UK: Summary Of Significant Corporate Tax Related Announcements In The 2016 Budget

Last Updated: 11 April 2016
Article by Andrew Terry

There were a number of significant corporate tax related announcements in the recent budget some of which were anticipated and some of which were unexpected. We have summarised below a selection of those which we regard as most significant.

Business tax roadmap

The roadmap has been eagerly awaited and is supposed to make the UK's tax system fit for the future and to set out the Government's plans for the main business taxes in the period to 2020 and beyond. As expected there is talk of simplifying and modernising the UK's tax system and providing a low tax regime that will be attractive to international businesses whilst ensuring that such businesses pay taxes in the UK. The roadmap covers issues such as the rate of corporation tax, investment in the North Sea and reform of business rates. It also tackles tax avoidance and aggressive tax planning through limitation of interest deductions (BEPS Action 4) and hybrid mismatch arrangements (BEPS Action 2) as well as extending royalty withholding tax and tightening the rules on property development by offshore based developers.

An interesting feature of the roadmap is the introduction of greater flexibility of the use of corporation tax losses combined with a new restriction on the amount of taxable profits against which losses can be used.

Further details of the main features of the roadmap are detailed below.

Corporation tax – Rates and payment dates

Unexpectedly the main rate of corporation tax is cut by an additional 1% to 17% with effect from 1 April 2020. Also, with effect from 1 April 2019, the instalment payment regime will be amended for companies with annual taxable profits in excess of £20 million so that they will be required to make payments four months earlier than under the current system.

Interest deduction restrictions

With effect from 1 April 2017 the UK's existing generous interest deduction rules are set to change. From that date net interest deduction will be limited to a maximum of 30% of EBITDA. There will also be a group ratio rule that will permit larger interest deductions for groups with a third party net debt to group EBITDA ratio that exceeds the 30% limit. The new rules will not apply to the first £2 million of next interest expense and there will also be provisions that ensure that the new restriction does not impact negatively on private finance for certain UK infrastructure projects (which traditionally have relied on high levels of debt financing). These new interest deduction restriction rules effectively implement BEPS Action 4.

Use of corporation tax losses - New rules

Again with effect from 1 April 2017 new rules will permit greater flexibility in the use of corporation tax losses. From that date losses can be carried forward for use against profits not only of the same trade but also against profits in the company from other income streams. Significantly carried forward losses will also be capable of being surrendered by way of group relief to other group companies. The quid pro quo to these greater loss use flexibilities is that only 50% of taxable profits will be capable of being offset via carried forward losses. However, the new 50% restriction rules are subject to a de minimis profits figure of £5 million. This means that if, for example, a company has profits of £7 million it will only be able to offset carried forward losses against 50% of its profits over £5 million. This results in an offset of £6 million with the other £1 million available for carry forward against profits in a future accounting period. It should be noted that the £5 million allowance applies per group as opposed to per company.

These new rules do not apply to oil and gas companies that operate within the ring fence corporation tax regime. The already existing restrictions on the use of bank losses are tightened further. With effect from 1 April 2016 the amount of profits that can be reduced by carried forward pre-April 2015 bank losses is reduced to 25%. Post April 2015 bank losses will, however, be treated in the same way as losses incurred in companies that operate outside the banking sector.

Patent box

It has been confirmed that the existing patent box regime will be modified so as to comply with the OECD proposals (BEPS Action 5) in connection with preferential IP regimes. The main point is that going forward the benefits of the patent box will depend upon the extent to which research and development activity expenditure is incurred by the company electing for the regime as opposed to being outsourced to related companies or bought in IP.

Royalties and tax deduction at source  

Royalty payments made on or after 17 March 2016 are subject to a new anti-avoidance rule. This will provide that where royalties are paid between connected parties and a double taxation agreement or other international agreement such as the EU Interest and Royalties Directive is used to avoid an income tax deduction then the benefit of the agreement or directive will be denied. There is a presumption that the rule will apply where it is reasonable to conclude that a tax advantage was the main purpose of the arrangement.

The category of royalty payments to which deduction of tax at source can apply will be widened to make sure that income tax is deducted from all payments of royalties to non-UK residents where the royalty has a UK source (except in legitimate cases of treaty relief). This actually has a simplification advantage over the previous system in that it should no longer be necessary to determine whether or not the payment is an 'annual payment' (which in some cases might possibly have led to withholdings on a non-royalty basis).

Transfer pricing

The UK's transfer pricing rules are still to be updated to reflect BEPS Actions 8 to 10 although the Government is committed to make any necessary changes. The Government is also consulting on whether to introduce 'secondary adjustment' rules into the UK's transfer pricing code. Such secondary adjustments operate by recognising that funds which would have been kept by one party to a transaction if it had been carried out at arm's length have not actually been retained by it. Instead this is done by deeming a secondary transaction such as a loan or distribution to have been made.

Anti-hybrid rules

Such rules had already been announced at the end of last year in order to comply with BEPS Action 2. The rules come into effect on 1 January 2017 and are designed to combat the situation that arises where a payment is deductible in one country for tax purposes but not taxed in any other or where a payment is tax deductible in more than one country. These rules will now be expanded to deal with situations where mismatches arise through the use of exempt branches.

UK land - Trading profits

It has been possible to realise tax free profits from trading in UK land by using a structure with a non-resident property owner without a UK permanent establishment where the property owner was established in Jersey, Guernsey or the Isle of Man. Broadly the double taxation agreements between these countries and the UK did not deem a building site to constitute a UK permanent establishment of the offshore owner so with careful planning profits from trading in UK land could be realised free of corporation tax (or income tax). Provisions will be introduced which will subject profits from trading in UK land to corporation tax whether or not the owner is UK resident and regardless of whether there is a UK permanent establishment. Changes to the double taxation agreements with Jersey, Guernsey and the Isle of Man have also been agreed and these changes have already taken effect.

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.