Corporation Tax - Indexation Allowances and R&D Tax Creditors

The indexation allowance for companies’ capital gains is to be abolished, bringing the corporate tax system in line with capital gains tax for individuals. Companies have continued enjoyment of the indexation allowance since its introduction. The indexation allowance takes into account inflation when calculating the chargeable gains for companies.

The allowance will be frozen from January 2018. Buy-to-let investors who have set up as companies will face increased taxes when they eventually sell their properties, although the effects are unlikely to be felt for some years.

Corporation tax is falling to 17% by 2020 and the inability to offset the effects of inflation after January 2018 is expected to cost business owners selling property through a company £1.8bn over the next five years.

Tax relief for research and development ("R&D") is set to be increased from 11% to 12% from 1 January 2018. The measure increases the tax relief for large companies, along with small and medium sized enterprises, that carry out qualifying R&D and claim the credit.

The credit, also known as the “above the line credit”, is a standalone credit brought into account as a receipt in calculating profits. For tax purposes, R&D takes place when a project seeks to achieve an advance in overall knowledge or capability in a field of science or technology. R&D relief allows companies that carry out qualifying R&D relating to their trade to claim an extra Corporation Tax deduction for qualifying expenditure.

Written by Callum Somers MAAT ACCA

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