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While most businesses are largely supportive of the government’s plans to reduce the UK Budget deficit, they are divided on whether the government is doing enough to stimulate enterprise. Almost 64 percent of companies feel that the measures outlined in the UK Budget will have a positive effect on their business, with nearly 28 percent stating that the Budget will have a positive effect on their staffing levels. Reducing corporation tax is a smart move, as an encouraging environment for business is precisely what’s needed to stimulate growth. Here is a snapshot of the UK budget of 2011

Corporation Tax Rates

Effective April 1, 2011, the main rate of Corporation Tax will be reduced to 26% (from 28%) with further yearly reductions of 1% for the next two years till the Corporation Tax rate reaches 23% in 2014 making the U.K. rate the lowest in the G7. Apart from U.K. businesses, the move affects all foreign companies operating in the U.K. via a permanent establishment and boosts U.K.’s appeal as a business destination. The new corporation tax rates also affect international accounting for deferred tax assets and liabilities.
Research and Development (R&D) Tax Credit for Small and Medium Enterprises (SMEs)

The rate of additional deduction for expenditure on R&D for SMEs will be raised from 75% to 100% effective April 1, 2011. This will give an overall deduction of 200% in 2011 and the total deduction will be further increased to 225% in April 2012.The move is particularly beneficial for SMEs with less than 500 employees and either turnover not exceeding € 100 million or total assets not exceeding € 86 million. Additional benefits like abolishing the minimum expenditure limit of £10,000, removal of rule limiting a SME company’s payable R&D tax credit to the amount of PAYE and the National Insurance Contributions (NICs) it pays are also expected to come into effect April 2012.
Taxation of Foreign Branches

U.K. companies can make an irrevocable election for all its foreign branches to be exempt from the U.K. corporation tax on their profits. Any capital gains tax attributable to the foreign branch will also be exempt. However, no relief will be available for foreign branch losses. Thus, a company having losses in the foreign branch may elect to opt out of this option. The exemption is available to companies from accounting periods beginning on or after the date Finance Bill 2011 receives Royal Assent. Companies will need to consider the anti-diversion rules in the legislation to determine if the exemption is attractive to them.
Small Corporation Profits

Effective April 1, 2011, the rate of tax on small corporation profits will be down to 20 per cent from the current 21%.
Entrepreneurs Relief

The lifetime limit for Entrepreneur’s Relief from capital gains tax, mainly benefiting serial entrepreneurs, will be doubled to £10 million. Qualifying gains are taxed at reduced rate of capital gains tax of 10%. Any gains in excess of this lifetime limit will be subject to the standard tax of 28%. The measure takes effect April 6, 2011 and is the third consecutive increase to lifetime limit by the government indicating their intentions to encourage investments in the U.K. The limit was set at £2 million in the last budget and increased to £5 million in June 2010.
In a company international expansion, it is best to employ the services of a professional whether it’s surviving an audit, capitalizing on business deductions, or finding tax-friendly ways to run your business, to help reduce your tax obligations. To cut red tape on small businesses, the government announced that the number of small businesses subject to audit would be reduced. The change will allow more U.K. companies to take advantage of the exemption leading to a significant reduction in administrative burden for authorities and cost savings.
As incomplete knowledge about foreign markets can be a real impediment in your international expansion, it is advantageous to have a trusted service provider to assist you in creating an appropriate tax and legal structure to optimize your new operating configuration.
You can have unlimited assistance in your international business expansion, for aligning your tax profile and a good service provider would be focused on providing exceptional assistance.