In 2015 we saw further strides made by the Government towards the creation of a more competitive corporation tax system, which is a key element of creating the right conditions for business investment and growth. Corporation tax fell to 19% on 1 April 2017 across all profits and there is no differentiation between bands.
At the same time new anti avoidance legislation has been introduced to attack companies who engage in arrangements which seek to exploit loop holes in corporation tax legislation, to access relief for losses either more quickly or in ways more contrary to the underlying principles upon which loss relief legislation is based. This very much follows the general trend against what are deemed aggressive forms of tax mitigation albeit this is not limited to the business market.
- Where relevant, advantage should be taken of the annual investment allowance which gives 100% initial relief for investment in plant and machinery. The annual investment allowance from January 2016 is £200,000.
- Despite the reduction in corporation tax, dividends remain an attractive method of distributing funds from a company for shareholding directors. This is especially so as the upper earning limit is reducing the higher rate tax threshold. Broadly speaking by taking dividends the directors take home pay could be increased. It is important however that a director draws sufficient remuneration to retain entitlement to state benefits, and is aware that an even lower effective rate of income tax can be achieved by a combination of salary dividends and pension contributions.
The levels and bases of taxation, and reliefs from taxation, can change at any time and are dependent on individual circumstances.