Spring Budget 2017: key tax measures for businesses

The most notable changes faced by businesses are: the new corporate interest restriction regime; the changes to the rules on loss relief which provide greater flexibility for the use of post-April 2017 losses but also cap the amount of losses which can be used in a tax year; and reforms to the substantial shareholdings exemption (SSE) (www.practicallaw.com/0-639-2450; see News brief "Reforming the substantial shareholdings exemption: keeping up with the Joneses").

Although the government has engaged with some of the concerns raised on the draft legislation for the corporate interest restriction published on 5 December 2016 and 26 January 2017, the timetable for implementing this complex legislation remains challenging. Many asked for a delay so that the detail of the rules could be worked through. The Finance Bill 2017 was published on 20 March 2017 containing details of the revisions to the draft legislation, which is to take effect from 1 April 2017.

The corporate interest restriction regime is changing significantly:

Further revisions have been made to proposed changes in respect of the SSE regime, including to extend the holding period to include periods when shares were held by non-resident members of the group.

Generally, the changes have been welcomed, although there was a feeling of regret among some practitioners that the government had not taken the opportunity to look at some of the other difficulties of the SSE, such as the treatment of earn-outs. Draft legislation for loss relief reform now includes provisions for oil and gas companies and oil contractors which allows the streamed use of ring-fence losses without restriction, as outlined in the response to the consultation published in December 2016 (www.practicallaw.com/6-638-0468).

The government has confirmed the reduction in corporation tax to 19% from 1 April 2017 and to 17% in 2020. This is a welcome endorsement of the previous Chancellor of the Exchequer's approach (see Exclusively online article "Budget 2016: bittersweet").

The Chancellor has dropped proposals to increase the main rate of class 4 NICs from 9% to 10% from April 2018 and to 11% from April 2019 which, after the reduction of the dividend tax allowance from £5,000 to £2,000, would have been his greatest revenue raiser.

The government's long-term approach to the growing number of self-employed in the economy remains unclear. The Taylor review, which is examining employment practices in the modern economy, is due later in 2017 and the government may look more widely at the tax treatment of the self-employed in response to this (www.gov.uk/government/news/taylor-review-on-modern-employment-practices-launches) (see feature article "The gig economy: shifting sands in employment status", this issue).

As announced in the Autumn Statement 2016, the insurance premium tax rate will increase to 12% with effect from 1 June 2017 (see Exclusively online article "Autumn Statement 2016: key tax measures for businesses"). Draft legislation has now been published including anti-forestalling provisions. It is likely that, for many, the cost of insurance will therefore rise.

The Spring Budget continued the general theme of clamping down on avoidance but in large part this only confirmed, or announced modest changes to, measures announced previously; for example, the extension of the proposed penalty regime for enablers of defeated tax avoidance schemes to NIC avoidance (www.practicallaw.com/1-633-7991).

There were new compliance and enforcement proposals in the VAT arena, including plans for consultations on combating VAT fraud on labour costs in the construction industry and on the introduction of a new split payment model. The latter will require payment handlers to account directly to HM Revenue & Customs for VAT, to address avoidance on online marketplaces.

There was also new draft legislation removing, with immediate effect, the ability of businesses to convert capital losses into trading losses on the appropriation of capital assets to trading stock. This had been possible by making an election for an alternative tax treatment which, where a capital loss would have arisen, had the effect of reducing that capital loss and increasing the market value to be brought into account as expenditure. These elections can no longer be made where the appropriation to trading stock would give rise to a capital loss.