Business tax and invesment incentives
Corporation Tax
| Corporation tax rates and bands are as follows: |
| Financial Year to |
31 March 2003 |
31 March 2002 |
| Taxable Profits |
| First |
10,000 |
0% |
10,000 |
10% |
| Next |
40,000 |
23.75% |
40,000 |
22.5% |
| Next |
250,000 |
19% |
250,000 |
20% |
| Next |
1,200,000 |
32.75% |
1,200,000 |
32.5% |
| Over |
1,500,000 |
30% |
1,500,000 |
30% |
| |
| Small company’s marginal relief fraction |
| £10,000 - £50,000 |
19/400 |
1/40 |
| £300,000 - £1,500,000 |
11/400 |
1/40 |
|
National Insurance: a mounting cost to businesses
The changes in national insurance announced today which are aimed at funding the National Health
Service will add a significant cost to a business’s payroll. Those who are self employed will also bear
a significant burden through the rising cost of Class IV contributions. The new 1% levy may be
opening the door to rises in future budgets.
Taxation of UK branches of foreign companies
Government research has highlighted that the UK is out of step with other major countries such as
France, Germany and the USA in its treatment of the taxation of UK branch profits. The proposed
measures will be aimed at achieving greater consistency between the taxable profits of branches
and those of companies. It has been recognised for some time that foreign companies operating
as branches in the UK frequently allow their branches to finance their operations through debt rather
than retained profits and the resulting interest payments depress the branch results. If the branch
were operating as a subsidiary company then it would be forced to maintain higher levels of
shareholders funds. The draft clauses will be published shortly and there will be a consultation
period to follow.
|
Pointer |
|
|
|
|
|
There are many ways to reduce the cost of charitable giving. We can
advise you on the various tax reliefs available for personal and
business gifts to charity.
|
|
|
|
|
Taxation of intangible assets
The new measures announced today will affect any company which purchases intellectual property,
goodwill or other intangible assets. Generally the amortisation of those assets charged in the
company’s accounts will be allowed as a deduction from profits. In the case of indefinite or longer-life
assets a fixed rate of 4% per annum will be allowable as a deduction. The relief will apply to the
cost of creating, acquiring and enhancing assets and also the cost of preserving and maintaining
them. It is notable that internal development costs will also qualify. Disposals of these assets will be
taxed as income with a rollover provision for proceeds reinvested in other intangible assets. Existing
assets will continue to be treated under the current rules but disposals of them will qualify for the
new rollover provisions. These new rules take effect from 1 April 2002 and follow a long period of
consultation.
Capital allowances
No major changes have been announced in the capital allowances regime but the Chancellor
announced today a new 100% First Year Allowance for low emission cars used in the business or by
employees and refuelling equipment for vehicles using natural gas or hydrogen. Businesses can also
claim 100% allowances on the cost of designated energy saving technologies for leasing, letting or
hire. To qualify, the vehicles must be registered on or after 17 April 2002 and either be electrically
propelled or emit less than 120 grammes per kilometre (g/km) of carbon dioxide.
Research and development tax credits
Tax credits for Research and Development (R&D) have been available to small and medium sized
companies (SMEs) since 1 April 2000 and this system is to remain in place for such companies. Large
companies are now also to be given tax credits at the rate of 25% of their qualifying R&D expenditure with
effect from 1 April 2002.
The definition of research and development will be the same as used for the SME R&D tax credit. Large
companies will not generally receive credit for work subcontracted to others. They will however, receive a
credit for work subcontracted to universities and other higher education institutions, charities, scientific
research organisations, NHS bodies, individuals and partnerships of individuals. Companies will be able to
claim the credit for work which has been subcontracted to them by others.
An exception is to be made where an SME subcontracts R&D work to a large company. The SME will now
receive a tax credit at the rate of 50% on the expenditure. Where a large company subcontracts R&D work
to an SME, the SME will be able to obtain a 25% tax credit on its qualifying expenditure.
|
Pointer |
|
|
|
|
|
Everyone in business should have a succession or exit plan, if only
to ensure that on retirement the final value of the business can be
realised. But good succession or exit planning can mean the
business passes smoothly to the next generation, or to a new
management team, or to new owners when you retire.
|
|
|
|
|
Corporation tax relief for substantial shareholdings
The recently announced measures for the exemption from capital gains for disposals by companies
of substantial shareholdings with effect from 1 April 2002 were confirmed in the Budget today. The
exemption which applies to most shareholdings of 10% or more in trading companies will mean that
capital gains on such sales by trading companies and groups will not be taxable.
Corporate debt, derivative contracts and foreign exchange
Following extensive consultation, the current legislation on foreign exchange gains and losses and on
financial instruments is to be repealed. Exchange differences will now be dealt with under the rules for
loan relationships or derivative contracts. The new rules for derivative contracts, replacing the financial
instrument rules, will be more closely aligned with UK GAAP and the loan relationship rules. There will
be changes to the definition of connected parties and the bad debt relief rules under the proposed
new loan relationship legislation. The new legislation will apply to companies for accounting periods
beginning on or after 1 October 2002.
Venture Capital Trusts
In contrast to previous years there are a few major changes to the scheme which started on 6 April
1995. It has become apparent that the current rules make it almost impossible for VCTs to merge or
be wound up without loss of tax relief to investors. It has been announced that measures will be
introduced to enable VCTs to merge with each other and also to allow a grace period during winding
up so that investors can preserve their tax relief.
Withholding tax for FSA registered businesses
Currently, financial dealers do not enjoy the same exemption that banks do in not having to deduct
tax at source from annual interest payments. Today’s announcement will bring financial dealers
within the definition of ‘deposit-takers’ and therefore ease the administration for such businesses
with effect from interest payments made on or after 1 October 2002.
Donations of medical supplies to developing countries
The Chancellor has removed an anomaly in the tax treatment of donations of medical supplies to
UK charities and those made for humanitarian purposes to developing countries. The new measure
which applies to donations on or after 1 April 2002 will allow companies to make such donations
without adjusting the tax computation to reflect the notional sale proceeds.
Manufactured payments: anti-avoidance
A measure has been announced with effect from 17 April 2002 to prevent individuals deducting
manufactured payments from their income for tax purposes. Manufactured payments arise normally
during a stock loan where the holder of the securities receives an interest or dividend payment but
has contracted to pay an equivalent amount to the original owner. It will not apply in cases where
the actual interest would be eligible for relief or where the payment is equivalent to the amount
chargeable to tax in respect of the same securities.
Companies paying royalties to non-residents
Under existing tax rules, companies paying royalties to a non-resident have to deduct tax so that
the Inland Revenue have a means of collecting tax from non-residents on royalty income arising in
the UK. In most cases however, the income would be exempt under the provisions of double tax
treaties. The measure announced today will give companies the option of paying royalties gross to
non-residents where the company has reasonable grounds to believe that the recipient will be able
to claim exemption under the terms of a double tax treaty. The company may also deduct a lower
rate of tax in line with the terms of the relevant treaty. The new rules will apply for royalty payments
made on or after 1 October 2002.
Controlled foreign companies
The Treasury is to be given reserve powers from the date of enactment of the Finance Bill to
designate jurisdictions in which all controlled foreign companies would automatically fall within the
charge to tax made by the controlled foreign company rules. The reserve power will not be used
where appropriate action is being taken to remove harmful tax practices by the foreign jurisdiction.
|
Pointer |
|
|
|
|
|
If you have just started a new company, consider gifting shares to
younger family members to create the opportunity for significant
future tax savings – but be aware that creating an income stream for
your minor children can have adverse tax consequences. Instead,
create an income for your teenage children by employing them in
your business.
|
|
|
|
|
|
