Corporation Tax


As announced in the Autumn Statement, the main rate of Corporation Tax will fall from 24% to 23% for Financial Year 2013 (commencing 1 April 2013), and to 21% in April 2014. Mr Osborne announced that the rate will fall again in April 2015 to 20%, the same as the rate for companies with small profits. This will not only cut companies’ tax charges, but will simplify the calculations for those which fall in the marginal band between the small profits and full rates.

Loans to participators

When a ‘closely controlled company’ makes a loan to a ‘participator’ (in general, a shareholder), it may incur a liability to pay an amount equal to 25% of that loan to HMRC if the loan remains outstanding 9 months after the end of the accounting period. The tax charge is repaid to the company when the participator repays the loan. The Budget included an announcement of new rules to tighten up the circumstances in which a loan will be regarded as ‘repaid’ – the charge may not be cancelled if a new loan of a similar amount is taken out afterwards – and to catch various indirect ways of making loans. The rules will operate from 20 March 2013.

Research and development credits

R&D credits allow companies to deduct a multiple of the expenditure incurred for tax purposes. If £100 of cost is treated as £200 in computing tax, the company effectively receives a grant for incurring the expenditure. A new ‘above the line’ credit for large companies will be introduced in April 2013, and will become the only relief for large companies engaged in R&D activity from April 2016. This will affect the way in which the incentive is reflected in company accounts, and is intended to increase the ‘visibility’ of the support that is being given to R&D activity through the tax system. The new credit has been set at 10% of the relevant expenditure, which will slightly increase the benefit to the claimant over the current system.

Chargeable gains on foreign currency assets

UK law requires that chargeable gains have to be computed in sterling using the exchange rates ruling on the dates of acquisition and disposal. This means that exchange rate movements can significantly affect and distort gains and losses on assets that are bought and sold for foreign currency – what appears to be a gain in the foreign monetary value of an asset may be a loss in sterling, and vice versa. Rules to simplify these calculations, for corporation tax only, will take effect when the Finance Act 2013 receives Royal Assent.