| Anti
Avoidance |
| The Chancellor closed with
effect from today two tax loopholes being
exploited by multinational companies. The first
measure is in relation to Controlled Foreign
Companies (CFCs) that have used UK dividends to
satisfy their Acceptable Distribution Policy
(ADP). Dividends which a CFC pays to the UK will
no longer count towards satisfying the ADP if
they are paid out of UK dividends, which do not
count towards computing the chargeable profits of
the CFC. |
| Secondly, the use of complex
schemes whereby multinational companies have
secured tax advantages by draining value from
subsidiaries, via tax free dividend payments, and
have then sold these subsidiaries to offshore
group members before onward sales to third
parties has been stopped from today. |
| In the past there has been
confusion over the taxation treatment of reverse
premiums i.e. inducements by landlords to
potential tenants. Sums payable under agreements
made on or after Budget day will be subject to
tax in all cases. |
| The Chancellor said that the
general anti-avoidance rule (GAAR) for corporate
direct taxes remained an option for the future,
but that the Government would not be proceeding
with a GAAR in this Budget. |
| Assistance
For Small Companies And Businesses |
| The Chancellor announced four
new measures to assist small business, the most
significant being a reduction in the corporation
tax burden on small and growing companies. A new
10 per cent starting rate for corporation tax
will take effect from 1 April 2000 and will apply
to companies with taxable profits of up to
£10,000. For companies with taxable profits
between £10,000 and £50,000 there will be a
scaled increase up to the small companies rate
which will start at £50,000. The 10 per cent
rate will not apply to close investment holding
companies. |
| Small employers can currently
pay their PAYE and NIC quarterly if the average
monthly total is less than £500: with effect
from 6 April 1999 this limit is increased to
£1,000. |
| The Chancellor also announced
the launch of |
|
|
| a new Small
Business Service (SBS ) which will
provide independent business advice, and
help with statutory compliance matters
including a new payroll service, to make
it easier for employers to comply with
PAYE and NIC regulations. The SBS will be
run as a joint venture with Customs and
Excise and will also promote the use of
IT by small businesses including
electronic filing of statutory returns
which will attract a discount. Full
details are to be announced. |
| A new tax credit on
research and development by small and
medium sized enterprises |
|
|
| same time: one stops
the use of funds by a subsidiary of an
EIS company unless it is at least 90 per
cent owned, and the second amends the
Venture Capital Trust rules so that
relief from income tax on distributions
is withdrawn where the main purpose of
the investment was the avoidance of tax.
The first of these anti-avoidance
provisions takes effect on or after 6
April 1999 and the second on or after
Budget day. |
| Miscellaneous
Business Matters |
| The Chancellor
announced today a tax boost to widen the
use of IT within the business community.
From |
|
 |
| will be introduced in
2000: no details are available at
present. |
| Enterprise
Investment Scheme (EIS) Companies |
| "Serial"
entrepreneurs and other investors in EIS
companies are to receive a new capital
gains tax relief. This is designed to
give 'business angels' the chance to
defer a chargeable gain on the disposal
of an EIS investment by reinvesting in
another EIS company. The serial
investments will thus qualify for taper
relief from the date of the first
investment to the date of the final
disposal. Two anti-avoidance provisions
have been introduced at the |
|
|
| 6 April 1999 employees
will be able to use an employer's
computer at home without fear of a tax
charge as long as the value of the
computer equipment is £2,000 or less. |
| The Chancellor also
announced a reduction in the rate of
employers national insurance with effect
from April 2001 by 0.5 per cent to 11.7
per cent. This will be coupled to a new
tax on energy use, the details of which
are not yet available, but the overall
effect on industry of the two measures is
expected to be neutral. |
| The Chancellor has
also announced an increase in the Class 4
national insurance levy on the self |
|
| Corporation Tax Rates |
| Financial
Year to |
|
31 March 2000 |
|
31
March 1999 |
| Full rate |
|
30% |
|
31% |
| Small companies' rate |
|
20% |
|
21% |
| Effective marginal
rate |
|
32.5% |
|
33.5% |
| Small companies rate
to |
|
£300,000 |
|
£300,000 |
| Marginal rate on next |
|
£1,200,000 |
|
£1,200,000 |
| Small companies -
marginal relief fraction |
|
1 / 40 |
|
1 / 40 |
|
|
|
| employed to bring them more
into line with employees. The new rate will be 7
per cent on profits up to £27,820 and this will
take effect from April 2000. |
| Capital
Allowances For Small And Medium Size Businesses |
| The enhanced first year
capital allowance of 40 per cent for small and
medium size businesses, that is available until 1
July 1999, will continue to apply for expenditure
incurred up to 1 July 2000. |
| For small and medium size
businesses buying assets for use primarily in
Northern Ireland, the rate of first year
allowance is 100 per cent for the period to 11
May 2002. |
| |
| Capital
Gains Of Companies |
| The Chancellor has decided to
make no changes to the taxation of capital gains
for companies, following last year's consultation
process. The Chancellor has however indicated
that he would like to consider whether or not
changes do need to be made particularly in
relation to capital gains tax groups, and the
gains arising from the sale of subsidiary
companies. |
| The Treasury and Inland
Revenue will be entering into discussions with
interested parties with a view to possible
changes. |
| |
| Self
Assessment For Companies |
| Self Assessment for companies
is being introduced for accounting periods ending
on or after 1 July 1999. One of the changes for
larger companies is the collection of taxation by
quarterly installment payments. Today's amendment
will allow for fixed penalties to be levied,
where a company fails to provide the Inland
Revenue with information regarding a failure to
make a quarterly payment on account, or has made
an inadequate payment. |
| All other changes announced
for Self Assessment, including the abolition of
Advance Corporation Tax apply as previously
reported. |
|
