Thompson Reuters Practical Law asked leading tax practitioners for their views on the Autumn 2017 Budget.
Pete Miller’s contribution:
“There doesn’t seem to have been much action on the corporate tax side in this Budget, which given the massive changes over the last few years is something of a relief. If anything, the picture from a corporate perspective is of tinkering around the edges and fixing things, rather than making any major changes. For example, the complicated regime for hybrids brought in by Finance Act 2016 and the even more complex regime for restricting the interest deductions for companies, which only gained Royal Assent a week ago, are both being technically amended in order to make sure that they work properly. This is not a suggestion of incompetence on the part of the original drafters, but rather a reflection of the complexity both of the U.K.’s tax code and of the commercial world in which it operates, in that however hard all the stakeholders work, the fact is that complicated regimes like this will impact commercial transactions in a way that was not intended in some cases. It is, therefore, only common sense that those bits of the regimes that don’t work should be fixed as soon as possible.
Probably the most noticeable amendment was the removal of indexation allowance from companies. Indexation allowance was originally introduced at a time of relatively high inflation, to allow you to index link the price of assets between the date of purchase and the date of sale, so that capital gains tax or corporation tax on chargeable gains would, in effect, only tax the genuine increase in value of an asset, not simply the inflationary increase. The indexation allowance for individuals and others who do not pay corporation tax was repealed in 2008, from 31st March that year, so that, for all future gains, no indexation allowance could be given. It is interesting that in removing the indexation allowance from companies, they will still be able to claim the accumulated indexation up to 31 December 2017, but no further indexation will be given from 1 January 2018. This is in marked contrast to the treatment of individuals in 2008, where the immediate abolition of the relief effectively doubled or trebled the latent gains in certain cases!
The other point of particular interest is that, hidden away in the Red Book is a promise to consult on the regime for intangible fixed assets. The regime for companies owning intangible assets is that, in many cases, the cost of an asset can be amortised or impaired for tax purposes. There are also a series of reliefs and exemptions from taxation which largely mirror the rules applicable to tangible assets within the capital gains regime for companies. One of the areas that has been a problem for some years, however, is that some of the new reliefs from corporation tax on gains, such as the amended degrouping charge and the substantial shareholding exemption, are not mirrored in the intangible assets regime. This means that the reliefs, which were intended to apply across the board, only apply to companies with older trades, and not with new trading companies with substantial goodwill. We have made many representations to HMRC on this point, and we can only hope that the proposed consultation will address some of these concerns, albeit many years later than we would have hoped.”