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CHARTERED TAX ADVISERS REGISTERED AUDITORS01628 665432
CHARTERED TAX ADVISERS REGISTERED AUDITORS01628 665432
Home > > 12 March 2008 Budget Report > Business taxation
| Corporation tax rates and bands | ||
|---|---|---|
| Financial Year to | 31 March 2009 | 31 March 2008 |
| Taxable Profits | % | % |
| First £300,000 | 21 | 20 |
| Next £1,200,000 | 29.75 | 32.5 |
| Over £1,500,000 | 28 | 30 |
| Small companies marginal relief fraction | ||
| £300,000 - £1,500,000 | 7/400 | 1/40 |
The small companies' rate increases to 22% from 1 April 2009.
This Budget sees the introduction of significant changes to the capital allowances regime many of which had been announced in the business tax reform package as part of the 2007 Budget. The key measures are:
Another pre-announced tax reform is an increase in the rate of relief available for research and development expenditure and vaccine research expenditure (VRR). For small and medium sized companies (SME) the relief will increase from 150% to 175% of the expenditure and for large companies the increase is from 125% to 130%. The effective date will be announced by way of a Treasury order when the proposals have been cleared with the EC. A cap is also being introduced to restrict the amount of relief available under the SME and VRR schemes to €7.5m per R&D project.
The 2008 Finance Act will give statutory backing to the long standing tax rule that goods appropriated from trading stock other than by way of trade should be accounted for at their market value. Under UK GAAP such appropriations would generally be accounted for at cost or disposal proceeds and therefore this has often resulted in an adjustment in computing taxable profits. The statutory rule will put the matter beyond any doubt in the future. The measure takes effect from 12 March 2008.
This Budget follows the now familiar pattern of using Budget day to introduce a raft of anti-avoidance provisions the most significant of which are detailed below:
This complex area of corporation tax law is still under review. However, in advance of potential major simplification, new legislation will ensure that companies will not be regarded as associate merely by virtue of being under the control of individuals who are partners in the same firm.
With effect on and after 1 April 2008 the associated companies rules are simplified as they apply to the small companies rate of corporation tax.
The small companies' rate currently applies to companies whose profits are less than £300,000. Where profits are above £300,000, but below £1,500,000, a marginal rate (29.75% from 1 April 2008) applies. These limits are reduced proportionately for companies 'associated' with other companies.
'Associated' generally means being under common control. The definition of 'control' is being changed for the small companies' relief. The change will ensure that the rights or powers held by a business partner will be attributed only when 'relevant tax planning arrangements have at any time had effect in respect of the taxpayer company'.
Charities will be compensated for the loss of tax claims on gift aid due to the reduction in the basic rate from 22% to 20%. The Government will pay a transitional relief supplement of 2% for gift aid donations made on or after 6 April 2008 but before 5 April 2011. Claims will continue to be paid at new basic rate of 20% and the supplement will be paid separately.
Details have been awaited for some time of the new relief for the disposal of businesses and business assets which will apply from 6 April 2008. Now that that draft legislation is available it is clearer what will - and what will not - attract relief.
The relief is available where an individual (or in certain circumstances, a trustee) makes a 'material disposal' of his or her business. This includes the sale of the business as a whole, the sale of an interest in a partnership, and the sale of shares in a qualifying company. To qualify for relief on the sale of shares, the shareholder must own at least 5% of the ordinary share capital in the company, and as a result can exercise 5% of the voting power, and be an officer or employee of the company. The company must be a trading company or holding company of a trading group as currently defined for business asset taper relief.
The conditions of ownership need to be in place for at least 12 months before the disposal for relief to be available.
Where the material disposal comprises a sale of shares or of a share in a partnership, the disposer can also claim relief against the gains on the disposal of an asset which was used in the business. The later disposal can take place within three years of the disposal of the business interest, although the relief is restricted where rent has been charged on the property.
The sale of assets without the sale of the business, or the cessation of trade will not qualify for relief. This will affect farmers who sell off parcels of land, which presently qualifies for taper relief, but will not attract any relief after 5 April 2008.
As already announced, the relief will be available against gains on the disposal, and will be a limited to a lifetime amount of £1,000,000. The gains subject to relief will be scaled by deducting 4/9 of the amount, leaving 5/9 in charge, and effectively providing a 10% rate of tax on the gross gains.
There are also rules to allow a the owner of shares in a company which is the subject of a takeover to elect to be taxed on the sale, allowing the new relief to trigger, and rules to cover business disposals before 6 April 2008, but where the gains on the disposal have been deferred into Qualifying Corporate Bonds or EIS and VCT shares. These will all potentially attract relief under the new rules.
Legislation is to be introduced to confirm that in calculating its corporation tax liability the amount a company was permitted to deduct in respect of pension costs between 1 April 2004 and 5 April 2006 was limited to the pension contributions paid in the year. Past years computations from 1 April 2004 will need to be corrected if necessary and any accrual provided in accounts in future will need to be added back in the tax computation.
The rate of aggregates levy will rise from £1.95 per tonne to £2 per tonne with effect from 1 April 2009.
Standard rate
The standard rate of landfill tax is to increase from £32 per tonne (effective from 1 April 2008) to £40 per tonne. The new £40 per tonne rate will have effect for any standard rated disposal made, or treated as made, on or after 1 April 2009.
Exemption for waste from cleaning up contaminated land
Waste from cleaning up contaminated land disposed of by landfill is exempt from landfill tax. This exemption is to be phased out.
Applications for landfill tax exemption certificates will not be accepted by HM Revenue and Customs on or after 1 December 2008. Anyone in possession of a valid exemption certificate will have until 31 March 2012 to dispose of their waste if they wish to benefit from the exemption. All certificates issued under the scheme will cease to be valid on or after 1 April 2012 and disposals to landfill of waste from cleaning up contaminated land made on or after that date will be liable to landfill tax at the appropriate rate.
These provisions will be included in secondary legislation to be published in summer 2008.
Looking to apply for a relief certificate?
HM Revenue and Customs website will provide you with form LFT2 'Reclamation of contaminated land' which explains how to apply for a relief certificate.
Landfill communities fund
Landfill tax and environmental bodies enrolled under the Landfill Communities Fund should be aware of the secondary legislation to be introduced as outlined in BN81 (page193).
After HM Revenue & Customs lost the landmark case of Arctic Systems following a ruling by the House of Lords, the Government announced their intention to legislate to prevent individuals arranging their affairs to gain a tax advantage by shifting part of their income to another person who is subject to a lower rate of tax ('income shifting').
Draft legislation was published in December, which many people think is unworkable. An early Day Motion was signed by 174 MP's urged the Government to reconsider its proposals.
The Government has not backed down. It has announced it now intends to introduce legislation through Finance Bill 2009, and whilst it has said that the legislation will not be backdated to 6 April 2008, it could become effective from some later date such as the date of the Pre-Budget Report.
For further details email Eacotts on services@eacotts.com or call 01628 665432
Eacotts Chartered Accountants and Chartered Tax Advisers - Servicing the Thames Valley, Berkshire, Buckinghamshire, Slough, High Wycombe, Maidenhead, Marlow, Uxbridge, Windsor and the UK.
This document is for guidance only and professional advice should be sought before acting on the information contained. No responsibility will be accepted by Eacotts for loss occasioned as a result of action taken, or refrained from, in consequence of the contents
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