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Pre-Budget Report
REV/HMT 3
27 November 2001
A new tax credit to boost R&D and innovation in larger companies will further the Government's ambition to close the productivity gap between the UK and its main competitors, the Chancellor announced today.
Following an initial consultation after Budget 2001, the Government has decided to adopt a version of a volume-based credit - a design strongly favoured by earlier respondents. The Government will launch a further consultation shortly on options for the design of a volume-based credit, recognising the importance of working in partnership with business.
Also announced today was a package of measures to build on the Government's radical reform of the corporate tax regime.
In response to recent consultations with business, the Government is publishing consultative draft legislation on:
The Government intends, subject to consultation, to introduce these measures from April 2002.
This Pre-Budget Report also announces:
The Government is today publishing the Inland Revenue's review of links with business - a report recommending the improvement of the Revenue's operational links with large corporates.
This Pre-Budget Report also introduces a package of measures to reduce further the tax burden on small businesses and those who invest in them. For more information, see the following press notice.
R&D Tax Credit
The Government published a consultation document Increasing Innovation in Budget 2001. This set out the case for a new R&D tax credit for large companies and invited comments on two options:
The consultation document Increasing Innovation is available below in Adobe Acrobat Portable Document Format (PDF). If you do not have Adobe Acrobat installed on your computer you can download the software free of charge from the Adobe website.
For alternative ways to read PDF documents and further information on website accessibility visit the HM Treasury accessibility page.
A further consultation document will be launched on next month, summarising the responses received and outlining progress on designing the scheme. The aim of this further consultation will be to consider options for the design of a volume-based R&D tax credit.
The Government is today publishing draft legislation providing details of a relief for capital gains and losses on substantial shareholdings. It is proposed that for disposals on or after 1 April 2002, gains will be exempt, and losses not allowable, where:
Alongside the draft legislation, the Inland Revenue is publishing a Statement of Practice which gives guidance on the calculation of underlying tax on foreign dividends received by companies.
The full draft legislation with outline explanatory notes on the proposed exemption and a partial Regulatory Impact Assessment has been placed in the House of Commons and may be obtained by post from:
Inland Revenue
Capital and Savings
Room 121
New Wing
Somerset House
Strand
London WC2R 1LB
It may also be downloaded from the Inland Revenue website.
Intellectual Property, Goodwill and Other Intangible Assets
The Government is also publishing draft legislation on a new regime for providing relief to companies for the costs of intellectual property, goodwill and other intangible assets:
Draft legislation for the new regime, together with a commentary and a partial Regulatory Impact Assessment has been placed in the House of Commons, and may be obtained by post from:
Inland Revenue
Business Tax
Room 4W3
22 Kingsway
London WC2B 6NR.
It may also be downloaded from the Inland Revenue website.
Corporate Debt, Financial Instruments and Foreign Exchange Gains and Losses
In addition, the Government will shortly be publishing details of a new regime for corporate debt, financial instruments and foreign exchange gains and losses. The new tax regime will:
There has been extensive consultation on the detail of these changes. This has shown widespread support for the Government's intention to minimise compliance burdens, reduce economic distortions and limit avoidance opportunities so that all companies pay their fair share of tax and compete on a level playing field.
The new rules will apply for companies accounting periods beginning on or after 1 October 2002. This should ensure that companies have plenty of time to prepare for implementation.
Capital gains tax business assets taper
This Pre-Budget Report confirms improvements to the capital gains tax business assets taper relief, as announced in June 2001:
Legislation is to be introduced as part of the Finance Bill 2002 so that, with effect for disposals from 6 April 2002, the rate of CGT business assets taper relief will be:
|
Whole years asset held from 6 April 1998
|
Proposed new rates (disposals from 6 April 2002) |
Existing rates |
||
|
Percentage of gain charged to tax |
Effective rate of tax for higher rate taxpayer (%) |
Percentage of gain charged to tax |
Effective rate of tax for higher rate taxpayer (%) |
|
|
Less than 1 |
100 |
40 |
100 |
40 |
|
1 |
50 |
20 |
87.5 |
35 |
|
2 |
25 |
10 |
75 |
30 |
|
3 |
25 |
10 |
50 |
20 |
|
4 or more |
25 |
10 |
25 |
10 |
The Government is also considering:
Construction Industry Scheme
The Government also intends to introduce changes to the Construction Industry Scheme, replacing from 6 April 2002 the existing legislation that provides for deductions made from payments to companies without certificates to be set against corporation tax. New legislation will allow these payments to be set off against PAYE, NICs and CIS liabilities.
Inland Revenue review of links with business
The Government is today publishing the Inland Revenue Review of Links with Business, which focuses on the Revenue's operational links with large businesses and draws on views from a wide range of industry sectors and professional advisers. It recommends ways to improve communications between large corporates and the Inland Revenue, and specific pressure points in the operation of the tax system for large corporates. The Government supports the recommendations and is grateful to business for its contribution to the review.
The review may be obtained by post or downloaded from the Inland Revenue website.
Cross Border Royalties
The Government proposes to introduce an optional scheme to enable companies to pay royalties overseas at the treaty rate of deduction, without seeking prior clearance from the Inland Revenue. Where a company has a reasonable belief that the non-resident recipient is entitled to relief under a double tax treaty in respect of the royalties, they may pay the royalty gross, or at a reduced rate of deduction at source, in line with the terms of the relevant treaty. Companies will be required to make a return of such payments. If it later turns out that treaty relief was not in fact due, the company will be liable to the tax (with interest and in limited circumstances penalties), which should have been deducted when making the payment.
The Inland Revenue is seeking the views of interested parties. Please send comments to:
Inland Revenue
International
Room 203,
Victory House
30-34 Kingsway
London WC2B 6ES
The Government has made significant progress in creating a modern corporate tax regime. In particular, the Government has, since 1997, cut the main rate of corporation tax by 3 percentage points to 30 per cent - the lowest ever rate in the UK. This Pre-Budget Report builds on this progress by announcing a package of measures, focused on:
Details of the exemption for gains on substantial shareholdings are available in a technical note published by the Inland Revenue. As well as draft clauses, related commentary and a partial Regulatory Impact Assessment, the note contains a summary of responses to the July 2001 Large Business Tax consultation, which invited responses on the design of a relief for capital gains on substantial shareholdings and a possible exemption of foreign dividends. The Government intends to introduce legislation in the 2002 Finance Bill.
Draft legislation for the new regime for intellectual property, goodwill and other intangible assets is included in a technical note published today by the Inland Revenue. The Government intends to introduce legislation in the 2002 Finance Bill.
On 26 July 2001, the Inland Revenue issued a consultation document - Corporate Debt, Financial Instruments and Foreign Exchange Gains and Losses. This set out the Government's proposals on how to:
There were over 40 responses to the consultation document. The Government is very grateful for the considerable efforts made by respondents.
Details of the proposals will be available in a technical note to be published by the Inland Revenue shortly. This will contain a summary of responses to the consultation plus revised versions of draft clauses and related commentary. The Government intends to introduce final legislation in the 2002 Finance Bill.
Inland Revenue technical notes (as placed in the House of Commons) may also be obtained by post from the addresses given in the details section or downloaded from the Inland Revenue website.
HM Treasury press office
Press enquiries: 020 7270 5238
Non-media enquiries: 020 7270 4558
inland revenue press office
Press enquiries: 020 7438 6692 / 6706 / 7327 (out of hours: 07860 359544)
Non-media enquiries: 020 7944 3000 (office hours only)
HM customs and excise press office
Press enquiries: 020 7865 4775/5949/5471
020 7865 5715/5095/5010 (out of hours:020 7620 1313)
Government department internet sites
Further information and all published documents relating to the Pre-Budget Report may be found on this website and those of the Inland Revenue and Customs and Excise:
