporation tax, as opposed to a DPT assessment, which means that the assessment is still subject to MAP through the relevant double tax treaty. Nevertheless, this is a welcome decision as it allows taxpayers the opportunity to obtain relief more directly and mitigates the need to identify an alternative route to access MAP.

Asset holding companies – new tax regime

The proposed UK tax regime for qualifying asset holding companies (QAHCs) is a key element of the ongoing UK fund review, intended to support UK competitiveness and establish the UK as a favourable domicile in which to establish and operate the asset holding companies that are typically seen in private fund structures investing in private equity, infrastructure, credit and real estate. An intensive phase of engagement with stakeholders has followed the release on 20 July 2021 of the government response to the second stage consultation and draft legislation for the new regime, and it is pleasing to see a number of positive developments in the Autumn Budget announcements.

Amongst the most noteworthy developments are the following:

• permitting corporation tax deductions for certain interest payments that would typically be treated as distributions in a broader range of circumstances than proposed in the draft legislation
• switching off the late paid interest and deeply discounted securities rules to facilitate relief for relevant payments on an accruals rather than a paid basis
• a broader exemption to disapply the obligation to withhold income tax at the basic rate on payments of interest by a QAHC
• enabling any premium paid on a repurchase of shares by a QAHC from an individual to be treated as capital rather than an income distribution
• permitting certain amounts paid to qualifying remittance basis users by a QAHC to be treated as non-UK source, based on the underlying mix of income and assets of the QAHC
• exempting repurchases of shares and loan capital by a QAHC from stamp duty and stamp duty reserve tax.

The regime is expected to contain detailed eligibility criteria together with entry and exit provisions that will apply when a company joins or leaves the QAHC regime, with a new accounting period commencing at transition and with certain assets being rebased.

We are pleased to have participated in the working groups supporting the development of the QAHCs regime and that HM Treasury and HMRC have engaged in a positive manner in response to feedback from stakeholders. Whilst there will inevitably be points that have not been reflected or which may need to be addressed through guidance or further dialogue, the introduction of the proposed new regime underlines the importance of the asset management sector to the UK. For further details of the QAHC regime as originally proposed in July 2021, see our article UK asset holding companies regime: government response.

Review of funds regime

The government has announced that it remains committed to its ongoing review of the UK’s funds regime and, in addition to its announcements in respect of asset holding companies and REITs reforms, it will publish its response to the call for input on the broader elements of the UK funds regime review, as well as a consultation on options to simplify the VAT treatment of fund management fees, in the coming months.

Given the continued focus on UK competitiveness and facilitating the growth of the UK as a fund domicile, we hope that there will be positive developments to come, particularly to remove the VAT disadvantage that exists currently for UK managers that manage relevant UK funds.

REITs – targeted reforms

As part of the UK fund review, the government received feedback that certain aspects of the UK REIT regime continued to act as barriers to the wider adoption of UK REITs as vehicles through which UK real estate could be held.  In the government response to the second stage consultation on asset holding companies on 20 July 2021, the government identified certain targeted reforms that should be addressed as a priority, with wider reforms being dealt with subsequently. 

In Autumn Budget 2021, the government confirmed that they would move forward with the targeted reforms (with certain changes since the July announcement), with the intention that these would take effect from 1 April 2022.  The key elements of the reforms are:

• removal of the requirement for REIT shares to be admitted to trading on a recognised stock exchange where institutional investors hold at least 70% (rather than the previously proposed "wholly or almost wholly" requirement) of the REIT's ordinary share capital
• amendments to the "foreign REIT equivalent" limb of the institutional investors definition, so that this considers the equivalence of the foreign entity itself, rather than the relevant foreign regime - this will open up institutional investor status to a greater range of foreign REITs, which may in turn result in simplification of holding arrangements
• removal, as previously proposed, of the "holder of excessive rights" charge where the relevant investors to whom property income distributions are paid are entitled to gross payment - again this will facilitate the simplification of a number of existing structures where holdings have been fragmented between a number of SPVs that each hold less than 10% of the REIT
• amendments to the balance of business test, including to disregard non-rental profits arising from certain planning obligations, together with a simpler gateway test that, where satisfied, will not require preparation of the full statements by the REIT in order to meet the full balance of business test.

Since the introduction of the original REIT regime with effect from 1 January 2007, there have been several previous rounds of reforms that have resulted in almost 100 REITs now benefitting from the regime.  We expect that the targeted reforms confirmed in Autumn Budget 2021 will result in a number of additional REITs being established, as well as enabling the holding structures adopted for some existing REITs to be rationalised, both of which will underline the continued attractiveness of the REIT regime as a vehicle for holding UK investment property.

Amendments to loss relief rules

The government announced a technical amendment to the corporation tax loss reform rules that were introduced in 2017. The rules provide an exemption from the restriction on relief for carried-forward losses for companies in financial distress. The exemption applies where carried-forward losses are used to offset profits arising as a result of the accounting treatment of an onerous lease where provisions for net losses arising in respect of such lease are reversed as a result of lease renegotiations as part of a corporate rescue. In these circumstances, the exemption will apply such that the losses will be capable of being set off against all of the profit arising, as opposed to 50% of any profits under the general loss restriction rules. Changes to the way leases are accounted for under IFRS 16 have resulted in companies in financial distress being denied this exemption.

The changes announced in Autumn Budget 2021 are intended to ensure that companies adopting IFRS 16 continue to benefit from the exemption outlined above, so that companies accounting under pre-existing accounting standards and IFRS 16 will benefit from substantially the same treatment. The amendments will apply retrospectively and will have effect for accounting periods beginning on or after 01 January 2019.

Research and development (R&D)

Following the consultation launched at the Spring Budget 2021, the government has announced that reforms will be introduced to R&D tax reliefs. R&D tax reliefs will be reformed to support modern research methods by expanding qualifying expenditure to include data and cloud costs, to more effectively capture the benefits of R&D funded by the reliefs through refocusing support towards innovation in the UK and to target abuse and improve compliance.

These changes will be legislated for in Finance Act 2022 and take effect from April 2023. Further details of these changes are still awaited and the Budget documents merely state that the next steps for the review will be set out in due course.

Bank surcharge

The bank surcharge is reducing from 8% to 3% from April 2023, and the profit threshold from which it applies increased from £25m to £100m. But overall this still involves a slight increase rather than a cut to the tax rate on bank profits (above the first £100m per annum).

Banks are currently subject to an 8% bank surcharge on their profits above £25 million, in addition to the existing 19% corporation tax on their profits, for a 27% effective corporate tax rate on their profits. In the Spring Budget 2021, the Chancellor recognised that the increase in corporation tax rate to 25%, coupled with the existing 8% bank surcharge, would produce an effective corporate tax rate of 33% for UK banks – which would make them uncompetitive and damage a key export. Accordingly, the Chancellor announced a review of the surcharge with generic objectives of ensuring that the combined rate of tax on banks’ profits does not “increase substantially from its current level”, that UK bank tax rates remain “competitive with our major competitors in the US and the EU”, and that the UK tax system is “supportive of competition in the UK banking sector”.

As expected, the Chancellor today confirmed that that the bank surcharge will be significantly reduced from 1 April 2023 when the increased rate of corporation tax begins. The reduction will be from 8% to 3% to compensate for the 6% increase in the corporation tax rate. In addition, the profit threshold above which the bank surcharge is levied, is increased from £25m to £100m from 1 April 2023. But in the bigger picture, the Chancellor is still applying a tax increase on bank profits above £100m in April 2023, not a tax cut. There is however a net tax cut on the portion of a bank’s profits between £25m and £100m – as this will change from the existing 27% aggregate to just the 25% increased corporation tax rate – due to the increase in the threshold before bank levy starts to apply. There is a more substantial increase in tax rate on the first £25m of a bank’s profit – that element of profit has never been and will continue not to be subject to the bank surcharge, so suffers the full effect of the rise in mainstream corporation tax rate from 19% to 25% in the same manner as businesses in other sectors.

This looks like a carefully calibrated decision founded as much in politics as economics. The Chancellor can still tell the electorate that the tax rate on banks is going up not down in April 2023, but the modest scale of the increase is likely to stifle the bulk of the objections from the banking sector and bring relief to those who feared a worse increase. Additionally, the increase in threshold means the measure amounts to a tax cut for banks with profits in the £25m to £100m range, which is being spun as a measure supporting growth for small and medium-sized “challenger” banks and promoting competition in the banking sector. It also perhaps reflects the receding political justification for additional bank taxes in recognition of government support for the sector during the financial crisis – which grows progressively more distant and has already become only ”the last but one” crisis of public finances…

Economic crime levy

The Autumn Budget 2021 has confirmed details of the new economic crime levy to be introduced from April 2022.

In September 2021, HM Treasury published proposals for a new tax on medium and large professional firms and financial institutions: the Economic Crime (Anti-Money Laundering) Levy (economic crime levy). The amount of the levy will be based on the revenue of the regulated entity and its collection will be the responsibility of the Financial Conduct Authority, the Gambling Commission and HMRC.

The government intends for the levy to raise about £100m a year to help meet the costs of new and upgraded capacity to tackle money laundering. The rates of the levy will be reviewed to ensure that it yields the intended level of government revenue.

The Autumn Budget 2021 announced that there will be four size bands:

• small (under £10.2m UK revenue)
• medium (£10.2m - £36m)
• large (£36m - £1bn)
• very large (over £1bn)

All small entities will be exempt, whilst: medium entities are expected to pay a fixed fee in the region of £5,000 to £15,000; large entities a fee in the region of £30,000 to £50,000; very large entities a fee in the region of £150,000 to £250,000. It had been expected that the fixed fees would be announced as part of the Autumn Budget 2021 but they will now be set out in the final legislation in the Finance Bill.

Residential property developer tax

As announced earlier this year, a new tax, the residential property developer tax (RPDT) will be introduced in April 2022 to help fund remediation work in relation to cladding. The RPDT will apply to companies and groups undertaking UK residential property development activities in the UK.

Draft legislation for this measure has previously been published for consultation.  For further details please refer to our article, Residential Property Developer Tax: draft legislation. A subsequent iteration of this draft legislation included a specific exclusion from RPDT for non-profit registered providers of social housing and their wholly owned subsidiaries, subject to an RPDT exit charge where a corporate body benefitting from the exemption ceases to qualify for it.

Alongside Autumn Budget 2021, the government has published its response to the original consultation on the detailed design of the RPDT, confirming the basis on which it will legislate for the RPDT. This response is aligned with the draft legislation previously published, whilst confirming a number of key points on which the legislation was silent.

RPDT will only be chargeable on relevant profits in excess of a group-wide annual allowance - the level of that allowance has now been confirmed as £25m. In addition, the rate of RPDT has been confirmed at 4%. Finally, the original consultation proposed that build to rent (BTR) investors should be subject to RPDT through taxing some measure of deemed development profit, resulting in a "dry" tax charge. As widely publicised earlier in October 2021, following substantial lobbying from stakeholders the government has accepted that BTR should not be included within the scope of RPDT in this way. The government's consultation response confirms this, whilst reserving the government's position to keep this position under review as the market evolves.  

The RPDT is separate from the new "Building Safety Levy" on developers seeking permission to construct certain high-rise buildings, which has been the subject of a consultation which closed on 15 October 2021.

Response to accounting changes for insurance contracts

Tax changes have been announced in response to the introduction of IFRS 17, the new international standard for insurance contracts, which is expected to become mandatory for insurance companies using IFRS for periods of account beginning on or after 1 January 2023. The government has proactively announced that regulations will be introduced allowing it to:

• provide for the transitional impacts of IFRS 17 to be spread for tax purposes; and
• repeal the current requirement on life insurance companies to spread acquisition expenses over seven years for tax purposes.

A consultation on the regulations will be launched in the coming weeks. The intention is to mitigate cashflow and regulatory impacts of the introduction of IFRS 17 by spreading transitional profits and losses for tax purposes, ie allowing insurers to depart for a transitional period from the usual position that their corporation tax liabilities follow their accounting profits. This measure will no doubt be welcomed by the insurance sector. Affected insurers and their advisers should consider responding to the consultation (when launched) to ensure that their views are taken into account.

This enabling power will have effect on and after the date of Royal Assent to Finance Act 2022.

Business rates

The government has published its final report following the Business Rates Review, initially announced in March 2020. The report sets out a range of measures which the government will introduce with the intention of reducing "the burden of business rates in England". In particular, the report indicates that the measures are designed to focus on supporting the retail industry and the high street and encouraging investment and improvement to existing properties which may otherwise not be pursued due to a resulting increase in business rates.

Specific changes to the calculation of business rates and available reliefs, include:

• Freezing the multiplier in England for 2022/23. The multiplier is the figure by which the rateable value of a property must be multiplied in order to determine the amount of business rates payable - any available reliefs are then deducted from this amount.
• Introducing a further temporary business rates relief for retail, hospitality and leisure business in England for 2022/2023, to replace the business rates reliefs implemented for these industries in 2020/21 and 2021/22. This new temporary measure will see eligible properties receive business rates relief of 50% up to a cash value cap of £110,000 per business and is in addition to the multiplier freeze. Eligibility criteria identifying who will benefit from this relief have not yet been published, but are anticipated later in 2021.
• The introduction, from 2023, of an 'improvement relief' to business rates, which would see 100% relief from higher business rates bills for 12 months, where 'eligible improvements' made to an existing property have increased the rateable value of that property. A consultation on the implementation of the relief is planned.
• Exemption from rates, from 2023 to 2035, for eligible plant and machinery used for the purpose of onsite renewable energy production and storage - for example electric vehicle charging points, or solar panels. 100% relief from rates will also apply to eligible low carbon heat networks where those networks have their own rates bill.

No existing business rates reliefs are being removed as a result. Transitional Relief for small and medium businesses and the Supporting Small Business scheme, which act to restrict the percentage by which rates bills can increase each year, have also been extended for a further year and will now apply until the end of 2022/23.

Additionally, the government announced an increase in the frequency of revaluation for business rates purposes, by moving to a three-year cycle for revaluations. This is intended to ensure that the applicable rates for each property are more in line with economic reality. The next re-valuation is in 2023, with the subsequent review now set to take place in 2026. As a result of more frequent revaluations being required, an additional £0.5bn of funding is being provided to the Valuation Office Agency. Further administrative changes, including additional notification requirements for taxpayers, are also being pursued in order to support the valuation system with implementing the more frequent revaluations.

Finally, the government's report announces a further consultation on the introduction of an online sales tax. Where such a tax is introduced following the consultation, the report indicates that revenue raised from such tax would be used to reduce business rates for retailers with physical properties in England in order to "help rebalance the tax burden" between physical and online retail outlets. For further information, see Online Sales Tax below.

Tonnage tax

As pre-announced by the Treasury in advance of Autumn Budget 2021, from April 2022 flying the UK flag will give global shipping companies more chance to be accepted when applying to join the UK’s tonnage tax regime. Tonnage tax can be used instead of corporation tax for working out the tax owed on profits, with tonnage tax calculated on a fixed notional profit based on the net tonnage of ships, instead of actual profits from shipping activities.

Under the plans, from April 2022 ships that fly the Red Ensign and those who help the UK reach net-zero will both be more likely to be accepted when applying to the UK’s tonnage tax regime. Rules regarding the type of ships that can qualify will also be expanded to reflect the UK’s net zero ambitions. This includes ships that lay cables to help create wind farms and scientific research vessels.

Companies that bring value to the UK, by investing in decarbonisation, will also be more likely to be accepted if they apply to the UK’s regime. In addition, HMRC practice guidance will raise from 10% to 15% the permitted limit for qualifying secondary income.

The Autumn Budget 2021 also announced two further proposed amendments. Firstly, the provisions governing Tonnage Tax elections at Part 2 of Schedule 22 to Finance Act 2000 will be amended to reduce from ten years to eight years the period for which a Tonnage Tax election remains in force from the beginning of the accounting period in which it is made. In addition, HMRC will be given the power to admit elections made outside the normal period allowed for election where there appears to be a good reason to do so. Secondly, legislation will be introduced in Finance Act 2022 to simplify the rule which, subject to conditions, includes dividends or other distributions of overseas shipping companies in relevant shipping profits.

The government will also review whether to include ship management within the scope of the regime and whether the existing limit that can be claimed as capital allowances by organisations leasing ships to tonnage tax participants remains appropriate.