By Jo Pleasant, Tax director, and Kathie Haunton, Tax director

The Chancellor's speech reinforced the Government's policy of encouraging large businesses to invest in the UK. The key announcement is the further reduction of the mainstream rate of corporation tax from 26%, which was already due to fall to 25% from 1 April 2012. This will now fall to 24% from 1 April 2012 with further 1% reductions in the next two years bringing the rate down to 22% from 1 April 2014.

This relatively low rate of corporation tax, compared to other developed economies, is coupled with the introduction of a lower effective tax rate of 10% to be applied to profits from patented technology; the purpose being to encourage exploitation of innovation in the UK.

The introduction of an 'above the line' credit for R&D tax relief from April 2012 was also confirmed. The credit will be given at a minimum rate of 9.1% of qualifying spend and will enable loss making companies to claim a payable credit. Further details of the design of the credit and the rate of the payable credit will be determined as part of the forthcoming consultation. The changes to the SME R&D regime to increase the rate of relief to 225% of qualifying spend (from April 2012) and the removal of the PAYE/NIC cap which were previously announced, have been reconfirmed. Businesses have lobbied hard for these changes, so they will be welcomed.

The long awaited reform of the UK Controlled Foreign Company rules, which will apply from 1 January 2013, will also relax how the UK taxes overseas profits of UK multinational groups. This package of corporate tax incentives should therefore make the UK a more attractive location for large businesses to invest. The Chancellor stressed that the Government's policy objective of making the UK a more competitive location for business is encouraging groups to come to the UK, rather than leave. We hope that the further fall in the corporation tax rate and the introduction of an 'above the line' relief for R&D encourages more groups to follow this trend.

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