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UK Budget 2015 levels the playing field between companies and LLPs

'The Chancellor has been clever in changing the tax regime for dividends,' says Louis Baker

9 July 2015

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By Manju Manglani, Editor (@ManjuManglani)

The UK's Budget 2015, which was delivered to parliament yesterday, included good news for corporations, partnerships and limited liability partnerships.

Under the proposals, legislation will be introduced in the Summer Finance Bill 2015 to reduce the main rate of corporation tax for all non-ringfenced profits.

In the financial year 2017, the corporation tax rate will be reduced from 20 per cent to 19 per cent. It will then drop further to 18 per cent in 2020. In 2010, the corporation tax rate was 28 per cent.

Meanwhile, changes to how dividends are taxed as well as to corporate tax relief for business goodwill amortisation will level the playing field between partnerships and limited companies.

"The Chancellor has been clever in changing the tax regime for dividends," commented Louis Baker, head of professional practices at national accountancy firm Crowe Clark Whitehill.

"From 6 April 2016 it will be more expensive for high earners to take profit out through a company by way of dividend than earning the profit within a partnership.

"The Chancellor has looked to ensure there is not a tax incentive to convert a successful partnership into a company."

The government has also restricted the corporation tax relief a company may obtain for the cost of goodwill (the reputation and customer relationships associated with a business). This will affect all acquisitions and disposals on or after 8 July 2015.

"This means there will be a level playing field again for partnerships/LLPs looking to expand by acquisition by removing the tax benefits that companies exclusively enjoyed in getting a tax break on their acquisitions," said Baker.

Another important change in the Budget is a permanent increase to the annual investment allowance (AIA) by businesses investing more than £25,000 in plant and machinery.

The maximum amount of the AIA was temporarily increased from April 2014 until 31 December 2015 after which it would have returned to £25,000.

From January 2016, the permanent level of the AIA will increase from £25,000 to £200,000. Legislation will be introduced in Summer Finance Bill 2015 to set the new permanent level.




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