The WYSIWYG (what you see is what you get) Draft Finance Bill sets the agenda for spring-cleaning in 2012

The Draft Finance Bill has the potential to develop from a draught into a full-blown wind of change that could sweep away a number of obstacles to enterprise and growth. In this sense it appears that April 2012 should see a spring clean that will not only clear out obsolete oddities identified by the Office of Tax Simplification but also introduce worthwhile reforms that promise to remove obstacles to the UK’s international competitiveness. We are cautiously optimistic that what we see is truly what we will get.  Some of the highlights include the following.

Controlled foreign companies: the uncertainty lingers on
The omens for CFCs are still good: Pandora’s box has been open for over four years but at least we are coming down to hope, in that the intention has at last been formed to get it right. However, this will require a complete about-face from the original proposals and our expectations. Last June we thought we knew the likely shape of the new legislation.  Now we have a completely different set of definitions and draft rules which are not fully formed but must be made flesh in time for implementation in April 2012.

Patent box and research and development
The proposed patent box is a welcome attempt to staunch the haemorrhage of creative industries from the UK to less heavily taxed overseas jurisdictions. This is most likely to benefit the pharmaceuticals, life sciences, manufacturing, electronics, and defence industries as well as the  highly-publicised games creators.

R&D tax credits will be enhanced by:

• SMEs being entitled to 125% instead of 100% allowances
• removing the £10,000 minimum spend requirement;
• removing the restriction to the company’s PAYE and NIC liability

‘Above the line credits’ for large companies are not in the Bill but are subject to further consultation.

Statutory residence test will be slow to arrive
The proposals for a new statutory residence test were generally well received and their withdrawal for further consultation is a slight disappointment. However, the need is for the replacement rules to represent a genuine improvement and that is what we expect from the revised rules when they are finalised for 2013.

Other measures
Measures which may promote UK business and simplify taxation include:

• improved Enterprise Investment Scheme (EIS) and Venture Capital Trust rules;
• expansion of EIS to new start-ups through the Seed Enterprise Investment Scheme;
• making REITs available to more investors.

Anti avoidance
No Finance Bill is complete without a selection of anti-avoidance measures and this one is no exception.