Business Taxes
Corporation tax rates
Corporation tax rates are changing as part of a
package of significant reforms to the business tax system. The main rate of
corporation tax will fall by 2% to 28% from 1 April 2008. The small
companies’ rate will increase by 1% to 20% in 2007/08, to 21% in 2008/09
and to 22% in 2009/10. These increases are aimed at reducing the tax benefits
of incorporation for small businesses.
Capital allowances – plant and machinery
The 50% rate of first-year capital allowances for
small business' expenditure on most plant and machinery will be extended for
another year to 31 March 2008 for businesses charged to corporation tax, and to
5 April 2008 for income tax. There will be a new annual investment allowance
for the first £50,000 of expenditure on plant and machinery starting from
2008/09. The government will consult on the details. Writing-down allowances
will also change from 2008/09:
- For most plant and machinery, the rate will fall
to 20% from 25%.
- For long-life assets, the rate will increase from
6% to 10%.
- Certain fixtures integral to a building will be
written down at 10% a year. The details of what constitute integral fixtures
will be the subject of consultation.
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Tax Tip
Buy green equipment and save tax. Choose an energy-efficient
or water-efficient item, and even basic fittings such as lighting, heat pumps
or toilets could qualify for an enhanced capital allowance. You could then set
the full cost of the new equipment against your taxable profits in the year you
bought it. Check which items qualify on www.eca.gov.uk. |
Industrial and agricultural buildings allowances
(IBAs and ABAs)
IBAs and ABAs will be phased out over the four years
to 2010/11, falling from 4% in 2007/08 to 3% in 2008/09, to 2% in 2009/10, 1%
in 2010/11 and abolished thereafter. The first stage, effectively from 21 March
2007, is the withdrawal of balancing adjustments and the recalculation of
writing-down allowances when buildings change hands or cease to qualify for
allowances.
Business premises renovation allowance
The scheme for tax relief for capital expenditure on
renovating certain business premises will come into effect from 11 April 2007.
The provisions, which were introduced in the Finance Act 2005, will give 100%
relief on the conversion or renovation of properties in designated
disadvantaged areas that have been vacant for at least a year.
Research and development (R&D) tax relief
scheme
The rates of R&D relief will increase from
2008/09 to 130% for large companies and (subject to state aid approval) to 175%
for small and medium-sized enterprises (SMEs). The SME R&D relief scheme is
to be extended to large companies with fewer than 500 employees from a date to
be announced.
Venture capital schemes
Technical changes will be made to the rules for the
enterprise investment scheme (EIS), the corporate venturing scheme (CVS) and
the venture capital trust (VCT) scheme. These include two new limits for
companies receiving EIS, CVS or VCT investment. The changes generally take
effect from 6 April 2007, subject to limited transitional reliefs.
The maximum amount raised from all three schemes must
not be more than £2 million in any 12-month period. A company or group of
companies must have no more than 50 full-time employees (or their equivalent)
at the date on which the relevant shares or securities are issued.
Managed service companies (MSCs)
Legislation will deem income to be employment income
where individuals provide their services through MSCs and their income is not
already treated as employment income. This means MSCs will have to operate and
account for PAYE on all payments that individuals receive for services provided
through the MSC. If the MSC does not pay the tax and national insurance
contributions, HMRC will be able to recover them from others, principally the
MSC’s director and the person who provided the company to the
individual.
MSCs are mass-marketed service companies that allow
individuals who have shares in the companies and provide services to pay less
tax because they receive most of their income in the form of dividends. HMRC
has found it difficult to apply the existing rules on personal service
companies to MSCs. The requirement to operate PAYE starts on 6 April 2007 and
the other powers come into effect at various dates during 2007/08.
Employer benefit trusts
Employers making employee benefit contributions by
declaration trust will have their deduction against taxable profits restricted
to the level actually paid to an employee in a taxable form within nine months
of the end of the relevant accounting period. This applies from 21 March
2007.
Capital loss and gain buying
From 21 March 2007, legislation will aim to stop
schemes that exploit an exception in existing anti-avoidance rules. These are
intended to prevent groups of companies obtaining a tax advantage where a
company changes ownership and one of the main purposes of the arrangements is
for the new owners to gain access to the company’s capital losses or
gains.
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Tax Tip
Arrange for your company to buy your shares to help solve your business
succession problem. When you retire from your own company, you would
probably like cash in return for your shares, but your younger colleagues may
not have the resources. The company itself could buy your shares and then
cancel them, leaving the remaining shareholders controlling the company. You
would end up with the cash on which the capital gain should be taxed at no more
than 10%. |
Secondments to charities and educational
institutions
Employers subject to income tax will be able to
obtain the correct deduction for salary costs of employees seconded to a
charity or educational institution. The change will be effective from 6 April
2007 and corrects errors made when the law was redrafted in 2005.
Landfill tax
The standard rate of landfill tax will increase from
£21 to £24 per tonne from 1 April 2007 and to £32 per tonne
from 1 April 2008. The lower rate for inactive waste will increase from
£2 to £2.50 per tonne from 1 April 2008.
Empty business property relief
The empty business property relief on national
non-domestic rates will be reduced from 1 April 2008. Office and retail
premises will receive 100% relief for a three-month period, and industrial and
warehouse premises will receive 100% relief for a six-month period after they
first fall empty. Relief will end for property remaining empty beyond these
periods. Charities will be exempt from the effects of this reform. |
