Looking ahead to corporate tax reform


10-11-2011

Companies at a tax seminar at Deloitte this week discovered how the next 12 months is set to herald the start of a new era in tax strategy for UK companies. The Government is signalling that it wishes to make the UK more attractive for businesses and overseas investment.

This is an opportunity to assess the changing tax landscape with a potential for reducing effective corporate tax rates and increased earnings. The Corporate Tax reform proposals, the announcement of a new regime of taxing offshore income and the new Patent Box regime form the backbone of this policy.

Richard Blackwell, Tax partner leading the Cambridge tax practice explains “These changes, when they come into force, will fundamentally shift the way UK groups with intellectual property and overseas operations structure their businesses. For a number of clients, the impact assessment has already started and is a key element of our review of companies’ tax strategy”

Richard identifies the following as the five most significant areas of focus that are key elements within the tax strategy for finance teams to think about in the year ahead:

• Efficient financing of offshore operations: These proposals offer UK companies a lower effective tax rate (as low as 6%) on financing overseas activities.

• UK as a holding company location: due to the introduction of both exemptions on capital gains of trading subsidiaries and also dividends as well as the exemption of overseas branch profits & tax relief on interest expense. All this increases the attractiveness to inbound investors, which is crucial as the wealth of emerging economies looks to continue to invest into Europe.

• Taxation of Intellectual property: These proposals offer possible exemptions from UK tax on income from actively managed intellectual property.

• R&D tax credits: A review of the R&D tax credit regime as an outcome of the Dyson review which raised concerns of whether R&D relief is currently being targeted effectively. This includes suggestions that software should be excluded, but that consideration would be given to widening the categories of qualifying expenditure and a proposed refocus on high tech companies, small businesses and start ups;

• Patent Box: This is likely to become a key feature of the mainstream corporation tax system which offers a 10% tax on the income from exploiting patents. It will be important to identify and quantify profits which may fall into this 10% tax rate.
Richard concludes “These are just some of the tax reliefs which we help companies to consider as they look to manage tax costs and maximise tax and cash efficiencies in a difficult financial environment.”

“Finance teams at UK companies will need to understand what the proposed reforms mean for their business and start to build these into their planning process. Boards are increasingly attuned to tax risk in managing their overall group strategy. 

Resultant tax savings from these reforms can be integrated into the business model and supply chain, which can help facilitate a sustainable effective tax rate. 
 

 

The Deloitte Cambridge office comprises 8 Partners and over 250 staff who deliver a full range of professional services to the East Anglian region. As well as focussing on the life sciences and technology sectors for which the region has become so renowned, the office has long standing specialisms in other sectors including the professions, consumer business, food and agribusiness.

Deloitte LLP