Yesterday's UK budget brought mixed news for business. We highlight three changes of particular interest to technology businesses and those who invest in the sector.
1 - Capital Gains Tax entrepreneurs’ relief: extension to long-term investors
Entrepreneurs’ relief (ER) will be extended to external investors in unlisted trading companies. They will no longer have to hold a minimum of 5%, nor will they have to be a director or employee of the company. The new rules will apply to newly issued shares purchased on or after 17 March 2016, providing they are held for a minimum of 3 years from 6 April 2016, and subject to a separate lifetime limit of £10 million of gains.
This change will broaden the scope of the relief to encourage investment in unlisted companies and has been welcomed by the investor community.
2 - Royalty withholding tax
The UK government is taking steps to crack down on erosion of the UK tax base through use of royalty arrangements within multinational groups.
The government will change the deduction of tax at source regime to bring all international royalty payments arising in the UK within the charge to income tax, unless those taxing rights have been given up under a double taxation agreement or the EU Interest and Royalties Directive. This brings the UK more into line with international practice. The reform has three parts:
UK withholding tax will apply to a wider definition of royalty payments
the UK will create a domestic anti-treaty abuse provision which will prevent, for instance, royalty payments being paid to tax havens without deduction of tax via the use of conduit companies
the UK will ensure that withholding tax will apply to payments that are attributable to a UK permanent establishment, even if the payment of the royalty is not made from the UK .
More information on these proposals is available here.
3 - Patent Box to be adjusted to ensure compliance with new international rules
The Patent Box offers an optional 10% UK corporation tax rate for profits attributable to patents and similar intellectual property.
The operation of the Patent Box will be modified to comply with a new set of international rules created by the OECD, making the lower tax rate dependant on, and proportional to, the extent of research and development expenditure incurred by the company claiming the relief. This will come into effect on 1 July 2016.