UK: UK Budget 23 March 2011 Summary Of Business Tax Changes

Last Updated: 13 May 2011
Article by John Finnick


Against a background of lower than expected recent and projected future growth in the economy, George Osborne delivered a fiscally neutral second Budget.

Key themes of the Budget were Britain being open for business, reward for enterprise, stability and growth.

The main surprises were a reduction in fuel duty for consumers (offset by an increase in taxes for producers) and an additional one per cent cut (above the cut already announced) in the main rate of corporation tax (offset by an increase in the levy for banks).

The UK has the dubious honour of having the world's longest and most complex tax code and, in an effort to cut back on complexity, there is to be a review of the possible amalgamation of the systems of income tax and National Insurance Contributions. More immediately, 43 unused, unwanted or unloved tax reliefs are to be abolished.

The controversial and much criticised IR 35 regime for personal services companies is to remain, albeit with promised better targeting and administration by HMRC.

A summary of the key business-related measures are as follows.

Corporate Taxation

Corporate Tax Rates

The main rate of corporation tax will fall by 2% (rather than the planned 1%) to 26% and the small profits rate by 1% to 20%, both with effect from 1 April 2011. Further annual 1% cuts in the main rate will apply in future, culminating in a main rate of corporation tax of 23% from April 2014.

Foreign branches of UK companies

As previously announced, there will be an optional exemption regime from UK corporation tax for the results of foreign branches of UK companies. Profits of foreign branches subject to an election will not be subject to UK corporation tax, and losses of the branch will not be relieved against profits of the company subject to UK corporation tax. The results of the branch will be determined under any applicable double tax treaty with a non discrimination article or under the OECD model tax convention, but there will be restrictions to prevent abuse. Some types of business will not be covered by this regime.

The election will be irrevocable and the regime will apply to accounting periods of companies commencing on or after the date of Royal Assent to the Finance Bill 2011.

Patent Box

It has been confirmed that the patent box regime for a 10% rate of corporation tax will be introduced in 2013. Legislation to introduce the regime is expected in the Finance Bill 2012.

Controlled Foreign Companies (CFCs)

Interim measures to reform the CFCs regime are introduced with effect from 1 January 2011. These are:

  • exemption for companies mainly engaged in activities with foreign counterparties
  • exemption for IP companies where the IP has no real connection with the UK
  • increase in the small profits exemption from £50,000 to £200,000
  • three-year period of exemption for companies when they first come into UK ownership.

The proposed partial exemption already announced for group finance companies is to be introduced under which their effective rate of tax will be 5.75% by the time that the main rate of corporation tax falls to 23% in 2014.

Further reform to the CFC regime, which will be the subject of consultation, is expected to be introduced in the Finance Bill 2012, but will be aimed at companies where there is an artificial diversion of profits from the UK.

Capital Gains Tax

The lifetime limit qualifying for entrepreneur's relief (on which the effective tax rate is 10%) is increased from £5m to £10m for disposals from 6 April 2011. If a person has exhausted their £5m limit (or lower limit for earlier periods) before 6 April 2011, any qualifying disposals from then may benefit from the additional £5m (or greater amount for earlier lower relief limits) of relief.

The annual capital gains exemption for individuals is increased to £10,600 for tax year 2011/12. From 2012/13 the annual exempt amounts for individuals and trusts will generally be automatically increased by the increase in the consumer price index, unless overridden by Parliament.

Value Added Tax

Registration and deregistration thresholds

With effect from 1 April 2011, the thresholds for VAT registration and deregistration are increased to £73,000 and £71,000 respectively.

Stamp Duty Land Tax (SDLT)

Bulk purchases of dwellings

Under new provisions applying from purchases on or after the date of Royal Assent to the Finance Act 2011, the rate of SDLT chargeable will be based on the arithmetic mean consideration payable for each dwelling (subject to a minimum rate of 1% for each dwelling) as if it were a single purchase, rather than the present position where the rate of SDLT is based on the aggregate consideration payable for all properties purchased (or treated) as part of a single deal.

Other Business Related Tax Issues

Venture Capital Schemes

The rate of income tax relief under the Enterprise Investment Scheme (EIS) is raised from 20% to 30% for qualifying shares issued from 6 April 2011. There are further proposals to increase from 2012 the amount that may be invested by individuals under both the EIS and Venture Capital Trust (VCT) scheme to £1m and the size of companies in which EIS qualifying investments may be made, to companies with fewer than 250 employees and £15 of gross assets before the investment. All of these changes to the EIS and VCT schemes need State Aids approval from the EU.

There will be restrictions to EIS and VCT reliefs for companies whose business relates to the receipt of feed-in tariffs unless power generation by them commences before 6 April 2012.

Capital allowances

A short life assets election will be possible for expenditure from April 2011 on assets with an expected life of no more than eight years, an extension from the current four-year period.

The previously announced reduction in the rate of allowances for general plant and machinery from 20% to 18% will take effect from April 2012.

Annual investment allowance

As previously announced, this will fall from £50,000 to £25,000 from April 2012.

Business premises renovation allowance

This allowance, which was due to expire in April 2012, is to be extended by a further five years from then.

Research and development tax credits

The rate of the additional credit for qualifying R+D expenditure from 1 April 2011 by a small or medium sized (SME) company will increase from 75% to 100% (making a total credit of 200% of relevant expenditure). From 1 April 2012 this will be increased from 100% to 125% (a total credit of 225% of qualifying expenditure). Both the 2011 and 2012 increases require State Aids approval from the EU.

Subject to further consultation, from 2012 there will be further changes to the R+D credit scheme to abolish the limitation related to total PAYE and NIC paid by a SME company and the £10,000 minimum expenditure condition for all companies.

Financial sector - specified investments

Legislation will be introduced, having effect from 24 February 2010, to correct unintended consequences of previous regulatory legislation. Broadly, the effect of the new provisions will be that debt securities unintentionally caught by the regulations will qualify as "loan capital", and thereby be exempt from stamp duty and also not prejudice a holder from qualifying under corporation tax securitisation regulations.

Landfill tax

The standard rate of landfill tax will be increased from £56 to £64 per tonne from 1 April 2012.

Aggregates levy

The increase in the rate of levy from £2.00 to £2.10 per tonne planned to apply from 1 April 2011 will not take place and will now apply from 1 April 2012.

Tax Avoidance

De-grouping charges

The provisions that exempt a gain from a corporation tax de-grouping charge when associated companies leave a group together are to be changed to prevent unintended avoidance.

General avoidance

There are to be several strategies to tackle tax avoidance. There is already a committee of tax experts looking at the possible benefits (or not) of introduction of a General Anti-Avoidance Rule (GAAR) into UK law. The committee is scheduled to make its initial report in the autumn. If introduced, a GAAR would be likely to be an additional tier in tax law above specific targeted legislation.

Avoidance using the tax treaty network of the UK for unintended purposes or benefits is to be the subject of consultation, with legislation planned in 2012.

There will in future be a rolling review of areas of potential tax avoidance that are considered to be high risk and high cost.

There will be further changes to the hallmarks (features of arrangements that require disclosure as tax avoidance schemes) in 2011/12 and disclosure is extended generally to inheritance tax schemes from 6 April 2011.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.