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Business Tax Corporation Tax
An anti-avoidance measure has also been introduced to prevent businesses claiming excessive balancing allowances on the disposal of assets on which capital allowances had been claimed, by entering into artificial transactions at below market value. The provision applies to industrial buildings, mineral extraction, flat conversions, agricultural buildings and assured tenancies. Since this measure was publicised in the Pre-Budget Report, it will apply to events occurring on or after 27 November 2002. Extension of IR35 to all domestic workers
It has been possible for people such as nannies and gardeners working for private individuals to set up service companies and thus avoid PAYE and NI by paying themselves via a dividend. This created an anomaly in that individuals supplying such services to a business would have been caught under IR35. The Chancellor has announced measures which broadly speaking will bring such individuals within the IR35 regime. The new rules would apply to services provided after 9 April 2003. Employee share schemes and benefit trusts
In the Pre-Budget Report, an anti-avoidance provision had been announced to prevent employers obtaining a corporation tax deduction for contributions made to an employee benefit trust, until payments are made to employees which are liable to income tax and National Insurance contributions. This measure is backdated to 27 November 2002. Further anti-avoidance measures have been introduced in respect of company share option plans which allow employees to exercise options within three years of grant. The new measures will effectively treat such plans as though they were unapproved share option schemes. National Insurance contributions will also become payable on the exercise of options under these plans which had been granted prior to April 1999 and where there was evidence of manipulation of the share values. These measures come into operation on 9 and 10 April 2003 respectively. Further announcements include the removal of the "second three year rule", for company share option plans which prevented tax free exercise of an option within three years of a previous exercise. Employees who leave a company share option plan through no fault of their own, such as injury, will now be allowed the same favourable treatment as those under save as you earn and share incentive plans. These two changes take effect from Budget Day. There are also a number of other measures dealing with the definition of "market value" and "material interests" in company share option plans. General measures to support business
The Chancellor has announced a number of consultations aimed at helping business, including access to capital for small businesses, reducing regulation and compliance costs by reducing accounting and reporting requirements for small companies and raising the audit threshold. Other areas which will come under review are regulatory enforcement, reducing the burden of statistical surveys, simplifying compliance with the Data Protection Act and reforming the construction industry scheme.
Tax rules during insolvency
New tax rules will apply to companies in liquidation and administration under the insolvency measures in the Enterprise Act 2002. The rules will come into effect on the same date as the company law changes come into effect. For any liquidation ending on or after that date, if the company ceases to be in liquidation without being wound up, an accounting period will end on the date of ceasing to be in liquidation. Where a company goes into administration or leaves administration, this will now result in the commencement of a new accounting period. During the administration of a company, the administrator of the company will now, under the new rules, be the "proper officer". The special rules allowing liquidators to settle company liabilities early under self assessment are to be extended to companies in administration. For any company in liquidation, the special rules applying to loan relationships between connected companies are overridden. This override will, for liquidations in place on or after 9 April 2003, only apply to the period whilst the company remains in liquidation. Tax relief for interest on overdue tax
The tax rules for deduction of interest paid on overdue tax and NI by employers and contractors in the construction industry are to be codified to reflect current and accepted practice for accounting periods ending on or after 9 April 2003. Loan relationships and derivative contracts
Amendments are proposed to the rules with effect from 9 April 2003 governing the transfer of loan relationships and derivative contracts between group companies to prevent profits falling out of charge to tax when mark to market accounting is used. Other rule amendments are proposed in connection with intra-group novated contracts and the connected party rules to prevent deduction for interest (or discount) accrued but never paid.
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