Comparative Guides
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Results: 4 Answers
Corporate Tax
3.
Investment in capital assets
3.1
How is investment in capital assets treated – does tax treatment follow the accounts (eg, depreciation) or are there specific rules about the write-off for tax purposes of investment in capital assets?
 
UK
The UK capital allowances regime is intended to allow companies to offset the cost of investing in capital assets against taxable income, with allowances generally calculated using a ‘write down’ methodology. The capital allowances regime, including certain annual investment allowances, frequently differs from accounting treatment. Assets are grouped into three types for these purposes and are written down at rates of either 18% or 8%.

For more information about this answer please contact: James Anderson from Skadden, Arps, Slate, Meagher & Flom (UK) LLP
3.2
Are there research and development credits or other tax incentives for investment?
 
UK
To encourage investment in research and development (R&D), reliefs from corporation tax are available on both revenue and capital expenditure. For revenue expenditure, R&D tax credits are available to all companies subject to corporation tax, with different rules applicable to large companies and small and medium-sized enterprises (SMEs). For capital expenditure, capital allowances are available (see question 3.1).

R&D tax credits are available to SMEs at a current rate of 230%, with the total relief that may be claimed for expenditure on a particular project capped at €7.5 million. If an SME is loss-making and meets certain conditions, it may surrender part or all of its loss to Her Majesty’s Revenue & Customs in return for a cash payment of between 11% and 14.5% of the loss.

Larger companies (and SMEs, to the extent that they have expenditure that does not qualify for the specific SME relief) may take advantage of a form of R&D tax credit known as R&D expenditure credit. A credit equal to 12% of qualifying R&D expenditure can be brought into account as a receipt of trade, either decreasing losses or increasing profits. Once the credit is brought into account, the company may use it to reduce any liability to corporation tax in the current period before offsetting any remaining credit against tax liabilities in other periods or surrendering it to a group company (subject to certain limitations).

For more information about this answer please contact: James Anderson from Skadden, Arps, Slate, Meagher & Flom (UK) LLP
3.3
Are inventories subject to special tax or valuation rules?
 
UK
The treatment of inventories for tax purposes follows the general rule that the correct way of computing trading profits for tax purposes is to bring opening stock and closing stock into the computation at the lower of cost and net realisable value.

For more information about this answer please contact: James Anderson from Skadden, Arps, Slate, Meagher & Flom (UK) LLP
3.4
Are derivatives subject to any specific tax rules?
 
UK
The United Kingdom has specific derivative contracts legislation for the purposes of corporation tax, which broadly applies to any futures, options and contracts for difference. The aim of the legislation is to ensure that derivative transactions are taxed according to their accounting treatment, in a way that results in an economically realistic outcome. While the detail of the regime is highly technical, it essentially taxes derivative transactions within its scope as income unless the derivative is within certain classes of property derivative or embedded derivative (eg, an embedded put option).

For more information about this answer please contact: James Anderson from Skadden, Arps, Slate, Meagher & Flom (UK) LLP