December 2015 Tax Update
“There have been a number of key changes to the UK tax regime in and alongside the Chancellor’s Autumn Statement. The corporate rescue exemption offers much greater flexibility for debt restructuring – but the acceleration of tax due dates for very large companies, the new apprenticeship levy and further anti-avoidance rules continue to add burdens to business and potential hazards to commercial restructuring. Personal tax increases have also been introduced with changes to stamp duty land tax and council tax increases.”
Marcus Rea, Partner, Restructuring Services Tax
New corporate rescue exemption goes live – allowing more flexible restructuring of overleveraged companies
- When lenders and overleveraged borrowers agree to a business rescue plan which includes softening the terms or reducing the debt burden – the benefit to the borrower is taxable.
- Historically, rescue exemptions have been limited – often requiring lenders to consider a debt for equity swap or release as part of a formal insolvency process.
- Back in 2014, as part of our regular dialogue with HMRC, we advocated a simpler rescue regime, where neither new equity nor a formal insolvency would necessarily be required.
- Following 18 months of dialogue, this Autumn the new Corporate Rescue Exemption has come into force – with Finance Act 2015 (2) introducing an exemption for debt releases and on accounting income resulting from a modification of debt, where but for the rescue, the company would be unable to pay its debts as they fell due in the next 12 months. The exemption is backdated to 1 January 2015.
Large companies face more tax, payable sooner
- Further details have been published of the acceleration of £8bn of tax payments for very large companies. Groups with profits exceeding £20 million will now pay tax 4 months earlier, for periods beginning on or after 1 April 2017. Limited exemptions apply for the bank levy and oil & gas regimes.
- Employers with a payroll bill in excess of £3m will also share the burden of a new £2.7bn Apprenticeship levy from 2017. The levy will be charged at 0.5% of the company’s total payroll bill and paid via PAYE.
- Stressed or distressed business should be factoring these additional cashflow burdens into their forecasts now.
Devolution, anti-avoidance – and complexity
- The Chancellor has renewed his pledge to bring in an extra £5bn through anti-avoidance, including new rules to prevent individuals using liquidations to turn dividends into more lightly taxed capital returns. This rule is under consultation, with a view to becoming effective from 6 April 2016. We will be speaking up for stressed and distressed businesses as part of the consultation process, to help Government avoid unintended effects constraining genuine commercial transactions.
- Northern Ireland is in talks to move to a devolved corporation tax regime at the same 12.5% rate as the Republic of Ireland. This means attractive tax rates for some – but increased complexity for many as details are thrashed out; in particular who gets access to the lower rate and how UK businesses with operations spanning the Irish Sea will manage two competing tax regimes.
Council tax and stamp duty land tax on second homes both set to increase
- Council tax may increase by up to 2% to fund local social care.
From 1 April 2016, an extra 3% stamp duty land tax will apply on the purchase of second homes and buy-to-let properties in the UK (excluding Scotland) – making the minimum SDLT rate 3% and the top slice as high as 15%. A detailed consultation is scheduled for January 2016 when transitional arrangements are expected to be outlined.