Budget 2004
Introduction
Personal
Income Tax
Tax Credits
National Insurance Contributions
Employees
Pensioners
Savings
Trusts
Capital Gains Tax
Inheritance
Tax
Stamp Duty / Stamp Duty Land
Tax
Corporation Tax
Business Tax
Value Added Tax
Other Measures
Tax
Tables
National Insurance
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Corporation
Tax
Rates
The rates of Corporation Tax are unchanged for the year commencing
1 April 2004 at 30% for companies with profits over £1.5m,
19% for companies with profits between £50,000 and £300,000,
and zero for companies with profits up to £10,000. The
same marginal rates as before apply to those with profits between
£300,000 and £1.5m, and between £10,000 and
£50,000.
Small companies
In December, the Chancellor announced that he would take steps
to prevent tax avoidance by the owner-managers of small companies
taking profits out of the business by dividend rather than salary.
Some thought he might impose NIC on dividends, or reintroduce
an Investment Income Surcharge, or tax the owners on the income
of the company. In the end, the rule change appears much less
drastic, although it is not clear yet exactly how it will operate
in practice. Where a company with profits of up to £50,000
pays a dividend on or after 1 April 2004, the company has to
pay a minimum of 19% in corporation tax on the profits used
to pay that dividend. A company with that level of profits would
otherwise have a lower corporation tax rate.
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Transfer pricing
In the past, the Revenue could require companies to increase
their taxable profits if they had sold cheaply to, or bought
dearly from, foreign connected companies. Such transactions,
which were not at "arm's length prices", had the effect
of artificially shifting profits out of the UK, and the "transfer
pricing rules" could shift them back again.
It is now clear that European rules, and some other treaties,
do not allow such rules only to apply to "foreign"
companies - so they will now apply to UK groups of companies
as well. From 1 April 2004, UK groups will have to consider
whether they need to make adjustments to reflect "arm's
length pricing" on transactions between UK trading companies.
Fortunately, there is an exemption for small groups, and medium-sized
groups will not have to self-assess an adjustment (the Revenue
will only direct one "in exceptional circumstances").
Also, the Revenue have said that they will only enquire into
the matter if there is a reasonable amount of tax at stake -
if one company pays tax at a significantly different rate to
the other.
Small groups are those with fewer than 50 employees and either
turnover or assets of less than €10m (about £7m).
Medium-sized groups have fewer than 250 employees and either
turnover of less than €50m (about £35m) or assets
less than €43m (about £30m).
The separate rules on "thin capitalisation", where
a foreign holding company introduces a small amount of share
capital and a large amount of debt to finance a UK subsidiary,
have been brought within the main transfer pricing rules from
1 April 2004.
Management expenses
Until now, investment companies have relieved their running
expenses as "management expenses", but trading companies
with an investment business have not been eligible for this
relief. Relief will be extended to trading companies from 1
April 2004. On the other hand, the rules will specifically deny
a deduction for management expenses which are capital in nature,
after the courts recently held that existing rules did not disallow
them.
Research and development
The rules on R&D are amended to make enhanced reliefs available
to companies for accounting periods ending on or after 1 April
2004 for large companies, and from a later date to be announced
for small and medium companies. The definition of qualifying
R&D has been simplified, and a wider range of types of expenditure
will now qualify, to include software, power, fuel and water
used for qualifying R&D.
Community Amateur Sports
Clubs (CASCs)
The CASC scheme, introduced in 2002, gives some of the benefits
of charitable status to qualifying sports clubs. These are extended
from 1 April 2004 to exempt trading income of up to £30,000
and property income of up to £20,000 from corporation
tax. An exempt CASC will not have to complete a tax return every
year.
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