Company Taxation

Tax rates and allowances

Since April 2023, the headline rate of corporation tax has been 25%, applying to profits over £250,000. A small profits rate (SPR) of 19% applies for companies with profits of £50,000 or less. 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.

Since April 2023, the bank surcharge has been an additional 3% rate on banks’ profits above £100m. Also from April 2023, the rate of Diverted Profits Tax (DPT) increased to 31%, retaining a 6% differential above the main rate of corporation tax.

For a table of the main tax rates and allowances for 2024/2025, see here.

Capital allowances: full expensing

The 2023 Autumn Statement announced that full expensing and the 50% first-year allowance for special rate assets were to be made permanent. However, expenditure on plant or machinery for leasing is currently excluded from these allowances. The Chancellor’s speech indicated that full expensing would be extended to such assets “when affordable” and Budget documents indicate that the government will shortly publish draft legislation for technical consultation to help it consider any such extension. However, they equally make it clear that no decision has been made on that issue as yet.

Investment Zones

Measures to enable Investment Zones to be designated and recognised in law as geographical areas where businesses can benefit from tax and NICs reliefs were announced in the 2023 Spring Budget. The intention is to incentivise investment in Investment Zones, in part, through tax reliefs and reducing the cost of hiring employees. These were made more attractive in the 2023 Autumn Statement when the Chancellor announced that the Investment Zones tax reliefs would be extended from five to ten years.

The Spring Budget 2024 announced further details of six Investment Zones: Greater Manchester, Liverpool City Region, North East of England, South Yorkshire, and West Midlands and Tees Valley.

The Economic Crime Levy

The Economic Crime (Anti-Money Laundering) Levy was intended to raise approximately £100m per annum to tackle money laundering and deliver economic crime reforms. However, levy receipts for the first period between April 2022 and March 2023 show a shortfall against the levy’s target.

The government intends to address this shortfall by increasing the charge paid by very large businesses with UK revenue greater than £1bn, and which are regulated for anti-money laundering purposes. The charge for these entities will rise from £250,000 to £500,000 per annum, from 2024/2025 onwards.

There will be no change to the charge for small entities (which remain exempt), medium entities (which will continue to pay £10,000), or large entities (which will continue to pay £36,000).

Energy Profits Levy

The 2022 Autumn Statement announced a substantial extension of the Energy Profits Levy from 1 January 2023, including increasing the EPL rate to 35%. The Levy was due to end on 31 March 2028. However, the Spring Budget 2024 announced that the EPL will be extended until 31 March 2029.

Audio-visual tax reliefs

As announced in the 2023 Autumn Statement, and following a call for evidence, the government will give additional tax relief to visual effects costs in films and high-end TV. Under the Audio-Visual Expenditure Credit, visual effects costs will receive tax credit at a rate of 39%. The 80% cap on qualifying expenditure will also be removed for visual effects costs. The changes will take effect from 1 April 2025. A consultation will be published shortly on the types of expenditure that will be within scope of the additional tax relief.

In addition, the government will introduce legislation in Spring Finance Bill 2024 to provide additional support for independent films via the Audio-Visual Expenditure Credit. The Independent Film Tax Credit is aimed at films that have budgets (or total core expenditure) of up to £15m and that receive a new accreditation from the British Film Institute. The credit rate will be 53% of qualifying expenditure. Qualifying expenditure is capped at a maximum of 80% of a film’s total core expenditure; the most taxable credit a film can receive will be £6.36m. This change will take effect for films that commence principal photography from 1 April 2024 on expenditure incurred from 1 April 2024.

Other cultural tax reliefs

The Chancellor announced that legislation to be included in Spring Finance Bill 2024 to make permanent 40%/45% (for non-touring/touring and orchestral productions respectively) headline rates of relief for Theatre Tax Relief, Orchestra Relief, and Museums and Galleries Exhibition Tax Relief. These rates will take effect from 1 April 2025.

R&D tax reliefs: expert advisory panel

The Spring Budget 2024 announces that HMRC will establish an expert advisory panel to support the administration of the R&D tax reliefs. The panel will provide insights into the cutting-edge R&D occurring across key sectors such as tech and life sciences, and work with HMRC to review relevant guidance, ensuring it remains up to date and provides clarity to claimants.

Reserved investor fund

Following last year’s consultation on the introduction of a Reserved Investor Fund (RIF) regime, the government has now decided to proceed with the introduction of a RIF regime. Legislation will be introduced in Spring Finance Bill 2024 to define what a RIF is and give HM Treasury power to make regulations in respect of RIFs. The detailed rules for the regime will be set out in regulations adopted at a later date.

The RIF is intended to complement and enhance the UK’s existing funds regime by meeting industry demand for a UK-based unauthorised contractual scheme with lower costs and more flexibility than the existing authorised contractual scheme. The RIF will be open to professional and institutional investors. It is expected to be particularly attractive for investment in commercial real estate.

The government has published its summary of responses to last year’s consultation which confirms the following tax features of the RIF regime:

Eligibility for regime

There will be three different types of restricted RIFs. The three types of restricted RIFs are RIFs: (i) where at least 75% of the value of the RIF’s assets is derived from UK property, (ii) where all investors in the RIF are exempt from tax on gains, and (iii) where the RIF does not directly invest in UK property or in UK property rich companies.

A RIF will also have to meet other prescribed eligibility criteria.

Capital gains

From an investor’s perspective, a RIF will be treated as opaque for capital gains purposes – an investor in a RIF should therefore only be subject to tax on capital gains when the investor disposes of its units in the RIF.

The units in a RIF will be treated as an investor’s capital gains asset and any interest of the investor in the underlying property of the RIF will be disregarded for capital gains purposes. A RIF will be treated in the same way as a co-ownership authorised contractual scheme (CoACS) for the purposes of the regime for the taxation of disposals of UK real estate by non-residents. A RIF will therefore be able to make an exemption election for these purposes. In the long term, a RIF may become a more cost efficient holding vehicle for UK real estate than a Jersey property unit trust (JPUT).

Stamp duty land tax

A RIF will be treated as a company for stamp duty land tax (SDLT) purposes – there should therefore be no SDLT payable on transfers of units in a RIF.

An unauthorised co-ownership contractual scheme which is not a RIF will remain transparent for SDLT purposes. An election by an unauthorised co-ownership contractual scheme to become a RIF will be treated as a land transaction for SDLT purposes, with SDLT charged on the market value of any English and Northern Irish property held by the scheme at the date of entry into the RIF regime.

There will be a seeding relief for RIFs similar to the seeding relief for CoACSs.

Stamp duty and stamp duty reserve tax

A RIF will be entitled to the same stamp duty and stamp duty reserve tax (SDRT) exemptions as a CoACS. These exemptions will apply to: (i) transfers of securities to a RIF in consideration solely for the issue of units in the RIF, (ii) transfers of securities between sub-schemes of an umbrella RIF, and (iii) transfers of units in a RIF.

Capital allowances

As for a CoACS, the operator of a RIF will be able to make an election enabling it to calculate and apportion any capital allowances in respect of a RIF’s qualifying expenditure to investors in the RIF.

Unrestricted RIF

The government does not intend to proceed with an unrestricted RIF (i.e. a RIF which is not one of the three types of restricted RIFs above) at this stage, as stakeholders view an unrestricted RIF as operationally complex and likely to be unattractive to most investors.