Oury Clark | A new approach to professional services

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Date of publication: March 2012

Rates

An unexpected acceleration to the planned reduction in Corporate tax rates was a welcome surprise measure. The UK now has one of the lowest rates of Corporate tax amongst the world’s leading economies.

Capital Allowances

The 2012/13 tax year marks the start of a less than generous regime for capital allowances on plant and machinery. The Annual Investment Allowance (‘AIA’) of 100% is now only available on the first £25,000 of qualifying expenditure and the standard writing down allowance is reduced to 18%.

OC Comment:

The reduction in the amount of AIA will make it likely that more businesses will wish to consider short-life asset elections. Under this regime businesses are able to accelerate claims for capital allowances for those assets with an expected life of 8 years or less.

The 100% first year capital allowance for businesses purchasing low emission cars will be extended from 1st April 2013 to 31st March 2015. However, from 1st April 2013 the qualifying threshold will reduce from 110g/Km to 95g/Km. Similarly. the emissions threshold for cars qualifying for the main rate of capital allowances will be reduced from 160g/Km to 130g/Km from April 2013.

OC Comment:

The reduced thresholds will significantly restrict the choice of cars available. Any business considering the purchase of a car (and in particular a low emission car qualifying for 100% capital allowances) should seriously consider doing so in the year to 31st March 2013.

Personal Service Companies and IR35

The government intends to bring forward a package of measures to further counter avoidance through the use of personal service companies and to make existing IR35 legislation easier to understand. In particular, for anyone who is integral to the running of an organization it will be mandatory to account for PAYE and NIC at source.

R & D relief

The Research and Development (R&D) rules for expenditure incurred/claims made on or after 1stApril 2012 will be amended:

• Increase in the rate of additional deduction for an SME company to 125% (up from 100%).
• Reduction in the rate of payable credit for an SME company to 11%.
• The £10,000 minimum expenditure requirement for large companies and SME’s will be abolished.

OC Comment:

R & D tax relief is an increasingly valuable and important feature in managing a company’s tax affairs. All possible avenues for claiming relief should be vigorously pursued.