[HM Treasury (1278 bytes)] home | budget index | budget press notices HM Treasury 1 21 March 2000 BUDGET 2000 - PRUDENT FOR A PURPOSE: WORKING FOR A STRONGER AND FAIRER BRITAIN New measures to build a stronger and fairer Britain are at the heart of the Budget delivered by Chancellor Gordon Brown today. The Budget takes further steps to encourage work, improve productivity and protect the environment based on a platform of stability and fiscal prudence. It provides additional support for Britain's hard working families, cuts child poverty, helps pensioners and delivers substantial new resources for schools and hospitals, improving transport and tackling crime. By April 2001, when personal tax and benefit measures from this and previous Budgets have come into effect, on average, households will be £460 a year better off, and families with children will be £850 a year better off. The tax burden on a single earner family on average earnings with two children will be the lowest since 1972. Key measures in Budget 2000 include: * the largest ever package of spending on the NHS with an immediate £2 billion boost in the coming year including extra revenue from tobacco taxes and spending set to rise by 6.1 per cent over the next four years, the longest period of sustained high growth in the history of the NHS; * an extra £1 billion for education, £285 million for tackling crime and £280 million for transport. * new Action Teams matching the unemployed to job vacancies and a new Job Grant to ease the transition from welfare into work; * a £4.35 a week increase in the under-16 child credit in the Working Families' Tax Credit and income-related benefits, and a 50p per week increase in the Children's Tax Credit, helping to lift 1.2 million children out of poverty; * a further £50 increase in the winter fuel payment to £150 every year for every 60-plus household; * road fuel and most alcohol duties are increased in line with inflation and tobacco duties are raised by 5 per cent in real terms. VED is cut by £55 for 2.2 million cars; * major reforms to capital gains tax to strengthen incentives for entrepreneurial investment and permanent 40 per cent capital allowances for small and medium-sized firms; and * promoting e-commerce through 100 per cent first-year capital allowances for small enterprises investing in information and communications technology equipment and a £60 million package to get more small firms on-line and deliver more services on-line. DELIVERING ECONOMIC STABILITY The Government is delivering a platform of stability based on low inflation and sound public finances. As a result of a continuing commitment to stability and prudence, today's Budget: ensures that the Government remains on track to meet its two strict fiscal rules; locks in the fiscal tightening over the next two years to an even greater extent than projected in Budget 99; sets firm overall limits for public spending for the period of the 2000 Spending Review from 2001-02 to 2003-04; introduces a Budget package to promote enterprise and work and release extra resources to tackle child and pensioner poverty; and releases substantial new resources for key public service priorities. PROVIDING STRONG PUBLIC SERVICES As a result of prudent management of the public finances, the Government has been able to deliver the investment that is needed in Britain's public services. Budget 2000 sustains and increases that investment for the next four years. The 2000 Spending Review, to be completed in July, will provide for: growth in current spending of 2½ per cent a year in real terms in the three years to 2003-04, in line with the Government's neutral view of the economy's trend rate of growth; and more than doubling net capital investment, continuing to tackle the legacy of underfunding of Britain's public infrastructure. Within the firm overall totals set by this Budget, spending will be focused on the public's priorities. Today's Budget announces the largest ever package of spending on the National Health Service matching new resources with more reforms: an extra £2 billion for the NHS for the year from April including extra resources from the rise in tobacco taxes; 6.1 per cent average annual real terms growth over the next four years - the longest period of sustained high growth in the history of the NHS; and a 50 per cent cash increase in NHS spending over the 5 years from the beginning of the first Comprehensive Spending Review - 35 per cent in real terms - equivalent to a rise in NHS cash spending per household from £1,850 in 1998-99 to £2,800 in 2003-04. Improving standards and performance in the NHS: tomorrow, the Prime Minister will make a statement to Parliament on the work he and the Health Secretary will lead over the next few months to reform and modernise the Health Service. For education Budget 2000 provides: an immediate additional boost for education of £1 billion, starting from this April: more money for schools and for helping young people to stay on at school. For tackling crime: an additional £285 million for the fight against crime. Police, courts and prisons will benefit from new spending of £185 million on capital projects. Another £100 million will be available for modernised policing across the UK, helping the police to attract and retain good officers and to make the best use of the latest technology tools which they need to cut crime and catch offenders. For transport: an additional £280 million to accelerate the modernisation of Britain's transport infrastructure. Further allocations from the £2.7 billion Capital Modernisation Fund will be announced in due course. INCREASING EMPLOYMENT OPPORTUNITY FOR ALL The Government aims to deliver employment opportunity for all - the modern definition of full employment - through a strategy that will help people to move from welfare to work, make work pay, and ease the transition into work. Its ambition is that by the end of the decade Britain will have a higher percentage of people in employment than ever before. Budget 2000 takes further steps towards ensuring that everyone who is able to work has the chance to do so. Budget 99 announced a range of measures to reward work including a cut in the basic rate of income tax to 22p from April 2000, the lowest basic rate of tax for 70 years, and a major reform of National Insurance Contributions taking 1 million employees out of NICs altogether by April 2001. Today's Budget will deliver: a new £40 million programme of Action Teams from Autumn 2000 which will help to match unemployed people to suitable vacancies in nearby labour markets in 20 of Britain's communities suffering from the highest unemployment and lowest employment, along with additional support in the 15 Employment Zone areas; a national extension and intensification of the New Deal 25+ from April 2001, building on the principles of the New Deal for 18-24s; a new Job Grant of £100 to ease the transition from welfare to work from Spring 2001. This will build on the Income Support run-on for lone parents announced in Budget 99 and replace the Jobfinder's Grant and Jobmatch. Also to ease the transition to work, the Budget announces a four-week Income Support for Mortgage Interest run-on and simplified rules for the Housing Benefit Extended Payments Scheme. Together these will provide support of up to £400 for people moving into work; extended choices available to lone parents on Income Support so that, from April 2001, all lone parents on Income Support with children over the age of five will be required to meet with a specialist personal adviser who will guide them through their choices - including help to try work, help to move into part-time or full-time work and the opportunity to undertake education and training; additional support for working families with a £4.35 a week increase in the under-16 child credit in the Working Families' Tax Credit (WFTC) from June 2000, on top of the £1.10 a week increase above indexation in the under-11 credit from April 2000. These increases will be matched in the Disabled Person's Tax Credit (DPTC) and income-related benefits. The under-16 child allowance in Income Support will rise by £4.35 a week from October 2000; 50p a week more will be added to the Children's Tax Credit when it is introduced in April 2001, so that it will be worth up to £442 a year, more than twice the value of the married couple's allowance which it replaces; confirmation of a 0.3 percentage point reduction in employers' NICs from April 2001, thereby ensuring that all revenue from the climate change levy is recycled back to business; and a further 0.1 percentage point reduction from April 2002 to ensure that the revenues from the new aggregates levy are recycled to the business community; a new employment tax credit from April 2003 to make work pay. To be brought in alongside the integrated child credit, the employment tax credit will extend the principle of the Working Families' Tax Credit to people without children. Paid through the wage packet, it will complement the National Minimum Wage and the New Deals; and a package of measures to tackle the multi-billion pound hidden economy, implementing proposals made by Lord Grabiner QC. From the end of May, claimants will be able to phone a confidential helpline to get advice on how to move from the hidden economy, together with help on getting work, registering as a business and how to become self-employed. For those who fail to respond, tougher penalties, sanctions and requirements will be imposed from 1st January 2000. FAIRNESS FOR FAMILIES AND COMMUNITIES The Government is committed to building a fairer and more inclusive society in which everyone has the opportunity to benefit from higher living standards. Budget 2000 takes further steps to support families and tackle child poverty, help pensioners, promote savings and ensure a fair and efficient tax system. Supporting families and tackling child poverty The Government's ambition is to halve child poverty by the end of the decade as it moves forward with its commitment to abolish child poverty within 20 years. By April 2001, when personal tax and benefit changes from this and previous Budgets have come into effect: 1.2 million children will be lifted out of poverty; a family with two children on half average earnings will be £2,600 a year better off as a result of the measures announced in this and previous Budgets. A similar family on Income Support will be £1,500 a year better off; and the tax burden on a typical family on average earnings with two children will be at its lowest since 1972. In total, the Government will be spending an extra £7 billion a year on support for children through the tax and benefit system by 2001. In addition to the increases in Working Families' Tax Credit and Children's Tax Credit, Budget 2000 announces: help for low-income mothers staying at home with their new born child by allowing working parents, from May 2001, to make a new application for WFTC or DPTC on the birth of a child in order to get any extra help to them immediately to reflect their changed circumstances, and by ensuring that mothers who previously worked at least 16 hours a week and receive statutory maternity payments are not disqualified from getting help through WFTC or DPTC. This means that low-income working families could benefit by as much as £30 in the early weeks after a child is born; another £100 increase for the Sure Start Maternity Grant - which all low-income families can receive - taking it to £300 from Autumn 2000. Taken with the Budget 99 increase in the Grant from this April, this represents a three-fold increase since 1997; a new integrated child credit which will bring together the different strands of child support in the WFTC, Income Support and the Children's Tax Credit into one seamless children's payment, built on the foundation of universal Child Benefit. To be introduced in 2003, this new system will create a transparent system of child support. The integrated child credit will be paid to the carer in welfare and in work and will be administered by the Inland Revenue. Further details are set out in a separate Treasury paper published today (see Notes for Editors); and a network of local children's funds to fund local projects providing local solutions to the problem of child poverty. Proposals are being worked up alongside the 2000 Spending Review to support voluntary and community sector organisations that work with children in poverty along the themes of economic disadvantage, isolation and access, aspirations and experiences and children's voices. Initial consultations identified the need for investment at the most local level in order to make the most impact on children's lives. Further consultation will take place over the coming months to establish how the local funds will work in practice. Support for pensioners An additional £6.5 billion will be spent on pensioners over the course of this Parliament as a result of the measures announced in this and previous Budgets. This additional spending means that the average pensioner household is receiving an extra £400 a year and a 75- year-old pensioner on the minimum income guarantee will receive £950 more per year from April 2001 than in April 1997. A couple will receive £1,350 more. Budget 2000: builds on the fivefold increase in the winter fuel payment in Budget 99, with a further increase from £100 to £150 each year for every household with someone over 60 - 8.5 million people in total; doubles the lower capital limit attached to the minimum income guarantee (MIG) so that pensioners can now have up to £6,000 savings without MIG entitlement being affected. The upper limit has been increased from £8,000 to £12,000. This means that pensioners who have managed to save something for their retirement can still qualify for extra support; and announces the Government's intention to look at opportunities to develop the MIG to reward further pensioners who have made some provision for their retirement. The Department of Social Security and the Treasury will examine for the long term whether, through an income taper or other measures, the MIG can be used to boost the incomes of pensioners who have some pension or earned income of their own. Further proposals will be published by the Secretary of State for Social Security. In addition, the Pre-Budget Report announced free TV licences for pensioners aged 75 and over from November 2000. Support for savings The Government is seeking to create an environment which promotes savings opportunity for all with its savings strategy based on the principles of fairness, flexibility and transparency. Budget 2000 announces that the Government has decided to retain the current £7,000 ISA subscription limit for a further year in 2000-01, rather than reduce it to £5,000. A fair and efficient tax system The Budget increases the rate of tobacco duties by 5 per cent in real terms from 6pm today. The revenue raised from this real increase will go towards investment in the National Health Service; the Government will consult on a new structure for betting and gaming duty to ensure that the betting and racing industries have the tax structure which they need to thrive in the fast developing e-commerce environment and that revenue is protected; to make the tax system fairer for women, VAT on women's sanitary protection will be cut to 5 per cent from January 2001; Budget 2000 announces new rates for Stamp Duty on property transactions, with the rate for transactions over £250,000 rising from 2.5 per cent to 3 per cent and the rate for transactions over £500,000 rising from 3.5 per cent to 4 per cent. Only 5 per cent of residential transactions in the UK pay rates at above 1 per cent. Over a third of transactions remain exempt because they fall below the £60,000 threshold; changes to air passenger duty will help to produce a fairer duty structure under which millions of passengers on economy and tourist flights within the UK and Europe will pay less duty than at present. From November 2001, the duty on flights within the European Economic Area (EEA) will be reduced from £10 to £5. In addition, all flights from the Scottish Highlands and Islands will be free from duty. The duty on economy flights to other destinations will remain at £20. The rate for club and first class fares for destinations in the EEA will remain at £10, but rise from £20 to £40 for other destinations; and duty on spirits has been frozen for the third year running, while other alcohol duties will rise in line with inflation. MEETING THE PRODUCTIVITY CHALLENGE In boosting Britain's productivity performance and closing the gap with its major competitors, the Government is seeking to make Britain the most competitive environment for business in the world. Its long-term economic ambition is that Britain will have a faster rise in productivity than its main competitors over the next decade, as it closes the productivity gap. Significant steps have already been taken to increase competition, enterprise, innovation, skills and long-term investment. These include a new Competition Act, cuts in corporation tax (including the new 10p rate from April 2000 benefiting 270,000 businesses), the new all-employee share ownership plan, support for small and medium-sized enterprises (SMEs) including the new Small Business Service (SBS) and the new R&D tax credit, and measures to boost skills across the economy. Since 1997, the Government has cut the average corporation tax bill for small companies by nearly 25 per cent. In addition, Budget 2000 announces: further reforms to capital gains tax from April 2000 to strengthen the incentives for business investment. The business assets taper will be shortened from 10 years to 4 years, and the percentage thresholds for qualifying business asset shareholdings of 5 per cent (if the shareholder works full-time in the company's business) and 25 per cent (otherwise) will be reduced. In unquoted trading companies, all shareholdings will qualify for the business assets taper, and in quoted trading companies all employee shareholdings will qualify, as will other shareholdings above a 5 per cent threshold; permanent 40 per cent first-year capital allowances for SMEs, meaning that over 99 per cent of all businesses will have qualified for this tax relief for the entire Parliament; further steps to support e-commerce and achieve the Government's aim to make the UK the best environment in the world for e-commerce by 2002. In addition to new discounts for the electronic filing of tax returns, the Budget includes the introduction of 100 per cent first-year capital allowances for small enterprises investing in information and communications technology (ICT) equipment for the next three years. Plus, a £60 million package to help SMEs understand what getting on-line means for their business; help to get more of them on-line and then help to get the right services once they are on-line; an increase from 10 to 15 in the number of employees in small companies eligible for the new Enterprise Management Incentives (EMI) scheme to be introduced in April 2000. EMIs will help recruitment and retention of key employees by small higher-risk companies by offering access to tax-advantaged share options worth up to £100,000 (at the time of option grant). Final details are also announced of the new all-employee share ownership plan, R&D tax credit, and Corporate Venturing tax relief from April 2000; a new £1 billion target umbrella fund to help finance enterprise growth across the regions over 3 to 5 years. Regional priorities will be decided jointly by a new Small Business Investment Taskforce of the SBS and the Regional Development Agencies (RDAs). The fund will significantly enhance access to early-stage venture capital for growth potential businesses wherever they are located in the UK, using public resources more effectively to lever in private sector investment; the Secretary of State for Trade and Industry will shortly announce a new clusters fund to enable RDAs to co-finance business incubators and small scale infrastructure to encourage innovation and develop the growth stars of the future; following Don Cruickshank's review of competition in banking published yesterday, the Government will bring forward a package of measures designed to reduce prices and improve services for consumers and SMEs and promote innovation in banking. There will be: * better services for SMEs. The Secretary of State for Trade and Industry and the Chancellor have referred the provision of banking services to SMEs to the Competition Commission; * lower prices and wider choice in money transmission. The Chancellor has announced that the Government will legislate to open up access to payment systems and oversee access charges. Meanwhile, the Government will be exploring with the Office of Fair Trading what measures can be taken within existing powers. It will expect banks to increase transparency about charges, base charges on economic costs, and open up money transmission systems to new entrants; and * more information for consumers and better redress for grievances. The Chancellor has asked the Financial Services Authority to consider Cruickshank's specific proposals for improvements, to consult widely, and report to him within three months on how they propose to respond. Paul Myners, Chairman of Gartmore Investment Management, will look at whether there are factors discouraging institutional investors from investing in smaller firms. He will shortly be launching a consultation exercise and will report back with recommendations by the next Budget; pilots for the New Entrepreneur Scholarships announced last year to help budding entrepreneurs from deprived areas turn their ideas into thriving businesses will be introduced in Cornwall, London and Manchester; and changes to the work permits system to enable UK employers to recruit skilled people from overseas where there are skills shortages - including in IT - and to enhance the UK's image as an attractive location for talented overseas students and entrepreneurs. PROTECTING THE ENVIRONMENT Further action to tackle climate change, improve air quality, regenerate our cities and protect our countryside is announced in today's Budget. These measures demonstrate the Government's commitment to protecting the environment and promoting sustainable economic growth. Tackling climate change and improving local air quality * Reforms to Vehicle Excise Duty (VED) to help reward and encourage the use of more environmentally-friendly vehicles. The reduced rate of VED for existing small-engined cars will be extended to cars with engines up to 1,200cc from next March, giving a £55 cut to an additional 2.2 million cars; * under a new graduated VED system, 95 per cent of new cars will pay up to £70 a year less than under the current rates. From March 2001, all new cars will be placed into one of four VED bands, based on their rate of carbon dioxide emissions. There will be discount rates within each band for cars using cleaner fuels and a small supplement for diesel cars to reflect their higher emissions of local air pollutants; * a package of reforms to lorry VED, including the introduction of 44-tonne lorries meeting Euro II emissions standards at a favourable VED rate will help increase the efficiency of haulage operations and reduce congestion; * from April 2002, a revenue neutral reform of company car taxation will encourage the take up of vehicles which have lower carbon emissions and use environmentally-friendly fuels, while removing any incentive to drive unnecessary extra miles; * a 1p per litre cut in duty to help incentivise the use of environmentally-friendly ultra low sulphur petrol and a freeze on the duty rate for road fuel gases. Other road fuel duties are increased in line with inflation from 6pm today; * refinements to the design of the climate change levy to increase further its environmental effectiveness whilst protecting the competitiveness of UK firms; and * further encouragement for emissions trading which offers scope to reduce UK carbon emissions in a cost-effective way, and put the UK at the forefront in developing an international emissions trading market. Together the measures aimed at reducing greenhouse gases will form an integral part of the Government's climate change programme putting the UK on track to meet its Kyoto target and moving beyond that towards its domestic goal of a 20 per cent cut in carbon dioxide emissions. Regenerating our cities and protecting our countryside * The introduction of a new aggregates levy from April 2002 to tackle the environmental costs associated with quarrying and encourage the use of recycled materials. All of the revenues will be returned to business through a cut in employers' NICs and a new Sustainability Fund to help deliver environmental benefits to the local communities affected by quarrying; * an extension of the reduced rate of VAT for the installation of energy saving materials to all homes which will help people insulate their homes and improve energy efficiency in the domestic sector; * the introduction of capital allowances to underpin the Government's Affordable Warmth Programme which will support the installation of high efficiency central heating systems in up to one million low rent houses; * a possible relief for stamp duty for new developments on brownfield land. The Government will consult with interested parties on how this measure might be best targeted to help meet the Government's objective to encourage better use of brownfield land; * new relief from stamp duty for some Registered Social Landlords to encourage social housing provision and make better use of the existing housing stock; * implementation of the £1 per tonne rise in the standard rate of landfill tax will increase the incentive for waste producers to minimise waste and seek more environmentally-friendly alternatives to landfill; and * further discussions on a possible voluntary package of measures to reduce the environmental impacts of the use of pesticides. HOW THE BUDGET AFFECTS UK HOUSEHOLDS The measures in this and previous Budgets support the Government's objectives of promoting and rewarding work, while giving extra support to pensioners and families with children. By April 2001, when personal tax and benefit measures from this and previous Budgets have come into effect: * all households on average £460 a year better off; * households with kids on average £850 a year better off; * the tax burden on a single-earner family on average earnings with two children will be the lowest since 1972. Living standards * For a single-earner family with 2 children on £25,000, real living standards will have risen by 10 per cent over the Parliament. * As a result of WFTC, for a single-earner family with 2 children on £12,500, real living standards will rise by 20 per cent this year, the biggest annual rise for 25 years. Supporting working families * A single-earner family with 2 children on £25,000 will be £370 a year better off. * A single earner family with 2 children on £12,500 will be £2,600 a year better off. * No family with someone in full-time work will get less than £214 a week, over £11,000 a year. Tackling poverty * The poorest two-child family on income support will be £1,500 a year better off. * 1.2 million children will be lifted out of poverty. * For a 75-year-old pensioner on the minimum income guarantee, annual income in April 2001 will be over £950 a year higher than in 1997. For a 75-year-old couple it will be £1,350 higher. NOTES FOR EDITORS 1. Household distributional facts: £25,000 is average (male) earnings projected for 2000. 2. Tackling Child Poverty and Making Work Pay - Tax Credits for the 21st Century is published today. It describes the new tax credits (both employment tax credit and integrated child credit) in more detail. It's the sixth in the Modernisation of Britain's Tax and Benefit series. The full text can be found on the Treasury website (see site address below) or from the Public Enquiry Unit on 020 7270 4558. 3. For further details of the announcements made in today's Budget see the Treasury's website: www.hm-treasury.gov.uk/. More details are also included in separate press notices and Budget notes (BN) referred to below: Joint HM Treasury/departmental: HMT/DETR 1 Budget sets Britain on road to better transport and environment HMT/DH 1 A modern NHS - fairness for families and communities Inland Revenue and Customs & Excise: REV/C&E 1 Further help for small business BN1A Helping small employers: increase in quarterly payments limit for PAYE BN1B Improvements to EIS and VCTs BN1C Corporate venturing scheme BN1D Extra discount for employers paying tax credits REV/C&E 2 A more competitive environment for business BN2A Group relief rules BN2B Modernisation of rules for chargeable gains of companies BN2C Company gains on substantial shareholdings: a new rollover relief BN2D Double taxation relief for companies BN2E Tax relief on mobile phone licences and IRUs BN2F Loans with interest rates linked to profits BN2G Capital gains: simpler procedures for companies BN2H Overseas life assurance business BN2I Quarterly payments of corporation tax BN2J Withholding tax on international bond interest abolished BN2K Controlled foreign companies (CFCs) - fairer and more effective rules BN2L Life & general insurance companies and Lloyd's members BN2M Rent factoring REV/C&E 3 £400 million a year boost for charitable giving REV/C&E 4 Climate change levy Inland Revenue: REV 1 Inland Revenue tax rates and allowances for 2000-01 REV 2 Tax and NICs reform for working families REV 3 Boosting productivity and fairness: employee share ownership REV 4 Capital gains tax cuts to boost business investment REV 5 Stamp duty REV 6 Protecting the environment: reform of company car taxation REV 7 Boost for ISA savers REV 8 One million low income homes to get cheaper, better heating REV 9 Encouraging employers to provide childcare REV 10 Helping to get it right REV 11 Construction Industry Scheme REV 12 Modernising and simplifying capital allowances REV 13 Tax treatment of expenditure on films: clarificatory measures REV 14 Double taxation relief for branches of EU/EEA residents REV 15 Capital gains tax - countering avoidance using trusts REV 16 Petroleum revenue tax: misuse of safeguard relief Customs & Excise: C&E 1 Reform of betting duty C&E 2 Spirits duty frozen for the third year running C&E 3 Tobacco increases to underpin anti-smoking strategy C&E 4 Air passenger duty slashed for most travellers C&E 5 Tackling the environmental costs of quarrying C&E 6 Good news for all householders - VAT slashed on energy saving C&E 7 VAT cut for women's sanitary products © Crown Copyright | home | budget index | budget press notices home | budget index | budget press notices HMT/DETR 1 21 March 2000 BUDGET SETS BRITAIN ON ROAD TO BETTER TRANSPORT AND ENVIRONMENT Budget measures to boost the transport network and benefit the environment were set out by Chancellor Gordon Brown today. Budget 2000 will help underpin the Integrated Transport strategy by providing additional funding to improve the transport network, creating incentives for cleaner vehicles, reducing congestion and boosting the competitiveness of the UK haulage industry. £280 million for additional transport spending, a £55 cut in Vehicle Excise Duty (VED) rates for 2.2 million smaller cars, and reductions of up to £70 in the VED rates for 95 per cent of new cars are amongst the measures announced by the Chancellor today. MORE MONEY FOR ROADS AND PUBLIC TRANSPORT In his November Pre-Budget Report, the Chancellor announced that he would consider the appropriate rate of fuel duties on a Budget-by-Budget basis, taking into account all the relevant economic, social and environmental factors. Given the increase in oil prices from $23 a barrel to $30 since the Pre-Budget Report, the Chancellor has decided for this Budget that, other than the automatic inflation rise of around 2 pence a litre, there will be no increase in road fuel duties. The Chancellor also recognised the case for investment in the road network and public transport system, and has therefore made £280 million available for additional transport expenditure across the UK to tackle congestion hot-spots and modernise public transport. Every region will benefit from new investment in its transport infrastructure. The Deputy Prime Minister will shortly announce details of projects this money will support. INCENTIVES FOR CLEANER CARS AND FUELS Budget 2000 announces a range of measures which will encourage the take-up of more environmentally-friendly models of car, and ensure that the less cars pollute, the less tax their owners will pay: * from 1st March 2001, the reduced rate of Vehicle Excise Duty (VED) for existing cars will be extended from the current threshold of 1,100cc to cars with engines up to 1,200cc: giving a £55 cut to owners of an extra 2.2 million smaller cars; * also from March 2001, all new cars will go into one of four bands based on their rate of CO2 emissions, with 95 per cent of new cars paying up to £70 less under this new VED system than under the rates for existing cars; * the VED rates for existing cars will not rise in real terms, and will be frozen for a year until the extension of the reduced rate on 1st March 2001. In total, the changes to car VED announced in this Budget will cut the tax cost of car ownership by almost £250 million in 2000-01; * from April 2002, the tax charge on company cars will also be graduated according to their rate of CO2 emissions (see REV 6); and * the successful policy of setting differential rates of fuel duty to encourage cleaner fuels will continue with: - a 1p per litre incentive for ultra low sulphur petrol to take effect from a target date of 1st October 2001; and - a freeze in duty on road fuel gas. BOOSTING COMPETITIVENESS AND REDUCING CONGESTION Budget 2000 contains a package of measures, including lorry VED cuts worth £45 million, designed to boost the competitiveness of UK hauliers while helping to relieve the road network from the damage and congestion which lorries can cause: * road-friendly 44-tonne/6-axle lorries will be introduced at a low VED rate, easing congestion, boosting the competitiveness of domestic UK hauliers, and allowing the Government to cut £1,800 off the VED rate for the 40-tonne/5-axle lorry used by the UK's international hauliers; * VED will be cut by £500 for the most popular heavy lorry and a lorry typically used for collecting freight from ports, and frozen for almost all other lorry types for the third year running - a cut in real terms; and * tougher enforcement against 'cowboy hauliers' to protect the competitiveness of legitimate hauliers, including legislation in the Transport Bill to allow the impounding of their trucks. Gus Macdonald, Minister for Transport said: "This Government is determined to deliver a better transport system and to protect the environment. Today's Budget shows we mean business. "Today's additional investment supports the policies outlined in the Integrated Transport White Paper, and points the way towards July's Ten Year Transport Plan, which the Deputy Prime Minister has asked me to prepare. This will set out the long-term strategy and investment needed to deliver on our promises and build a modern integrated transport system. "The DVLA will shortly be launching a publicity campaign to emphasise to motorists that driving a more fuel-efficient vehicle will cut their VED and fuel bills, as well as helping the environment. "The measures announced to boost the competitiveness of UK hauliers show the value of the work undertaken in the Road Haulage Forum over the past year to consider these competitiveness issues. We will carry on this work with the industry so that it can continue to inform the Government's decision making." NOTES FOR EDITORS Fuel duties and differentials 1. Rates of duty on petrol and diesel will increase in line with inflation from 6pm today. Duty on road fuel gases will be frozen. The new rates are set out in the table below, together with the effect of the total tax increase (duty plus VAT) on the price of a litre of petrol: Fuel type New duty Increase in rate (pence pence per per litre) litre (duty plus VAT) Unleaded petrol 48.82 1.89 Ultra low sulphur petrol 47.82 0.72 (see 2) Higher octane unleaded 50.89 1.97 petrol (incl. lead replacement petrol) Ultra low sulphur diesel 48.82 1.89 Road fuel gas 15p per kg NIL 2. The Government intends to introduce a 1 pence per litre incentive for ultra low sulphur petrol from 1st October 2000. There will be consultation with the industry and other interest groups on the exact specification for this new, cleaner type of petrol and the exact date of introduction. 3. Details for businesses are published in Budget Notice 62/2000 which is available from Customs and Excise Advice Centres and from www.hmce.gov.uk Vehicle Excise Duty (VED) for existing cars 4. A reduced VED rate for cars was announced in the last Budget and introduced on 1st June 1999 for all cars with engines up to 1,100cc. This gave a £55 VED cut to drivers of around 1.8 million cars. Engine size is the best available proxy for measuring the fuel-efficiency of existing cars. 5. From 1st March 2001, the reduced rate will be extended to apply to all existing cars with engines up to 1,200cc - giving a £55 cut to an additional 2.2 million smaller cars, including around 700,000 models of the Ford Fiesta, 200,000 Vauxhall Corsas, 200,000 Vauxhall Novas and 200,000 Renault Clios. 6. VED rates for existing cars, taxis and vans will increase in line with inflation from 1st March 2001: the reduced rate for cars with smaller engines will be £105; the standard rate will be £160. VED for new cars 7. Also from March 2001, a graduated VED system for new cars will be introduced. Under this system, all new cars first registered from that date will go into one of four VED bands according to their rate of carbon dioxide emissions. 8. Within each band, there will be a £10 discount for cars using cleaner fuels and technology. Initially, this will include cars run on road fuel gas, bi-fuel and dual fuel cars, and cars using hybrid technology. 9. Within each band, there will also be a supplement for diesel cars to reflect their higher emissions of particulates and other pollutants which damage local air quality. The system will be built in a flexible way so that the treatment of diesel cars can be reviewed as their emissions standards improve. 10. The table below sets out the bands and rates for the new system, including some examples of where the most fuel-efficient models of popular new cars will go. CO2 % of new Most fuel-efficient Clean Petrol Diesel bands cars models of popular fuels (g/km) (2000-01) petrol (p) & diesel (d) new cars A 150g 20% Ford Focus (d), Ford £90 £100 £110 Fiesta (d), Vauxhall Corsa (p), VW Polo (p), Fiat Punto (p) B 165g 25% Vauxhall Astra (d), £110 £120 £130 Ford Focus (p), Renault Clio (p), Nissan Micra (p), Ford Fiesta (p), Peugeot 206 (p), Ford Ka (p), VW Golf (p) C 185g 25% Vauxhall Vectra (p), £130 £140 £150 Vauxhall Astra (p), Rover 400 (p), Ford Mondeo (p), BMW 3-series (p) D 186g+ 30% Peugeot 406 (p) £150 £155 £160 11. New light goods vehicles (e.g. vans) for which there is currently no carbon dioxide emissions data available will pay £160 VED. 12. Under this new system, 95% of new cars will pay from £5 up to £70 less than under the rates for existing cars. Petrol models of Britain's best-selling new cars - the Ford Focus and Fiesta - will pay up to £40 less; while petrol models of the Vauxhall Astra, Rover 400 and Ford Mondeo will pay up to £20 less. 13. The new graduated VED system will therefore encourage the use of new cars as opposed to older cars, cars with lower CO2 emissions and better fuel-efficiency, and cars using cleaner fuels and technology. Implementation and publicity for changes to car VED 14. In response to requests from motor manufacturers and traders for additional time to prepare, the Government has extended the timetable for introduction of the graduated VED system for new cars from Autumn 2000 to March 2001. This will coincide with the introduction of Y-registration number plates so it will be easy to distinguish cars which will pay VED under the new system. 15. The DVLA will continue to work with manufacturers, traders and other bodies throughout the year to collect the information and introduce the systems on which the new scheme will be based. Further details about the new system can be found on www.dvla.gov.uk/newved 16. To ensure public awareness and understanding of the new system, DVLA will be launching an extensive publicity campaign to explain the changes and promote the financial and environmental benefits of choosing cleaner cars: not only from cutting down on VED and fuel bills, but also from cutting down on emissions of carbon dioxide and local air pollutants. 17. For the extension of the reduced rate threshold to 1,200cc, DVLA will be putting into place a special, customer-friendly rebate scheme. From March 2001, all owners of newly-qualifying vehicles who have licensed their car at the standard £155 rate during 2000-01 will receive a £55 cheque in the post as a reward for driving a smaller, cleaner car. Introduction of 44-tonne lorries 18. Acting on the unanimous recommendations of the Commission for Integrated Transport (CfIT), the Government has decided to allow 6-axle lorries meeting Euro II emissions standards to use UK roads at new 44-tonne weight limits. A target date of 1st January 2001 has been set for their introduction: the final date will be confirmed in July's ten year plan in the context of wider freight policy. 19. 44-tonne lorries are no bigger than existing lorries, but are simply allowed to carry heavier loads. They do less damage to roads than existing 40-tonne/5-axle lorries because of their better weight distribution. CfIT's report on 44-tonne lorries (published on 6th March) can be found at www.cfit.gov.uk. It also recommends improvements in the current enforcement regime and to rail freight. 20. Talking of his decision to introduce 44-tonne lorries, Lord Macdonald said: "CfIT has carried out the most thorough analysis of the 44-tonne issue in 20 years. They have considered the issue in terms of the best environmental outcome, and concluded that there would be a small but significant net gain to the environment from allowing 44-tonne lorries. This approach of looking for the best environmental options is at the heart of our integrated transport policy. "I accept CfIT's conclusion that 44-tonne lorries will mean fewer lorry journeys are needed to carry the same amount of goods, which they say is equivalent to removing 230 return journeys from London to Edinburgh every day. It is in no-one's interest to have empty space in lorries running around our roads when that space can be filled without penalties in terms of pollution or safety." VED for lorries 21. A VED rate of £2,950 has been set for the new 44-tonne/6-axle lorries, which will take effect from a target date of 1st January 2001. The other changes to lorry VED, which take effect from 6pm on Budget day, are set out in detail below. They will cost a total of £45 million per annum, with major VED cuts targeted at areas of the haulage industry which are under the most competitive pressure: * the VED rate for the road-damaging 40-tonne/5-axle lorry will be cut by £1,800 from £5,750 to £3,950 to boost the competitiveness of international hauliers who need to run at 40-tonnes due to continental weight limits; * a £500 cut in the VED rate for the UK-standard 38-tonne/5-axle lorry from £3,210 to £2,750 to encourage hauliers to continue using this lorry; * a £500 cut in VED from £4,250 to £3,750 for the 41-tonne lorry capable of being used with up to 3 trailer axles - a lorry typically used by smaller operators collecting freight shipped 'unaccompanied' to UK ports; * rates will be frozen for almost all other lorry types except for the 36-tonne on 5-axles (cut by £500 in line with the 38-tonne) and for lorries currently paying £155 or £160 which rise in line with the standard car rates. Enforcement against 'cowboy hauliers' 22. To protect the competitiveness of legitimate UK hauliers, the Government is taking forward a number of measures designed to impose more stringent checks and penalties on those who operate illegally and to lessen the compliance burden on legitimate hauliers. These include: * the addition of legislation to the Transport Bill to allow for the impounding of illegally-operated lorries; * a review by a sub-group of the Road Haulage Forum aimed at improving the targeting and effectiveness of current enforcement efforts, which will also consider CfIT's recommendations in this area; * a major project to improve the IT systems of the Traffic Area Offices, enabling improved levels of service to operators, co-operation between enforcement agencies and more efficient targeting of enforcement, benefiting both road and vehicle safety and legitimate hauliers; * the enforcement of tough new rules brought in last year on access to the haulage profession, including more challenging tests for the Certificate of Professional Competence required by haulage operators; and * tighter rules on use of rebated 'red diesel', and tougher penalties for misuse. Other transport measures 23. Details of the company car tax reforms are set out in press notice REV 6 or can be seen at www.inlandrevenue.gov.uk/cars PRESS ENQUIRIES should be directed to the DETR Press Office on: 020 7890 3066 © Crown Copyright | home | budget index | budget press notices home | budget index | budget press notices Treasury / Department of Health 1 21 March 2000 A MODERN NHS FAIRNESS FOR FAMILIES AND COMMUNITIES A historic four year package of funding for the NHS was announced by Chancellor Gordon Brown today, to be accompanied by a national consultation on measures to drive up performance which the Prime Minister will announce tomorrow. The Chancellor has made available for the UK: an extra £2 billion for the National Health Service for the year from April including extra resources from the tobacco tax increase; 6.1 per cent average annual real terms growth over the next four years - the longest period of sustained high growth in the history of the NHS; a 50 per cent cash increase in NHS spending over the five years from the beginning of the first Comprehensive Spending Review - 35 per cent in real terms - equivalent to a rise in NHS cash spending per household from £1,850 in 1998/99 to £2,800 in 2003/04. Speaking today, Secretary of State for Health, Alan Milburn, said: "These are large and sustained increases in funding which will give the NHS a unique opportunity to invest for reform. The four year settlement provides the platform the NHS needs to plan far-reaching service modernisation. It amounts to a step change in NHS resources. Now we need a step change in results. "The Government has met the call for increased funding. Now we look to work with the Service to deliver major improvements in patient care. "It is not just money that the NHS needs. It is reform. The focus now needs to be on the modernisation that is necessary to build the 21st century NHS our nation needs." Budget 2000 announces the largest ever sustained increase in NHS resources with new baselines fixed for the medium term. Over the next four years NHS funding in England will grow by an average 6.3% in real terms - twice the historical average. This will deliver the longest period of sustained stable growth in resources since the NHS was founded. In England NHS resources will grow in real terms by 36% over the five years from 1999/00. On Wednesday the Secretary of State for Health will set out to the House of Commons how increased resources will help speed up the modernisation of patient services. There will be a new focus too on reforming the performance of local health services to address unacceptable variations in quality and cost. Mr Milburn added: "At present there is too much variation in practice between different parts of the NHS. That is unfair both to patients and to taxpayers. Getting the most from these unprecedented funding increases will need new ways of ensuring that the rest perform to the level of the best. By forging an alliance with clinicians, managers and patients in the NHS we can do just that." The Prime Minister will make a statement to Parliament tomorrow on work to reform and modernise the Health Service and to tackle unacceptable variations in performance, to ensure that a step change in resources can achieve a step change in results. Notes for editors 1. The new resources are broken down as follows: NHS UK, cash (£ billion) 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 Average Previous 45.1 49.3 52.2 55.5 plans (£bn New 45.1 49.3 54.2 58.6 63.5 68.7 allocations (£bn) Year on year 7.4% 5.6% 5.6% 5.6% 6.1% real growth (%) Note: these figures include additions to the devolved administrations and the Northern Ireland departments. England, cash (£ billion) 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 Average Previous 36.6 40.1 42.6 45.4 plans (£bn) New 36.6 40.1 44.2 48.0 52.0 56.4 allocations (£bn) Year on year 7.9% 5.8% 5.8% 5.8% 6.3% real growth (%) 2. For historical reasons, health spending starts from higher levels in the rest of the UK than in England. 3. This will be the first period in the history of the NHS with 4 years of over 5 per cent real terms growth in every year. 4. Last year, NHS spending was equivalent to an average of £1,850 per household. The new baselines represent £2,800 per household in 2003/04. 5. On the basis of current forecasts, this package implies that UK health spending as a proportion of GDP could reach around 7.6% by 2003/04. 6. The Prime Minister's announcement tomorrow will help ensure that best practice in the provision of healthcare is shared across the NHS, including in the areas of health outcomes, service quality, efficiency, access to services and patient experience; and that variations in these areas are reduced, for example through improved performance systems such as better use of inspection and information, management levers and benchmarks. 7. The figures for public services presented in the Budget are in cash terms. The Department of Health, like all other Government departments, will move to resource accounting and budgeting in July. This change in accounting methodology will not affect cash totals. © Crown Copyright | home | budget index | budget press notices REV/C&E1 21 March 2000 FURTHER HELP FOR SMALL BUSINESS A substantial package of tax and spending measures to help small businesses was set out by the Chancellor today. It confirms the Government’s commitment to make Britain the best environment in the world for small business. Together the tax and spending packages will help small businesses: · to reduce their tax burden and overcome cash-flow difficulties · to recruit and retain skilled employees · boost investment and encourage innovation · to make more and better use of IT · to deal with Government more easily This package builds on what the Government has already done to help small businesses to invest and to gain access to the resources they need to overcome the barriers to growth. _______________________________ DETAILS Reducing tax and helping cash flow Since coming to power, the Government has introduced a large number of measures to reduce the tax bills of small businesses. And today the Chancellor confirmed that the new starting rate of corporation tax of 10% will be introduced as planned from 1 April. 270,000 companies will benefit from this halving of the existing rate. The measures introduced this year, together with the 3p cut in small company rates already announced, will cut corporation tax bills of small businesses on average by 25%. He also announced that the existing first year allowances for investments in plant and machinery by small and medium-sized businesses will be replaced by permanent first year allowances at the present rate of 40%. More than 99% of businesses can benefit from the improved cash flow provided by the enhanced allowances, which will help them to grow and to invest and to plan their investments with greater certainty. In a further move to improve the cash flow situation of small businesses, and to help make them more competitive, the Inland Revenue will extend the quarterly PAYE scheme to benefit an additional 40,000 employers. The threshold for quarterly payments will be raised from £1,000 to £1,500 a month, saving employers up to £150 a year. This follows a £400 rise in the last Budget. There is also good news on VAT for small businesses in the form of an increase in the VAT registration and deregistration thresholds from 1 April 2000. By raising the VAT registration threshold to £52,000, the burden of VAT on small businesses is eased, so encouraging their start-up and growth. The deregistration threshold is being increased to £50,000. The increase will maintain the value of the thresholds in real terms and they will remain amongst the highest in Europe. Helping companies to recruit and retain skilled employees Final details of the new all-employee share plan were announced today, including special measures designed to help smaller companies to set up a plan. This Budget also recognises the important role of share options to young, growing businesses which often have insufficient cashflow to reward their employees. Enterprise Management Incentives (EMIs) will enable these companies to recruit and retain the people they need. And in a further move, the number of employees who can be granted EMI options will be increased to 15. EMIs will reward key people who are prepared to take a risk and use their skills and talents in helping these companies achieve their potential. Companies can grant each of their key employees options worth up to £100,000, normally without any Income Tax or National Insurance charge. Moreover, when the shares are sold, Capital Gains tax taper relief will normally start from the date the options were granted. But workers will need to be well trained to work in the new industries of the future. So, the Finance Bill will extend indefinitely the existing tax reliefs for contributions by traders to Local Enterprise Agencies, Training and Enterprise Councils, Local Enterprise Companies, and Business Link organisations. Boosting investment and encouraging innovation Extensive changes to the capital gains tax (CGT) rules to boost productivity and increase the provision of risk capital were announced by the Chancellor today. These changes will help all businesses, not just the small ones. Changes were today announced to the Enterprise Investment Scheme (EIS) and Venture Capital Trust (VCT) scheme to improve the way they work, make the schemes more attractive to investors and benefit small higher risk companies seeking funding. The economy of the future depends on investment in new ideas and technologies. The new Corporate Venturing Scheme will allow companies which invest in the shares of small higher risk trading companies to obtain corporation tax relief on those investments, defer tax on capital gains that arise by reinvesting within the scheme and set off capital losses against income. The Government believes that corporate venturing has an important role to play not just in providing seed-corn capital but in giving the sort of help and advice which will nurture tomorrow’s big ideas. If Britain is to compete in the global economy, companies will need to invest in research and in the development of new technologies. Research and Development (R&D) tax credits, which will be available from 1 April, will encourage innovation by giving small and medium-sized companies a strong incentive to increase their investment in R&D. Relief for current spending on qualifying R&D will be increased from the existing 100% to 150%; so for every £100 a company spends on this R&D, it can claim £150 against its taxable income. Under this enhanced relief the cash cost of R&D will be reduced by 30% for a company paying tax at the small companies' rate And companies that are not yet in profit can take the relief up front and reduce the cash cost of their R&D by 24%. R&D tax credits are also available to companies that have not yet started to trade. Small and medium-sized companies will benefit by an estimated £150 million a year. Encouraging use of IT A number of measures were announced today which will encourage small businesses to invest in IT and to embrace E-commerce. Increased use of IT will also make their dealings with Government and business faster and more efficient: · Small businesses that invest in Information and Communication Technology equipment (computers, software and internet-enabled mobile phones) over the three years from 1 April 2000 will be able to claim 100% first year capital allowances, thereby getting immediate relief on the whole cost of their investment. · A £60m package to help small firms get on-line and deliver services to them on-line. This includes £20m for a new call-centre and web-based advice and information services, £10m for a major boost to advice and training for small firms on using IT and £30m to build a secure infrastructure for electronic communications between government, business and citizens. · An extra £50 discount for small employers paying tax credits to their employees. Small employers with tax credit cases in 2000/01 who file their PAYE end of year returns over the Internet and pay any tax due electronically will receive the discount. This is an addition to the £50 discounts for VAT and PAYE announced on 16 February to encourage small businesses to embrace Internet technology. A total discount for small businesses of up to £150. The PAYE and tax credit discounts will also be available to small employers who use an Internet payroll service. · The Inland Revenue Payroll Software Standard, which was published today following extensive consultation, will encourage small employers to use accredited software packages, Internet payroll services or payroll bureaux to calculate their payroll Helping small business deal with Government From April 2000, the Inland Revenue will offer £30m more support for small businesses over the next 2 years by expanding the range of help available on payroll issues. This builds on the successful introduction of the New Enterprise Support Initiative (NESI) which was launched last year. The size and scope of the NESI helpline for employers will be increased to offer a payroll support service over the phone. The Revenue’s Business Support Teams (BSTs) will double in size, enabling them to offer new employers a detailed support visit to talk through various payroll issues and offer a health check of payroll operations. BSTs will look to establish clear links with the help and support that will be available from the Small Business Service. ____________________________________ NOTES FOR EDITORS Further details can be found in the following press releases and Budget notes: REV1 Inland Revenue tax rates and allowances for 2000-01 REV3 Boosting productivity and fairness: employee share ownership REV4 Capital gains tax cuts to boost business investment REV10 Helping to get it right REVBN1A Helping small employers – increase in quarterly payments limit for PAYE REVBN1B Improvements to EIS and VCTs REVBN1C Corporate venturing scheme REVBN1D Extra discount for employers paying tax credits VAT measures - Details are in Budget Notice 25/2000 and 55/2000. A copy of the Regulatory Impact Assessment with further details on Research & Development Tax Credits can be found on the Inland Revenue website at www.inlandrevenue.gov.uk INLAND REVENUE Media enquiries to: 020 7438 6692/6706/7327 (Out of hours: 07860 359544) Non-media enquiries to : 020 7438 6420/6425 (Office hours only) www.inlandrevenue.gov.uk HM CUSTOMS & EXCISE Press enquiries only to HM Customs and Excise, Communications Division, New Kings Beam House, 22 Upper Ground, London SE1 9PJ. Telephone: 020 7865 5471/5472 Others should contact their local Excise and Inland Customs Business Advice Centre, listed under Customs and Excise in the telephone book. Customs and Excise Internet address: http://www.hmce.gov.uk This news release can also be found at: http://www.hm-treasury.gov.uk Other Treasury material can also be found at this address. © Crown Copyright | home | budget index | budget press notices REVBN1A 21 March 2000 HELP FOR SMALL EMPLOYERS INCREASE IN QUARTERLY PAYMENTS LIMIT FOR PAYE Summary of Measure The level below which small employers can pay Pay As You Earn (PAYE) and National Insurance Contributions (NIC) to the Inland Revenue quarterly rather than monthly has been increased from £1,000 to £1,500. The option of quarterly payments offers small employers an additional cash flow benefit beyond that already provided by the normal PAYE payment arrangements, so going some way towards offsetting the costs of administering PAYE. In addition to the cash flow saving, there is the further benefit in reduced administrative costs from only having to make payments to the Inland Revenue four times a year instead of twelve. An additional 80,000 small employers will benefit from this change. The new limit will apply to deductions made in periods beginning after 5 April 2000. A consultation exercise is proposed in the Autumn on proposals for payment of PAYE by direct debit, together with a further review of the limit subject to the outcome of the consultation. Further Details 1. At present, employers whose average monthly payments to the Inland Revenue of PAYE and NIC are less than £1,000 in total can choose to pay quarterly rather than monthly. This limit will be increased to £1,500 for deductions made in periods beginning after 5 April 2000. Payments are required for the quarters ended 5 July, 5 October, 5 January and 5 April, and are due within 14 days of the end of each quarter (by the 19th of these months). 2. From 6 April 2000 the quarterly payments limit will be based on an employer’s average net monthly payment due to the Inland Revenue for PAYE, NICs and student loans (CSL) recovered, but after taking into account amounts of Working Families’ Tax Credit (WFTC) and Disabled Person’s Tax Credit (DPTC) paid to their employees and funded from the tax, NICs and CSL due to the Revenue. 3. The increase in the monthly limit from £1,000 to £1,500 will give an additional 80,000 small employers the opportunity to pay quarterly, giving them cash flow savings of up to £150 a year. In addition we estimate that, prior to taking into account this year’s increase, a further 15,000 employers will become eligible for quarterly payments from April as the funding of WFTC/DPTC payments from amounts otherwise due to the Revenue will take them below the monthly payment limit. In total nearly 800,000 businesses will be able to benefit from quarterly payments, around 60 per cent of all employers. 4. Contractors in the construction industry can also choose to pay quarterly provided that their average monthly payments of PAYE, NICs, CSL and deductions from payments to subcontractors (after taking into account WFTC and DPTC paid) are less than the same limit of £1,500. 5. The change does not require legislation in the Finance Bill. It will be made by way of amendments to the regulations for PAYE, NIC and deductions from payments to subcontractors in the construction industry. 6. Employers who wish to find out more about paying PAYE and NICs quarterly instead of monthly should contact the Employer Helpline (0845 7 143 143) or consult the Employer’s quick guide to PAYE (cards CWG1) - card 18. The card will be updated as a result of this announcement and re-issued to employers during April 2000. 7. The Inland Revenue also propose looking at the possibility of introducing direct debit arrangements to make it easier for small employers to pay PAYE/NICs etc. They will be consulting with employers and representative bodies on this in the Autumn. Background Notes 1. Quarterly payments for small employers were first introduced in 1991. The present limit of £1,000 a month was set last year. 2. The cost of this measure as published in the Financial Statement and Budget Report is zero as the measure does not as such affect the amounts of PAYE deducted from wages and salaries. 3. The proposed changes will not affect the entitlements of employees to National Insurance benefits. INLAND REVENUE PRESS OFFICE Media enquiries to: 020 7438 6692/6706/7327 (Out of hours: 07860 359544) Non-media enquiries to: 020 7438 6420/6425 (Office hours only) www.inlandrevenue.gov.uk © Crown Copyright | home | budget index | budget press notices REVBN1B 21 March 2000 IMPROVEMENTS TO EIS AND VCTS Summary of measures Changes to the Enterprise Investment Scheme (EIS) and Venture Capital Trust (VCT) scheme were announced today to improve the way they work, make the schemes more attractive to investors and benefit small higher risk companies seeking funding. The changes will · reduce from 5 years to 3 years the minimum period for which investments must be held if they are to qualify for income tax relief under the schemes; · make it easier for EIS investors to invest alongside venture capital funds; · prevent tax reliefs under both the EIS and VCT scheme being put at risk if the company in which an investment has been made goes into receivership; · safeguard VCT investors’ reliefs where a company in which the VCT has invested is sold, merges, or undergoes a capital reconstruction, and the VCT receives shares rather than cash. Further Details Minimum holding period 1. Under the EIS and VCT schemes, shares for which income tax relief is obtained must be held for at least 5 years if the relief is not to be withdrawn or reduced. For shares issued on or after 6 April 2000 the minimum holding period will be 3 years for VCT shares and for shares in EIS companies which are carrying on a qualifying trade at the time of issue. For EIS companies which are preparing to trade at the time of issue, the minimum holding period will end when the company has been carrying on its qualifying trade for 3 years. EIS - Facilitating co-investment 2. An investment in a company does not qualify for EIS purposes if the company is controlled by another company at any time during the relevant period beginning when the investment is made. This ensures, for example, that the EIS cannot be used to subsidise investment in subsidiaries of larger companies. However, the way “control” is defined means that, in some circumstances, a venture capital fund which has a minority stake in a company may be treated as controlling that company. This is because the definition of control focuses on factors such as entitlement to distributed profits, and venture capital funds commonly invest in preference shares which give preferential rights to profits. If this happens, the EIS investors’ tax reliefs may be put in jeopardy. 3. The proposal is to change the definition of control to one which focuses on the power of a person to control the affairs of a company through the holding of shares, voting rights or other powers. A venture capital fund which has minority investments in a company will generally not be treated as controlling it under this new test and, as a result, co-investment by individuals under the EIS and venture capital funds will be easier. 4. This change will come into effect for shares issued on or after Budget Day. For shares issued before that date, it will take effect in relation to that part of the relevant period which has not yet expired. Receiverships 5. Any company which uses money raised under the EIS must, throughout the relevant period, exist for the purpose of carrying on a qualifying trade. A company which goes into receivership may fail to meet this requirement and therefore put its EIS investors’ tax reliefs at risk. The EIS already provides for a company not to fail this requirement in the case of a bona fide liquidation, but there is no corresponding provision for receiverships. The proposal provides for the company to continue to qualify under the EIS if it would have qualified but for the actions of the receiver. 6. This change will come into effect for shares issued on or after Budget Day. For shares issued before that date, it will take effect in relation to that part of the relevant period which has not yet expired 7. VCTs must invest at least 70 per cent of the funds they raise in qualifying holdings in the small higher risk trading companies the scheme is designed to benefit. Currently, if a company in which a VCT has invested goes into receivership, the investment may cease to be a qualifying holding. If as a result the 70 per cent test were not met this could cause the VCT to lose Inland Revenue approval. 8. The VCT rules already provide for a company not to fail this requirement in the case of a bona fide liquidation. This proposal will ensure that the investment also continues to be a qualifying holding if it would have continued to do so other than for the actions of the receiver, and so will help to safeguard the approved status of the VCT and the tax relief of the investors. 9. This change will apply to determine whether an investment held by a VCT is a qualifying holding on or after Budget Day. Disposals for shares rather than cash 10. A similar problem can arise where companies in which VCTs have invested are sold, merge or undergo a capital reconstruction. 11. Where the VCT receives shares or securities rather than cash in consideration for its interest in the company the new shares or securities will not be qualifying holdings for the purposes of the 70 per cent test. 12. The proposal is to treat the new shares and securities as qualifying holdings for the purpose of the scheme subject to certain conditions, the detail of which will be set out in regulations. Broadly the intention is to allow VCTs · to retain new shares and securities as qualifying holdings where they would have qualified but for the transfer; and · a period of grace in which to dispose of others during which they will be treated as qualifying holdings under the scheme. 13. The new rules will take effect for transfers taking place on or after Budget Day. Licence Fees and Royalties 14. Companies which obtain a substantial amount of their income from licence fees and royalties are excluded from the schemes, except in limited circumstances where the fees or royalties arise from films or from research and development. This provision is being extended in line with the proposals under the Corporate Venturing Scheme to cover licence fees and royalties which arise from an intangible asset, the greater part of which has been created by the small company (see REVBN1C) of today’s date on the Corporate Venturing Scheme). This change will take effect for shares issued on or after 6 April 2000. 15. All the proposals set out above respond to representations for changes in the schemes. In addition, the definition of research and development used for both Schemes is to be changed to align it with the definition used for the Corporate Venturing Scheme and for Research and Development Tax Credits. Background Notes The Enterprise Investment Scheme 1. The EIS is designed to help small higher risk, unquoted trading companies raise start-up and expansion finance by issuing full risk ordinary shares. Individuals who are previously unconnected with companies in which they invest may obtain various income tax and capital gains tax reliefs, in particular: · income tax relief (at 20 per cent) on the amount invested (on investments of up to £150,000 per tax year) and relief from capital gains tax on disposal of the shares, provided they are held for at least 5 years; · relief for any allowable losses on the shares against either income or chargeable gains; and · deferral of capital gains tax on a chargeable gain from the disposal of any asset where the gain is reinvested in the shares. Deferral relief can also be obtained by individuals who have a prior connection with the company, and by the trustees of certain trusts. 2. The EIS currently uses the definition of “control” set out at section 416 of the Income and Corporation Taxes Act (ICTA) 1988 to determine whether one company controls another. It is proposed to replace this with the definition at section 840 ICTA 1988, which is concerned with the power to secure that the company’s affairs are conducted in the way that the person controlling the company wishes. Venture Capital Trusts 3. VCTs are companies listed on the Stock Exchange which specialise in investing in small higher risk unquoted trading companies of the same kind as those which qualify under the EIS. By investing in a VCT, individuals are able to spread the risk over a number of such qualifying companies. The investor is entitled to various income tax and capital gains tax reliefs, including: · income tax relief (at 20 per cent) on the amount invested in new ordinary shares up to an annual limit of £100,000 provided they are retained for at least 5 years; · deferral of capital gains tax on a chargeable gain from the disposal of any asset where the gain is invested in shares for which income tax relief is obtained; · exemption from capital gains tax on the disposal of any ordinary shares; · exemption from income tax on dividends on ordinary shares. Exchequer Costs 4. The reduction in the minimum holding period is estimated to cost £5m/£15m/£25m in 2000/01 to 2002/03 and to have a full year cost of £30m. The other changes are estimated to have a negligible cost. INLAND REVENUE PRESS OFFICE Media enquiries to: 020 7438 6692/6706/7327 (Out of hours: 07860 359544) Non-media enquiries to: 020 7438 6420/6425 (Office hours only) www.inlandrevenue.gov.uk © Crown Copyright | home | budget index | budget press notices REVBN1C 21 March 2000 CORPORATE VENTURING SCHEME Summary of measures Further improvements to the Corporate Venturing Scheme were announced today, following consultation on draft clauses. The Scheme will be introduced from 1 April 2000. Further Details 1. The new Corporate Venturing Scheme is a tax incentive scheme which is being introduced to encourage companies to invest in small higher risk trading companies and to form wider corporate venturing relationships. The Scheme will allow investor companies to: · obtain corporation tax relief at 20 per cent on amounts invested in new ordinary shares held for at least 3 years; · defer tax on any gain made on corporate venturing investments which are reinvested in another shareholding under the Scheme; · claim relief against income for capital losses (net of corporation tax relief) on disposals of shares. 2. As a result of consultation on draft clauses published last December further improvements have been made to the Scheme, as follows: Licence Fees and Royalties Small companies which obtain a substantial proportion of their income from licence fees and royalties are excluded from the Scheme, but an exception is made where royalties and licence fees arise from intellectual property which the company has itself created. The scope of this provision is being widened by · including royalties and licence fees from intangible assets of any kind; · requiring that the company should have created the greater part of the intangible asset being exploited rather than the entirety; · dispensing with the requirement that the intellectual property must have been created within the 2 years preceding the issue of the shares. These changes will also apply to the Enterprise Investment Scheme and Venture Capital Trust scheme, where existing provisions are being amended in line with the Corporate Venturing Scheme (see Budget Notes REVBN1B) and to Enterprise Management Incentives. Definition of “control” A corporate venturer cannot obtain tax relief under the Scheme if it controls the small company in which it has invested. The definition of “control” used for this purpose is being modified in two ways: · the test of control already leaves out of account certain fixed rate preference shares. This is being extended so that preference shares where the rate is pre-determined but can vary in line with interest rates and certain indices will be left out of account, together with preference shares where there is an initial dividend holiday before a fixed rate becomes payable. · the test of control allows the shareholdings of connected persons to be aggregated with that of the corporate venturer in determining whether the corporate venturer controls the small company. The directors of a corporate venturer are regarded as “connected” for this purpose but its employees will now be excluded. Minimum shareholding by individuals For a small company to qualify under the Scheme, a proportion of its ordinary share capital must be held by individuals. This helps to target the Scheme on independent companies. The proportion is being reduced from 30 per cent of the ordinary share capital to 20 per cent. Maximum shareholding by corporate venturer For a corporate venturer to qualify under the Scheme its maximum stake in the small company must not exceed 30 per cent. The way this is measured is being changed so that only ordinary share capital, and share and loan capital which can be converted into ordinary share capital, will count towards this limit. Unquoted company requirement Only investments in unquoted companies can qualify for the tax reliefs provided by the Scheme. However this requirement has been modified by providing that as long as the small company is unquoted at the time the shares are issued and there are no arrangements in place or planned at that time for seeking a listing, relief will not be withdrawn if the company subsequently becomes quoted within the three year period for which the shares must be held. Receiverships The Scheme makes provision to safeguard relief when a small company in which an investment has been made goes into liquidation by ensuring that it continues to be a qualifying company if it would otherwise meet the requirements of the Scheme. This provision is being extended to provide similar protection when a small company goes into receivership and would, on that account only, fail to meet the qualifying conditions of the Scheme. Parallel changes are being made to the Enterprise Investment Scheme and Venture Capital Trust scheme (see REVBN1B on these schemes). 3. A formal Regulatory Impact Assessment will not be issued as comments received from potential users indicated that the compliance costs of the Scheme are likely to be small. Guidance on the Scheme will be issued in the summer. Background Notes 1. The Inland Revenue issued a technical note outlining the proposed Scheme at the time of the March 1999 Budget. Following a period of consultation a number of changes and enhancements to the scheme were announced in the Pre-Budget Report (Press Release of 10 November). Draft clauses were issued under cover of a further press release on 22 December for a second period of consultation. The proposals now being made reflect the outcome of this further consultation. 2. The small higher risk trading companies which the Scheme is intended to benefit are defined in the same way as for the Enterprise Investment Scheme and for Venture Capital Trusts. Broadly they must be unquoted trading companies with gross assets of no more than £15 million immediately before the issue of the shares or £16 million immediately afterwards. 3. The cost of the scheme is forecast to build up from £5 million in 2000/01 to £100 million in a full year. INLAND REVENUE PRESS OFFICE Media enquiries to: 020 7438 6692/6706/7327 (Out of hours: 07860 359544) Non-media enquiries to: 020 7438 6420/6425 (Office hours only) www.inlandrevenue.gov.uk © Crown Copyright | home | budget index | budget press notices REVBN1D 21 March 2000 EXTRA DISCOUNT FOR EMPLOYERS PAYING TAX CREDITS Summary of measure An extra £50 discount for small employers paying tax credits to their employees was announced by the Chancellor today. Small employers with tax credit cases in 2000/01 who file their PAYE end of year returns over the Internet and pay any tax due electronically will receive the discount. This is an addition to the £50 discounts for VAT and PAYE announced on 16 February to encourage small businesses to embrace Internet technology. A total discount for small businesses of up to £150. The PAYE and tax credit discounts will also be available to small employers who use an Internet payroll service. Further details 1. From April 2000 employers will pay Working Families’ Tax Credit (WFTC) and Disabled Person’s Tax Credit (DPTC) to their employees through the payroll if notified to do so by the Inland Revenue. The Revenue will continue to pay the tax credits direct to self-employed and non-earning applicants. 2. The Inland Revenue and Customs and Excise are introducing services to allow taxpayers to send a wide range of tax forms and returns via the Internet. From April 2000 individual SA taxpayers will be able to file via the Internet and from April 2001 businesses will be able to file VAT and PAYE returns via the Internet. 3. The Government announced on 16 February that one-off discounts for Internet filing would be linked to each of these new services. There will be discounts of £50 for PAYE, £50 for VAT and £10 for Self Assessment. The additional discount for employers paying tax credits will be available to all small employers who qualify for the PAYE discount and pay tax credit to one or more of their employees in 2000-01. 4. The discounts for PAYE and tax credits will be available to those employers who file and pay direct and to those using Internet based payroll services. The detailed arrangements will be the subject of consultation over the coming months. 5. Internet technology will help deliver the Government’s vision of making services available 24 hours a day, seven days a week. The discounts should encourage take-up of the new services, lead to administrative savings and boost customer service by offering businesses and taxpayers new ways of dealing with their tax affairs. Background notes 1. The Prime Minister has set a target that 25% of transactions with government should be capable of being done electronically by 2002. 2. The Government is also taking a leading role in encouraging enterprise in electronic business and in the development of the infrastructure needed to support the competitiveness of UK business in the growing e-commerce markets. 3. Legislation in the 1999 Finance Act enables Customs and Inland Revenue to develop new electronic services for taxpayers to use as an alternative to traditional paper-based communication. In addition to supporting the Government’s broader policy objectives for electronic communication and e-commerce generally, the development of these Internet-based services should have efficiency benefits for small businesses and the Revenue departments, and should provide improved customer service for businesses and individual taxpayers. 4. The Finance Bill 2000 will include powers for the Inland Revenue and Customs and Excise to make regulations to provide incentives to use electronic means of communication with the tax authorities. 5. WFTC and DPTC were introduced in October 1999 to replace Family Credit and Disability Working Allowance, two social security benefits. The tax credits are designed to help working families and workers with a disability on low to modest incomes. They are administered by the Inland Revenue. INLAND REVENUE PRESS OFFICE Media enquiries to: 020 7438 6692/6706/7327 (Out of hours: 07860 359544) Non-media enquiries to: 020 7438 6420/6425 (Office hours only) www.inlandrevenue.gov.uk © Crown Copyright | home | budget index | budget press notices REV/C&E2 21 March 2000 A MORE COMPETITIVE ENVIRONMENT FOR BUSINESS A major boost to UK competitiveness was announced today by the Chancellor, with a wide ranging package of tax reforms to: · enable UK businesses to compete more effectively · make the tax system easier and cheaper to comply with · ensure a fairer share of tax for the UK. The package builds on the extensive reforms already made by the Government to modernise the corporate tax system for the 21st century. _________________________________ DETAILS International Competitiveness The Government's aim is to make the UK the best competitive environment for business in the world. Developments in technology and communications are opening up new markets and opportunities, and increasing international competition. Businesses need more flexibility in their structures and operations to meet the new challenges. Proposed tax changes will help UK businesses compete effectively in the new global market place. · Changes to the rules for group relief and chargeable gains will give companies more freedom to structure in ways that suit their business rather than in ways driven by the tax system. · Consultations will take place with a view to improving business efficiency by providing rollover relief for gains on the disposal of substantial shareholdings held by companies. · Reforms to double taxation relief will help branches of international businesses avoid being taxed twice. · To reflect the increasing importance of intellectual property to business, the scope of the intellectual property review will be broadened to take in the possibility of introducing tax relief for the costs of purchasing goodwill and other intangibles. · Sales of intellectual property will be exempted from stamp duty to help boost R&D and foster an environment in which invention and innovation is encouraged. · A new tax relief for the cost of acquiring capacity in submarine telecommunications cables (known as IRUs) will help open up the online world to competition. · Changes in the tax treatment of "ratchet loans" (loans with interest rates linked to profits) will give companies easier access to the finance they need to compete effectively. · Waste disposal firms taking over sites previously run by another waste disposal operator will be entitled to tax relief for their predecessor's site preparation expenditure. · The new tonnage tax regime, announced in August last year, will help the UK shipping industry turn the tide of prolonged decline. · As announced in January, improvements in the tax treatment of companies that draw up their accounts in a foreign currency will be introduced to increase the attraction of the UK as a base for group financial and treasury operations, and reduce the need for costly hedging arrangements. Making the tax system easier and cheaper to comply with Unnecessary and outdated tax rules that detract from business efficiency are to be cut. The Government is aware that requirements and controls in the tax system can lower profitability and reduce competitiveness. The Government keeps these burdens under continuous review, and has decided that it can now relax a number of them. · Changes to the capital gains rules will allow companies to match gains and losses without the current need to move assets around the group prior to disposal. And certain groups with large property holdings will be able to agree 31 March 1982 valuations with the Inland Revenue in advance of properties being sold. · Relaxation of the overseas life assurance business rules will help life insurance companies expand and compete more easily in overseas markets. · A reduction of 1 per cent in the rate of interest charged on corporation tax paid late under the instalment arrangements, will bring it more closely into line with commercial rates. And a doubling (from £5000 to £10000) in the de-minimis limit for companies that have to pay corporation tax in quarterly instalments will take around 1,000 companies out of instalments altogether. · The rules for double taxation relief will be made clearer and more certain by legislating various practices concerning the calculation of underlying tax. · The abolition of a withholding tax on international bond interest will sweep away unnecessary tax rules for UK international bond markets. They will be replaced by simpler and less burdensome requirements to provide information to the Inland Revenue. · There will be consultation later in the year about modernising the rules for deduction at source from royalties. The aim will be to make it easier for businesses to get access to the intellectual property on which improving competitiveness will increasingly depend. · The modernisation of the complex rules about exchange gains and losses, derivatives and loan relationships (corporate and government debt) will be addressed in a technical discussion paper to be issued later in the year. Ensuring a fairer share of tax for the UK While facilitating business efficiency and promoting its competitiveness, the Government is determined that businesses operating in the UK should pay their fair share of tax. Measures announced today reflect the Government's resolve to ensure that the rules that protect the tax base keep up to date with developments in the domestic and global economy. · The anti-avoidance rules for controlled foreign companies (CFCs) involved in UK tax avoidance will be strengthened and updated to take account of developments in the way that multinationals are organised and do business. · Changes in the double taxation relief rules will limit the use of so-called "mixer companies" to shelter low taxed foreign profits from UK tax. Together, the double taxation relief reforms and the CFC changes will help level the playing field between the taxation of domestic and foreign source income, freeing up companies to make decisions about investment and structure for commercial rather than tax reasons. · New rules for the taxation of insurance reserves will bring insurance companies and members of Lloyds into line with other companies, and bring the UK treatment more into line with that in other major insurance markets. · Changes for life insurance businesses will ensure that reliefs are not used to avoid tax where borrowings finance investments whose returns benefit from tax exemptions. · A range of stamp duty avoidance devices will be stopped. So too will a property based avoidance device involving rent factoring. · VAT changes will counter tax avoidance by Non-Established Taxable Persons (NETPs). The new rules will prevent companies avoiding tax on the disposal of assets in the UK, and will help level the playing field between UK-based and foreign leasing companies. · New penalties for failure to meet key requirements of the VAT investment gold scheme will help protect legitimate businesses. ______________________________________ NOTES FOR EDITIORS 1. Further information is contained in the following Inland Revenue Budget Notes and Press Releases and Customs & Excise Budget Notices: REVBN2A Group relief rules REVBN2B Modernisation of rules for chargeable gains of companies REVBN2C Company gains on substantial shareholdings: a new rollover relief REVBN2D Double taxation relief for companies REVBN2E Tax relief on mobile phone licences and IRUs REVBN2F Loans with interest rates linked to profits REVBN2G Company gains: simpler procedures for companies REVBN2H Overseas life assurance business REVBN2I Quarterly payments of corporation tax REVBN2J International exchange of information REVBN2K Controlled foreign companies (CFCs) – fairer and more effective rules REVBN2L Life and general insurance companies and Lloyd’s members REVBN2M Rent factoring REV5 Stamp duty C&EBN44/2000 VAT anti-avoidance C&EBN21/2000 VAT investment gold 2. The tonnage tax is subject to agreement with the European Commission as a notifiable state aid. A Regulatory Impact Assessment on the tonnage tax is available on the internet at www.inlandrevenue.gov.uk or from Cheryl Scott at the Inland Revenue on 020 7438 6583. _______________________________ INLAND REVENUE Media enquiries to: 020 7438 6692/6706/7327 (Out of hours : 07860 359544) Non-media enquiries to: 020 7438 6420/6425 (Office hours only) www.inlandrevenue.gov.uk CUSTOMS & EXCISE Media enquiries to: 020 7865 5471/5472/5872 (Out of hours: 020 7620 1313) Customs & Excise information is on the Internet: www.hmce.gov.uk More information is also available from the local Excise and Inland Customs Business Advice Centre, listed under Customs and Excise in the telephone book. © Crown Copyright | home | budget index | budget press notices REVBN2A 21 March 2000 GROUP RELIEF RULES Summary of measures The group relief rules for companies will be modernised to allow groups and consortia to be established through companies resident anywhere in the world, it was announced today. The changes respond to the increasing globalisation of business and will give multinational groups of companies greater flexibility in structuring their commercial activities in the UK. The changes will take effect from 1 April 2000. Group relief will also be extended from that date to UK branches of overseas companies. Further details 1. From 1 April 2000, it will be possible to establish a group or consortium for group relief purposes through a company resident anywhere in the world. Examples of what this will mean in practice are given in the annex attached. 2. The Inland Revenue announced in February 1999 that, following the decision of the European Court of Justice in the case of ICI v Colmer, group relief would be available where the existence of a group or consortium was established through companies resident in the European Union or the European Economic Area. The changes announced today go much further, by completely removing any restriction on the residence of companies through which a group or consortium is established. 3. Group relief will also be extended, from 1 April 2000, to UK branches of overseas companies. Under the new rules, a UK branch of an overseas company will be able to claim losses surrendered by other group companies as group relief, to reduce its profits chargeable to corporation tax. A UK branch will also be able to surrender its losses as group relief, where those losses are not relievable (other than against profits within the charge to UK corporation tax) in the overseas country. 4. The rules for overseas branches of UK companies will be brought into line with those for UK branches of overseas companies. A UK company will be able to surrender losses which are attributable to an overseas branch if those losses are not relievable (other than against profits within the charge to UK corporation tax) in the overseas country. 5. Two other minor technical amendments are also being made. These will provide for further simplification of the administrative arrangements for claiming group relief under existing regulatory powers, and will correct a minor defect in the rules determining the maximum amount of a consortium claim to group relief. Background notes Group relief 1. Group relief allows a company to claim the benefit of trading losses and certain other reliefs of another company if both companies are members of the same group. Its objective is to make the tax treatment of a group carrying on a variety of activities through different companies closer to what it would have been if those activities had been carried on by a single company. A group exists, broadly, where one company owns 75 per cent of the other, or a third company owns 75 per cent of both of them. 2. Simplified administrative arrangements for claiming group relief for accounting periods within Corporation Tax Self Assessment were provided by the Corporation Tax (Simplified Arrangements for Group Relief) Regulations (SI99/2975). These regulations reduce the paperwork involved in making and revising group relief claims. Consortium claims to group relief 3. Group relief is extended to consortia. A consortium exists where companies (the consortium members) each own at least 5 per cent, and together own at least 75 per cent, of the share capital of - a trading company, or - a holding company whose business is wholly or mainly the holding of shares in trading companies of which it owns 90 per cent of the ordinary share capital. Branches 4. UK branches of non-resident companies are subject to UK corporation tax on their trading profits. Before the changes announced today, their trading losses could be set off only against other profits of the branch or carried forward against future trading profits of the branch. 5. UK-resident companies are subject to corporation tax on their world-wide profits, including any profits made by their overseas branches (though overseas tax paid by the branch can be set against the company’s corporation tax liability). Where an overseas branch makes a loss, that loss will be reflected in the results of the company as a whole. And to the extent that a branch loss forms part of an overall loss made by the company, it may be surrendered as group relief under the current rules. The new rules will restrict the surrender of losses which are attributable to an overseas branch where they are relievable in the overseas country (other than against profits within the charge to UK corporation tax). But otherwise the position will remain unchanged. Previous press release 6. A press release was issued on 26 February 1999 following the decision of the European Court of Justice in ICI v Colmer. It explained how the Revenue would settle open cases where the establishment of a group or consortium relied on a company or companies resident within the European Union or the European Economic Area. Related press release 7. Modernisation of the rules affecting groups of companies for the purposes of chargeable gains has also been announced today. Details are given in REVBN2B. Costs 8. The costs of extending the group relief rules are estimated to be £50m in 2000-01, £100m in 2001-02 and £65m in 2002-03, but the ongoing annual cost is likely to be small. These costs take account of behavioural effects. INLAND REVENUE PRESS OFFICE Media enquiries to: 020 7438 6692/6706/7327 (Out of hours: 07860 359544) Non-media enquiries to: 020 7438 6420/6425 (Office hours only) www.inlandrevenue.gov.uk ANNEX ESTABLISHING A GROUP OR CONSORTIUM - EXAMPLES Example 1 – Non-UK resident parent [Diagram for Non-UK Resident Parent] In this example the two UK subsidiaries will now be members of the same group, whatever the country of residence of the parent. The two UK subsidiaries will therefore be able to claim and surrender group relief between each other. Example 2 – Non-UK resident member of consortium [Diagram: Non-UK resident member of consortium] In this example the three companies will form a consortium, whatever the country of residence of the non-UK resident member. The UK-resident member of the consortium and the UK-resident trading company will be able to claim and surrender group relief between each other. Example 3 – Non-UK resident trading subsidiaries of consortium [Diagram: Non-UK resident trading subsidiaries of consortium] In this example a consortium will now exist, whatever the country of residence of the non-UK resident trading companies. Group relief will therefore be available between the UK-resident companies in the consortium. © Crown Copyright | home | budget index | budget press notices REVBN2B 21 March 2000 MODERNISATION OF RULES FOR CHARGEABLE GAINS OF COMPANIES Summary of measures From 1 April companies will be able to transfer assets on a tax neutral basis in a wider range of circumstances than presently. The changes, which reflect the increasing globalisation of businesses, will give companies greater flexibility in how they structure their businesses without incurring tax charges while assets remain within the same overall ownership and within the UK tax net. Together with the changes to corporation tax group relief, also announced today, these reforms will allow companies to organise themselves to meet their commercial needs. Further details 1. From 1 April 2000 it will be possible for companies to transfer assets on a no gain/no loss basis in a wider range of circumstances than is possible under the current rules. 2. Companies are presently able to transfer assets from one to another on a no gain/no loss basis when they are members of the same group of UK resident companies. In future, membership of a group will no longer be restricted to UK resident companies. Provided the assets remain within the scope of corporation tax on chargeable gains, no gain/no loss transfers will be possible within the worldwide group of companies. 3. It will be possible to transfer an asset on a no gain/no loss basis between two UK resident companies with a common non resident parent company. It will also be possible to transfer assets on a no gain/no loss basis between a UK resident company and a non resident company within the same worldwide group carrying on a trade in the UK through a branch or agency where the asset remains within the charge to corporation tax on chargeable gains. 4. The rules for relieving chargeable gains where there is a scheme of reconstruction or amalgamation of a company’s business will also be relaxed. Currently the companies which are party to the scheme must be resident in the UK. In future the relief will focus on whether the assets transferred remain within the scope of corporation tax on chargeable gains, rather than the residence of the companies. 5. The loss and gain buying rules that prevent groups of companies from bringing together losses and gains which did not accumulate within the same group will be aligned with the major changes. They will focus on companies joining the worldwide group and assets falling within the UK tax net. These rules will commence on Budget day. 6. There are a number of other consequential changes which carry over this change of approach. Background notes 1. Companies can transfer assets on a tax neutral basis in a number of circumstances. Intra group transfers 2. The most important rules allow transfers of assets on a no gain/no loss basis within a group. These rules have allowed a group to bring together gains and losses in a single company. 3. A group exists, broadly where one company owns 75% of the other, or a third company owns 75% of each of them. Membership of a group is presently restricted to companies resident in the UK and to benefit from these rules multinational companies need to have a structure that concentrates their UK companies under a single UK resident company, regardless of whether that is the best commercial arrangement. 4. In addition it is not presently possible for non resident companies within the charge to corporation tax on the profits of a trade carried on through a branch or agency in this country to transfer assets on a no gain/no loss basis to or from fellow group members. 5. The changes to the rules will mean that the country of residence no longer matters when identifying a group of companies and assets may now be transferred within the worldwide group on a tax neutral basis if the assets stay within the charge to UK corporation tax on chargeable gains. Schemes of reconstruction or amalgamation 6. Transfers of assets are on a no gain/no loss basis where one company disposes of the whole or part of its business to another company as part of a scheme of reconstruction or amalgamation. The changes will mean that it does not matter if either party to the scheme is not resident in the UK as long as the assets of the business transferred remain within the scope of UK corporation tax on chargeable gains. This change will allow a business to be transferred on a no gain/no loss basis from a non resident company to another non resident company, as long as the business continues in the UK, or for it to be similarly transferred from a UK resident company to a non resident, or vice versa, subject to the same condition. Related Budget Notes 7. Instead of transferring an asset from one company to another to set off gains and losses on different assets held in the group it will now be possible to elect that a disposal of an asset should be treated as made by a different member of the group; details are in Budget Note REVBN2G. 8. Changes to rules dealing with group relief for groups and consortia have also been announced today; details are in Budget Note REVBN2A. Costs 9. The costs of these changes are estimated to be £10 million in 2000 – 01 and negligible thereafter. INLAND REVENUE PRESS OFFICE Media enquiries to: 020 7438 6692/6706/7327 (Out of hours: 07860 359544) Non-media enquiries to: 020 7438 6420/6425 (Office hours only) www.inlandrevenue.gov.uk © Crown Copyright | home | budget index | budget press notices REVBN2C 21 March 2000 COMPANY GAINS ON SUBSTANTIAL SHAREHOLDINGS: A NEW ROLLOVER RELIEF Summary of measures The Government is to consult on the possibility of introducing a rollover relief for gains on substantial shareholdings held by companies. This would be a major relaxation to the capital gains rules for companies. By removing the immediate tax charge when companies rationalise their substantial shareholdings, it will promote business efficiency. The Inland Revenue will be publishing a Technical Note containing detailed proposals for consultation. Subject to the outcome of that consultation, the relief will be included in next year’s Finance Bill. Further details 1. The Government’s present thinking is that a rollover relief for gains on shareholdings held by companies should be along the following lines: · shareholdings in excess of a threshold of 30% would qualify; · only shareholdings in trading companies or trading groups would be within the scope; · rollover would be possible into other substantial shareholdings or into the wider range of assets which presently qualify for business asset rollover relief, and vice-versa; · life insurance companies would be included, but only in respect of their structural shareholdings; · it will be necessary to consider the application of the relief to other specific sectors (such as the oil industry). 2. There will be a large number of detailed issues to be considered. These will be set out in a Technical Note to be published by the Inland Revenue in the early summer. If the Government decides to proceed, draft clauses will be published in due course, comments invited and the clauses included in Finance Bill 2001. Background notes 1. The present business asset rollover relief applies to both companies and individuals and enables gains on a range of assets (land and buildings, fixed plant machinery, goodwill etc) to be rolled over against the cost of replacement assets in the same range. The assets must be used for the purposes of a trade and the proceeds of sale of the old asset have to be reinvested into the new asset for full rollover to be available. 2. Shares are not included in the range of assets which qualify for rollover relief. Introducing relief for companies’ gains on substantial shareholdings will, if implemented, be a significant extension of the existing rules. 3. Full details of the cost and implications of the relief will be published when the details are settled in the light of consultation and the Government has decided whether or not to proceed. INLAND REVENUE PRESS OFFICE Media enquiries to: 020 7438 6692/6706/7327 (Out of hours: 07860 359544) Non-media enquiries to: 020 7438 6420/6425 (Office hours only) www.inlandrevenue.gov.uk © Crown Copyright | home | budget index | budget press notices REVBN2D 21 March 2000 DOUBLE TAXATION RELIEF FOR COMPANIES Summary of measures Major changes to the United Kingdom’s system of double taxation relief for companies, in order to improve its effectiveness and its fairness, were announced today. Overall the changes will lead to a reduction in business’ compliance costs. The object is to secure a fairer share of tax from global profits for the United Kingdom. The changes will mainly affect multinational companies which earn income overseas, although some of the changes will apply also to individuals. Business will benefit from improved communications with the Inland Revenue when the specialist group which calculates underlying tax rates moves from their Financial Intermediaries and Claims Office to International Division. This will happen on 1 April. It will help to ensure that the changes which concern relief for underlying tax are implemented effectively. Further details 1. The changes follow a review of the current system of double taxation relief that started two years ago and has involved extensive consultation with business. 2. The most significant of the decisions taken by the Government are as follows · the credit method of relieving double taxation should be retained and an exemption method should not be introduced · the rate of underlying tax attributable to a dividend paid from one company to another will be capped at a rate equal to the United Kingdom corporation tax rate · a provision that allows a company to specify the particular profits out of which it pays a dividend will be repealed · a number of other changes will be made to the way in which relief for underlying tax is calculated · companies will be able to carry back one year, or to carry forward indefinitely, foreign tax on dividends and on the profits of foreign branches which cannot be relieved immediately · relief will be allowed to all non-residents for foreign tax paid on the income of their United Kingdom branches or agencies · clear rules will be introduced for insurance companies receiving foreign taxed income as part of the receipts of insurance business · taxpayers will be required to take reasonable steps to keep their foreign tax bills down if they claim relief for that tax (this will apply to all taxpayers, not just to companies) · it will be made clear that if relief for foreign tax can be claimed under a double taxation agreement it cannot also be claimed under domestic law (this will apply to all taxpayers, not just to companies) · the time limits for claiming relief for foreign tax will be extended where the tax is not paid until after the current time limits have expired (this will apply to all taxpayers, not just to companies) · legislation will make clear that the royalties Article of some double taxation agreements will deny relief from source state taxation, in cases where there is a special relationship between the payer and the recipient of royalties, not only where the royalty rate is excessive, but also where the agreement under which the royalties are paid would not have been made in the absence of the special relationship (a similar provision already exists in relation to interest) · the operation of the mutual agreement procedure (whereby the Inland Revenue may discuss with another country double taxation issues relating to a particular taxpayer) will be improved by legislation which clarifies how effect may be given to an agreement reached under the procedure and what time limits apply. 3. Full details of all the changes, together with draft legislation and a regulatory impact assessment, can be found in a paper which the Inland Revenue is publishing today called “Double taxation relief for companies: outcome of the review”. Comments are invited on the draft legislation by Wednesday 19 April. Copies of the paper can be obtained from: Inland Revenue Visitor Information Centre Ground Floor South West Wing Bush House Strand London WC2B 4RD Telephone 020 7438 6420/6425 Personal callers can obtain copies between 9.00am and 5.00pm, Monday to Friday. The paper is also available on the internet at www.inlandrevenue.gov.uk Background notes 1. Double taxation occurs when income is taxed both by the taxpayer’s country of residence and in another country where the income arises. The purpose of double taxation relief is to remove or reduce the disincentive that double taxation represents to outward investment. It is estimated that in the tax year 1999/2000 £5.5 billion of relief will be allowed against income tax and corporation tax. A key part in that is played by double taxation agreements that the United Kingdom has entered into with other countries. More than 100 of these are now in force. 2. Most of the double taxation relief that is allowed relates to underlying tax. This is the tax paid by subsidiary companies on the profits out of which they pay dividends. 3. In March 1998 the Chancellor announced a review of double taxation relief for companies. The review covered the functioning and the fairness of the existing system, its effectiveness in meeting the objectives of the relief and business’ compliance costs, while having regard to the overall cost of the relief. 4. In March 1999 the Inland Revenue published a discussion paper “Double taxation relief for companies”. Twenty-five sets of responses were received from business and others. 5. The changes announced today are expected to have a yield of around £100m in a full year. INLAND REVENUE PRESS OFFICE Media enquiries to: 020 7438 6692/6706/7327 (Out of hours: 07860 359544) Non-media enquiries to: 020 7438 6420/6425 (Office hours only) www.inlandrevenue.gov.uk © Crown Copyright | home | budget index | budget press notices REVBN2E 21 March 2000 TAX RELIEF ON MOBILE PHONE LICENCES AND IRUS Summary of measures From today tax relief will be available for the costs of acquiring capacity on submarine telecommunications cables, called IRUs (indefeasible rights of use). This is an extension to the relief for the cost of buying third generation mobile telecommunication licences which was announced in last year’s Budget. (IR 24 – 9 March 1999). In both cases the relief will be spread over the life of the acquisition and will be legislated for in this year’s Finance Bill. This will level the playing field by matching relief enjoyed in other tax administrations and assist in opening up the online world to competition with advantages for smaller operators. Further details 1. The general rule in the UK tax system is that business expenditure is tax deductible if it is · incurred wholly and exclusively for the purposes of the trade in question, and · revenue, not capital. 2. An IRU would currently be regarded as a capital asset of the purchasing company, and the acquisition cost would not therefore qualify for a deduction. The cost does not, however, qualify for capital allowances either. 3. It is proposed to allow the costs of IRUs acquired on or after today to be relieved for tax purposes as revenue items. Any receipts for disposal of such IRUs acquired on or after today will be brought into charge as trading receipts. 4. As with the relief for the costs of acquiring licences to operate the third generation mobile spectrum, which was announced in last year’s Budget, the broad intention is to provide tax relief for IRUs by following the accounting treatment, spreading the relief over the life of the IRU. Background Notes 5. In order to compete in the international market for telecommunications, all telecommunications companies need to acquire capacity on submarine cables. Large operators tend to build and install these cables themselves, whilst smaller companies purchase capacity by buying Indefeasible Rights of Usage (IRUs) – broadly equivalent to long leases. These IRUs are attractive as the cost of building or installing a cable is prohibitive for smaller operators. 6. The direct investment in the cable by the large operator qualifies for tax relief under the capital allowances regime. However the investment in the IRU by the smaller operator receives no tax relief until the expiry of the IRU, which can be up to 25 years later, and then only as a capital loss. 7. The proposal is to grant tax relief for all IRUs acquired from third parties on or after today, following the accounting treatment of amortising the cost over the life of the IRU. 8. This is the same approach as that being adopted for relieving the cost of acquiring licences to operate third generation mobile spectrum, which was announced in the Budget last year. The Government has announced the details of the spectrum auction (DTI Information Note P/2000/116 – 18 February (www.spectrumauctions.gov.uk)). INLAND REVENUE PRESS OFFICE Media enquiries to: 020 7438 6692/6706/7327 (Out of hours: 07860 359544) Non-media enquiries to: 020 7438 6420/6425 (Office hours only) www.inlandrevenue.gov.uk © Crown Copyright | home | budget index | budget press notices REVBN2F 21 March 2000 LOANS WITH INTEREST RATES LINKED TO PROFITS Summary of measures Companies will be able to claim interest relief on certain loans (‘ratchet loans’) with interest rates linked to profits, it was announced today. This will bring the tax treatment of these loans into line with most other commercial loan arrangements and give companies easier access to the finance they need in order to grow. Transfers of ratchet loans will also be exempt from Stamp Duty and Stamp Duty Reserve Tax. Further details 1. From Budget Day companies will be able to claim relief for interest on certain commercial loans with interest rates linked to profits (‘ratchet loans’). These are loans where the rate of interest reduces as business results improve (or conversely, the interest rate increases as business results deteriorate). Both new and existing loans will benefit from the change. 2. Previously relief could not generally be claimed for the interest on ratchet loans where the creditor was not a UK company, because the payments were treated as distributions of profit for tax purposes. The change will mean that companies will have easier access to the finance they need in order to grow. 3. The definition of ratchet loans for the purposes of the group relief anti-avoidance rules will be aligned to ensure that these loans are treated as normal commercial loans. 4. Ratchet loans will also be treated as exempt loan capital for Stamp Duty purposes in relation to transfers made on or after Budget Day. Background notes Corporation Tax – interest relief 1. Companies are generally able to claim tax relief for interest expenditure. But where the creditor is not within the charge to UK corporation tax, interest on certain loans is treated as a distribution of profit (like a dividend), so that relief is not available. This prevents equity investment being artificially characterised as a loan in order to obtain interest relief. 2. The rules are aimed at loans where there is a right to share in any increase in the profits but currently cover all loans where the interest rate is to any extent dependent on business results. So ratchet loans, where the interest rate reduces as business results improve (or vice versa), currently fall within the scope of these rules even though there is no question of sharing in any increase in the profits. This has made this kind of loan unattractive to borrowers. Corporation Tax - group relief 3. The group relief rules allow losses and certain other amounts incurred by one company to be set against the profits of another company in the same group. Two companies are members of the same group if one is a 75% subsidiary of the other, or if both are 75% subsidiaries of a third company. 4. There is anti-avoidance legislation to prevent the percentages being manipulated in order to create artificial group relationships, and this legislation includes rules to distinguish between equity capital and normal commercial loans. There is special provision for ratchet loans, so that they qualify as normal commercial loans. But the current definition of ratchet loans is rather narrow and does not include loans where the rate of interest increases as business results deteriorate or as the value of an asset decreases. Stamp Duty 5. Transfers of most loan capital are exempt from Stamp Duty and Stamp Duty Reserve Tax. But the exemption does not extend to certain categories of loans, including loan capital where the interest is determined to any extent by reference to business results or to the value of any property. So under current rules ratchet loans cannot benefit from this exemption. Costs 6. The costs of these changes are estimated to be negligible. INLAND REVENUE PRESS OFFICE Media enquiries to: 020 7438 6692/6706/7327 (Out of hours: 07860 359544) Non-media enquiries to: 020 7438 6420/6425 (Office hours only) www.inlandrevenue.gov.uk © Crown Copyright | home | budget index | budget press notices REVBN2G 21 March 2000 CAPITAL GAINS : SIMPLER PROCEDURES FOR COMPANIES Summary of measures Two measures were announced today to reduce companies’ costs and ease administration. Under the first measure, assets will no longer have to be moved between companies in a group to ensure that gains and losses can be matched. An election to achieve the same effect will be possible. This represents an important step in making the administration of capital gains by companies easier and more flexible. Under the second measure, certain companies with large property holdings will be able to agree with the Inland Revenue the value of all the land and buildings owned on 31 March 1982 in advance of any sales of that land. Further details Notional transfers of assets within groups 1. From 1 April 2000 two members of a group of companies may jointly elect that an asset which has been disposed of outside of the group by one of them may be treated as if it had been transferred between them immediately before that disposal. The second company will then be treated as having made the disposal outside the group. This will enable losses and gains on assets within the group to be matched in a single company without actually having to transfer the asset. 2. An election may be made within two years of the end of the accounting period in which the asset was disposed of outside the group. Valuation of large land portfolios at 31 March 1982 3. For a trial period starting from today companies and groups of companies holding a property portfolio which includes either 30 or more properties held since 31 March 1982, or if fewer, properties held since 31 March 1982 with a current aggregate value greater than £30 million will be able to ask the Inland Revenue to agree the value of land and buildings owned on 31 March 1982. 4. This service will be available only in respect of entire property portfolios. The trial period is expected to last for two years. A decision will then be taken, in the light of usage and costs, on whether the service should be continued and possibly extended. 5. Companies or groups of companies who wish to use this new service must provide values for all properties in the company or group portfolio which have been held since 31 March 1982. All values put forward for checking will have to be supported by appropriate professional valuations. Any company or group interested in using the new service can obtain further information from Inland Revenue, Capital and Savings Division, Room 133, Sapphire House, 550 Streetsbrook Road, Solihull, West Midlands B91 1QU. A note of the tax office and reference to which the company’s Corporation Tax Return is submitted (for a group this information should be provided in relation to its principal company) should be provided. 6. This new service is in addition to the pre-return valuation check of completed property transactions which was recently extended to companies, and announced in the Inland Revenue Press Release of 10 January 2000. Background notes Notional transfers of assets within groups 1. The Taxation of Chargeable Gains Act does not include a general group relief to allow losses of one company in a group to be set against gains of another group company. In practice, a group can arrange that losses are set against gains by transferring assets within the group (under the no gain/no loss provisions) before disposal of those assets outside the group, so that chargeable gains and losses arise in the same company. 2. The transfer of assets within a group simply to take advantage of the tax rules may give rise to legal and administrative costs. The new measure announced by the Chancellor will allow more flexibility in matching capital gains and losses within a group. The existing tax neutral treatment for assets actually transferred between group companies will continue. 3. This new measure has been introduced following consultation with representative bodies. Valuation of large land portfolios at 31 March 1982 4. In certain circumstances the value of assets held at 31 March 1982 needs to be known to calculate any capital gain when they are disposed of. The new service will enable companies with large property holdings to agree the value of all their land and buildings held at 31 March 1982 at one time and before disposals take place. The work on agreeing 1982 valuations will be carried out by the Valuation Office Agency, which is part of the Inland Revenue. 5. This new service has been introduced following consultation with representatives of large property holding groups. INLAND REVENUE PRESS OFFICE Media enquiries to: 020 7438 6692/6706/7327 (Out of hours: 07860 359544) Non media enquiries to: 020 7438 6420/6425 (Office hours only) www.inlandrevenue.gov.uk © Crown Copyright | home | budget index | budget press notices REVBN2H 21 March 2000 OVERSEAS LIFE ASSURANCE BUSINESS Summary of measures Changes are to be made to the tax rules that determine what sort of life assurance business sold to non-residents qualifies for favourable tax treatment. These changes will increase the competitiveness of UK companies selling insurance overseas. Further details 1. Overseas life assurance business (“OLAB”) is in general terms business which a company writes with non-resident policyholders. Unlike business with UK resident policy holders, where business qualifies as OLAB no tax is charged on the company in respect of the income and gains building up to meet the benefits payable to policyholders. 2. Representations have been made that the current OLAB rules are too strict and are preventing companies writing business in ordinary commercial situations. Last year the Government laid regulations to relax the compliance requirements of the regime in response to these representations. Now it will relax the legislation as well. 3. The legislation to be included in the Finance Bill provides a power for the Inland Revenue to make regulations setting out what cases are to be excluded from OLAB treatment. The regulations will be the subject of consultation with the industry. The aim will be to have them come into force as soon as possible after Royal Assent, in place of the existing rules which will then be removed. Background notes Regulations amending the compliance rules for overseas life assurance business were described in an Inland Revenue Press Release of 18 October 1999 (Encouraging Overseas Life Assurance Business). INLAND REVENUE PRESS OFFICE Media enquiries to: 020 7438 6692/6706/7327 (Out of hours: 07860 359544) Non-media enquiries to: 020 7438 6420/6425 (Office hours only) www.inlandrevenue.gov.uk © Crown Copyright | home | budget index | budget press notices REVBN2I 21 March 2000 QUARTERLY PAYMENTS OF CORPORATION TAX Summary of measures Changes in the quarterly instalment payment arrangements announced by the Chancellor today will · reduce the rate of interest on underpayments of corporation tax under the quarterly instalment arrangements · remove around 1,000 companies from the instalment arrangements altogether. Further details 1. The rate of interest charged on underpayments of corporation tax under the quarterly instalment arrangements is currently two percentage points above the base rate. The formula for calculating the rate, which is set out in regulations, is to be amended so that the rate will be only one percentage point above the base rate. The necessary change to the interest rate regulations will be made as soon as possible and will take effect 21 days after the new regulations are laid. 2. This change responds to representations from companies within the instalment arrangements that the rate of interest on underpaid instalments should be aligned more closely with commercial rates. 3. Only large companies (broadly, those with profits over £1.5m) pay corporation tax by quarterly instalments. But there is also a de minimis limit which excludes companies with an annual liability of £5,000 or less. This de minimis limit will be doubled to £10,000 for accounting periods ending on or after 1 July 2000 (that is, the second year of the instalment arrangements). It is estimated that as a result around 1,000 companies will no longer have to pay by instalments. The necessary change to the instalment regulations will be made as soon as possible. Background notes 1. The new system of corporation tax payments for larger companies was introduced last year for accounting periods ending on or after 1 July 1999. It provides for large companies (broadly those with profits of over £1.5m) to pay their corporation tax by instalments, two of which fall during the accounting period. The change is being phased in over a four year period, with companies paying a gradually increasing percentage of this tax by instalments (with the balance in a lump sum nine months and one day after the end of their accounting period). The transition to the new system will be completed in 2002. 2. More favourable rates of interest apply to underpayments and overpayments of corporation tax within the instalments period. These are currently two percentage points above the base rate for underpayments and one quarter of a percentage point below the base rate for overpayments. The rates are set by the Taxes (Interest Rate) (Amendment No. 2) Regulations (SI 1998 No. 3176). 3. The rates applying after the normal due date (nine months and one day after the end of a company’s accounting period) are two and a half percentage points above the base rate for underpayments and one percentage point below the base rate for overpayments. 4. Companies whose annual liability is £5,000 or less do not have to pay tax by instalments. The limit is set by the Corporation Tax (Instalment Payments) Regulations (SI 1998 No. 3175) 5. The reduction in the interest rate aims to help companies pay the correct level of instalments and will have no Exchequer cost. The increase in the de minimis limit will have a one-off Exchequer cost of £5m in 2000-2001. INLAND REVENUE PRESS OFFICE Media enquiries to: 020 7438 6692/6706/7327 (Out of hours: 07860 359544) Non-media enquiries to: 020 7438 6420/6425 (Office hours only) www.inlandrevenue.gov.uk © Crown Copyright | home | budget index | budget press notices REVBN2J 21 March 2000 WITHHOLDING TAX ON INTERNATIONAL BOND INTEREST ABOLISHED Summary of measures A package of measures was announced today which will help promote the UK as a competitive environment for business. The withholding tax on international bond interest will be abolished, to be replaced by simpler and less burdensome requirements to provide information to the Inland Revenue. Other changes announced will allow the Inland Revenue to improve the effectiveness of exchange of information arrangements under double taxation agreements with other countries; and allow the UK to enter into new exchange of information agreements which will help to prevent individuals and companies evading or avoiding tax. Further details 1. The package includes legislation which will help promote and protect the competitiveness of UK and EU financial markets by: · Abolishing current tax rules for financial institutions which act as Paying and Collecting Agents of international bonds and foreign dividends from April 2001. 40 pages of complex legislation will be swept away. and allow the Inland Revenue to: · Obtain routine information about the UK savings income of all individuals. To ensure a level playing field, this information will not be exchanged with other countries, other than on a reciprocal basis The Government is seeking to establish exchange of information on as wide an international basis as possible to ensure a level international playing field for individuals and businesses · Obtain taxpayer information at the request of the tax authorities of another country with which the UK has a double taxation agreement. The law at present gives the Inland Revenue powers to obtain information only if needed for its own purposes or at the request of another EU Member State · Enter into new Tax Information Exchange Agreements with other countries. 2. The changes will allow more effective two-way exchange of information with countries where there are significant transactions involving UK taxpayers. 3. As now, taxpayer information will only be passed on under strict conditions of taxpayer confidentiality. Background notes 1. The tax rules for Paying and Collecting agents of quoted Eurobonds and foreign dividends apply to about 600 financial institutions. Currently, they are required to deduct and account for tax on payments to UK residents, and to obtain and keep for inspection various types of declaration from non-UK residents and others entitled to receive payments without deduction of tax. The rules date back to the nineteenth century. 2. The Revenue is already able to exchange taxpayer information with other countries with which the UK has a double taxation agreement. Information exchanged under these agreements is on a reciprocal basis. But the UK does not receive information from other countries unless it is able to provide similar information in return. And it does not receive information from countries with which it has no double taxation agreement, including countries offering significant opportunities for UK tax to be avoided or evaded. 3. The Revenue has for many years had the power (under Section 20 Taxes Management Act 1970) to call for information from taxpayers and for documents from third parties to enable them to determine the right amount of tax due in a particular case. This power is used sparingly and is subject to a number of important safeguards, including in most cases the need for an Inspector to get the prior approval of an independent Commissioner. This power was extended in 1990 to allow the Revenue to obtain information on request on behalf of the tax authorities in other EC member states. 4. The Government has repeatedly emphasised the need for greater international co-operation in particular exchange of information to tackle financial crime, harmful tax competition, tax evasion and avoidance. A G7 initiative seeking to improve the supply of information from tax havens by the negotiation of effective information exchange agreements was launched by the Chancellor during the UK Presidency in 1998. In the context of the EU’s efforts to tackle tax evasion, the Government has recently circulated a paper on “Exchange of Information and the draft Directive on Taxation of Savings”. This paper sets out the case for tackling evasion of tax on savings income through exchange of information on as wide an international basis as possible. The paper can be accessed from the Treasury’s web site http://www.hm-treasury.gov.uk. 5. The Government believes that the package of measures will have net deregulatory benefits for those businesses affected. It will be consulting on the detailed implementation of the measures, and will publish a full Regulatory Impact Assessment in due course. INLAND REVENUE PRESS OFFICE Media enquiries to: 020 7438 6692/6706/7327 (Out of hours: 07860 359544) Non-media enquiries to: 020 7438 6420/6425 (Office hours only) www.inlandrevenue.gov.uk © Crown Copyright | home | budget index | budget press notices REVBN2K 21 March 2000 CONTROLLED FOREIGN COMPANIES (CFCs) – FAIRER AND MORE EFFECTIVE RULES Summary of Measures Changes to the controlled foreign company rules to ensure that the UK receives a fairer share of tax on the profits of multinationals were announced today. The measures build on the steps taken in the last 2 Budgets to reinforce the fairness and effectiveness of the CFC rules, and form part of a continuing resolve to ensure that the rules keep pace with developments in the global economy. UK companies will continue to be exempt in respect of CFCs which are not involved in UK tax avoidance. Further Details 1. The CFC rules are designed to stop UK companies avoiding tax in this country by diverting income to subsidiaries (CFCs) in tax havens and preferential regimes. The rules work by requiring UK companies to pay an amount of CFC tax equal to any tax that would otherwise be avoided. 2. The Budget changes will strengthen the legislation and update the rules to take account of developments in the ways multinationals are structured and do business. The motive test in the CFC rules will ensure that UK companies will continue to be exempt in respect of CFCs which are not involved in UK tax avoidance. a) Holding Companies 3. Overseas holding companies will have to meet tighter conditions in order to qualify for exemption under the exempt activities test (“EAT”). The new rules, which will apply to CFC accounting periods beginning on or after today, will stop the use of holding companies to avoid tax on income received to any significant extent out of the pre-tax profits of subsidiaries. 4. Under the new rules, a holding company with subsidiaries outside the territory in which it is itself resident will be exempt under the EAT only if 90% or more of its income is in the form of non-tax deductible dividends from subsidiaries that are themselves exempt from the CFC rules. Previously, there was no restriction on the form of the income – simply a requirement that at least 90% must come from exempt subsidiaries. 5. The old rules meant that multinationals were able to divert pre-tax profits in the form of interest and royalties to tax havens and preferential regimes and shelter the income there without incurring CFC tax. This was distorting the way in which overseas investments were being funded, and was leading to a loss of UK tax. 6. As part of the change, the Inland Revenue will also update its guidance on the application of the motive test to holding companies. b) Intra-group Service Companies 7. The EAT is also being changed to counter the use of intra-group service companies to shelter income in tax havens and preferential regimes. 8. The general aim of the EAT is automatically to exempt businesses which, because of the nature of their business, can reasonably be assumed not to be involved in UK tax avoidance. It does this by listing (and excluding from the exemption) the types of business which experience suggests lend themselves to being carried on outside the UK for other than purely commercial reasons. 9. The current list of such businesses was drawn up in the early 1980s, based on experience at that time. Advances in technology and communications mean that a far wider range of businesses can now just as easily be located in tax havens and preferential regimes in order to avoid UK tax. In the case of intra-group service activities, the list is particularly out of date in only covering some types of activity. The list of excluded businesses is therefore being extended to add all types of intra-group service business. 10. The change, which will apply to CFC accounting periods beginning on or after today, will mean that the EAT no longer applies to any companies which are mainly engaged in the provision of services and which receive 50% or more of their income from related parties. c) Control 11. The definition of whether there is sufficient control of a company from the UK for it to be regarded as a CFC is being changed to keep pace with developments in the ways in which multinationals are structured and organised. 12. The changes, which will apply from today, will bring the CFC rules more into line with the new modernised transfer pricing rules introduced two years ago. In particular, a company in a tax haven/preferential regime will now be a CFC if it is at least 40% controlled by a UK company and at least 40% controlled by a foreign company. Previously, a company was only a CFC if it was more than 50% controlled from the UK. d) Designer Rates 13. Companies will no longer be able to side-step the CFC rules by the use of so-called designer rate tax regimes. 14. The CFC rules normally apply only to companies paying less than 75% of the tax they would have paid if they were resident in the UK. To enable companies to get round CFC rules, a number of countries have introduced regimes that allow companies to pay just the right amount of tax needed in any given situation. Most commonly, the regimes work by allowing companies in effect to choose their rate of tax. 15. Under the new rules, companies paying tax under designer rate tax regimes will fall within the definition of a CFC regardless of the level of tax paid. The regimes to which the legislation applies will be named in regulations. 16. The new rules will apply to CFC accounting periods beginning on or after 6 October 1999, which was the date when the Chancellor first announced his intention to legislate. The regimes that will be named in the first regulations were set out in an Inland Revenue press release of that date (“Controlled Foreign Companies – Designer Rate and Similar Regimes”.) e) Further Information 17. Further information, and a copy of the clauses to be included in the Finance Bill, is available on the Inland Revenue’s website - www.inlandrevenue.gov.uk. 18. Also on the website is a copy of the revised guidance on the application of the motive test to holding companies. Clearances given under aspects of the guidance that have changed will cease to apply for CFC accounting periods beginning on or after today. The guidance on the website explains that companies in any doubt as to whether a clearance remains applicable should contact the Inland Revenue for advice. The contact point is: Simon Davis International Division Inland Revenue Victory House 30-34 Kingsway London WC2B 6ES Telephone 020 7438 7576 Background Notes 1. A CFC is a company which is not resident in the UK (but which is controlled to a significant extent by individuals or companies who are) and which is subject to a level of taxation less than 75% of the level that it would have paid had it been resident in the UK. Subject to various exemptions, the difference between the UK tax it would have paid and the overseas tax it has paid is chargeable on UK companies with an interest of at least 25% in the CFC. 2. The rules contain a number of exemptions. One of these is the EAT. The other exemptions are a motive test, a list of 74 countries in which companies are outside the CFC rules if they meet certain conditions, a distribution test, and a public quotation test. CFC tax is only payable if a company fails all of these tests. The motive test specifically ensures that CFC tax is only payable if a company is involved in UK tax avoidance. 3. The total yield from the measures is estimated at £200m for a full year. The measures also provide protection against revenue loss. INLAND REVENUE PRESS OFFICE Media enquiries to: 020 7438 6692/6706/7327 (Out of hours 07860 359544) Non-media enquiries to: 020 7438 6420/6425 (Office hours only) www.inlandrevenue.gov.uk © Crown Copyright | home | budget index | budget press notices REVBN2L 21 March 2000 LIFE & GENERAL INSURANCE COMPANIES AND LLOYD’S MEMBERS Summary of measures Changes are to be made to the tax rules applying to insurance companies and Lloyd’s members to make them fairer. The Government considers that the current treatment of both general insurance companies and Lloyd’s members needs reform. General insurance companies and Lloyd’s members will face a claw back of the tax benefit they get by not discounting their provisions for unpaid claims. This rule will also apply where they significantly overestimate the provisions they make for claims settled in future years. There will be an exemption for Lloyd’s members writing only small amounts of business. The measures to claw back the benefit of tax deferral will apply for company accounting periods beginning on or after 1 January 2001 and, in relation to individual members of Lloyd’s, for the tax year 2001-02. But such individuals will fall outside the rules where a member participates in only a very small proportion of a syndicate’s business. The detail of the legislation will be in regulations made under powers to be included in the Finance Bill. This will allow the Inland Revenue to consult with the industry closely over the detail to ensure that the scheme is effective but also keeps compliance burdens to a minimum. Clear rules will also be laid down for the attribution of interest payable by life assurance companies to different types of business. Further details A. General insurance companies and Lloyd’s members 1. The new rules bring general insurance companies and Lloyd’s members broadly into line with other companies. Other businesses with long term provisions must follow accounting standards which require a best estimate, discounted where material. They also bring the UK more into line with other major insurance markets. 2. The new rules will apply to provisions for unpaid claims, claims handling expenses and unexpired risk reserves, including in the case of Lloyd’s, reinsurance to close contracts. Insurers will remain free to decide the right level for these provisions. But if it turns out they have had tax relief for significantly more than the value of the claims actually made, discounted by reference to the time the provision was established, they will have to pay what amounts to an interest charge on the tax deferred. The rate of interest will be designed to do no more than cancel the advantage a company got by obtaining too large a tax deduction. Companies and Lloyd’s members will, though, be given a new freedom to have only part of their provisions taken into account for tax purposes. This will help those who wish to establish their tax liability with certainty now rather than risk the uncertainty of a higher tax bill in a future year. There will also be two rules to avoid the need for tax adjustments. The first will apply in all cases where provisions have only slightly exceeded the discounted best estimates of the claims to which they relate. The second, as mentioned above, will eliminate the need for adjustments for Lloyd’s members, where a member participates in only a very small proportion of a syndicate’s business. 3. These measures will apply for company periods of account beginning on or after 1 January 2001 and, in relation to individual members of Lloyd’s, for the tax year 2001?02. The calculations which test whether there has been a benefit from tax deferral will operate on the basis that provisions for periods of account commencing before 1 January 2000 all related to liabilities incurred in the year 2000. And the new rule allowing insurance companies and Lloyd’s members to limit the amount they deduct in respect of their claims provisions to a figure lower than that disclosed in their accounts will come into force for periods of account beginning on or after 1 January 2000 (and correspondingly for Lloyd’s individual members in the tax year 2000?01). 4. The detail of the legislation will be in regulations made under powers to be included in the Finance Bill. This will allow the Inland Revenue to consult with the industry closely over the detail to ensure that the scheme is effective but also keeps compliance burdens to a minimum. In relation to members of Lloyd’s, the Government has considered the level at which the exemption should be set where a member participates in only a small proportion of a syndicate’s business. The Government is minded, subject to consultation, to adopt a figure of 4%. The Government believes that this limit strikes the right balance between ensuring that the new rules remain effective and avoiding unnecessary complexity. It anticipates that the effect of the proposed limit will be that most individual members of Lloyd’s, and most member companies controlled by individuals, will fall outside the scheme. 5. Anti avoidance legislation aimed at controlled foreign companies (“CFCs” - primarily companies in tax havens) will be strengthened by these changes. Groups sometimes use CFCs which are captive insurance companies in tax havens to reduce their tax bills. The proposed legislation will help to ensure that any advantage they get is reversed. Other measures applying to CFCs are described in Budget Note REVBN2K. 6. The new rules will not apply to long term business such as life assurance, nor will they apply to companies carrying on business on a mutual basis. B Apportionment of interest payable 7. Life assurance companies are taxed in different ways according to the nature of the business they write. Income and gains arising in relation to pension business and some other types of business are exempt from tax, while income and gains relating to ordinary life assurance business are taxable in the hands of the company. 8. A life assurance company does not generally separate out in its books the income and assets relating to different kinds of business, so rules have been developed to ensure that the right amounts are attributed to each of the different sorts of income. But these rules do not apply to interest and other finance costs payable by the company. 9. Until recently life assurance companies have not usually paid out much by way of interest on loans because they have tended not to borrow. But some companies have begun to borrow significant amounts, often in relation to reinsurance arrangements or transactions in derivatives and other financial instruments. The amounts involved make it desirable that there should be clear rules to show a company how to attribute the interest to the different types of business. 10.The rules will follow closely the rules that apply to interest income, but there will be variations to deal with special types of interest such as interest on the late payment of claims. There will be other minor changes to the rules for apportionment of life insurers' income and gains to ensure that the legislation currently in force produces broadly the results originally intended. These changes mainly affect insurers much or all of whose business involves policies where benefits are linked to the performance of specified assets. 11.The new rules will apply for accounting periods beginning on or after 1 January 2000 and which end on or after today. Background notes A. General insurance companies and Lloyd’s members 1. A discounted reserve is one which recognises the return from investing funds set aside now to meet a future liability. For example, at an expected rate of return of 6%, £750,000 set aside now would be enough to meet a liability to pay £1 million in 5 years’ time. 2. Under existing law insurance companies get tax relief not only for the claims they pay out but also for reserves to cover the cost of settling claims which are not yet finalised. Insurance companies are obliged by Schedule 9A to the Companies Act 1985 to calculate their reserves on a prudent basis. They may, under certain conditions, discount their reserves, but in practice rarely do so. 3. This requirement to create reserves on a prudent and usually undiscounted basis differs from the accounting rules for other companies. A company other than an insurance company may not create reserves for claims unless there is a very good chance that they will materialise, and in general must discount its reserves. 4. The position with Lloyd’s syndicates is somewhat different. Here the syndicate is entitled to deduct the premium for “reinsurance to close (RITC)”. This performs a similar function to an insurance company’s provision for unpaid claims. The Inland Revenue had thought that for tax purposes a syndicate should calculate its profits on the footing that only a best estimate of its liabilities – which might reflect an element of discounting and which might be less than the RITC premium paid to reinsure those liabilities – would be allowed. But, in a tax appeal heard last year, the General Commissioners for the City of London decided that the Revenue’s understanding of the law was erroneous. Having taken legal advice, the Inland Revenue has now decided not to challenge this ruling. 5. Lloyd’s members are taxed on an underwriting year basis, with a three year deferral of profits. The measures to claw back the benefit of an excessive deduction for liabilities will be introduced for the 1998 syndicate year of account. This is taxed in 2001 for corporate members and in 2001/02 for individuals. Syndicates will be able to reduce tax deductions for the 1997 year of account in anticipation of the new rules. And the new rules will for Lloyd’s members treat all liabilities that arose before 1997 as if they arose in 1997. INLAND REVENUE PRESS OFFICE Media enquiries to: 020 7438 6692/6706/7327 (Out of hours: 07860 359544) Non-media enquiries to: 020 7438 6420/6425 (Office hours only) www.inlandrevenue.gov.uk © Crown Copyright | home | budget index | budget press notices REVBN2M 21 March 2000 Rent Factoring Summary of measures Legislation to clarify the tax rules for rent factoring schemes is to be introduced. This will ensure that in transactions under such schemes entered into from today payments for the sale of rents, and premiums for granting leases, will be taxed as income receipts under Schedule A. The legislation will deter companies from using these schemes to avoid tax. The Inland Revenue’s view of the law as it applies to existing schemes is unchanged. Further Details 1. Rent factoring schemes are used by large companies – typically retailers or property companies - seeking to raise finance. In substance the schemes are equivalent to bank loans, but they aim to get a more advantageous tax result for the companies engaging in them. 2. The schemes can have different mechanisms but generally follow the same fundamental approach. In exchange for a lump sum, in essence a loan, a company diverts future rental income in respect of property in the UK to a financier, usually a bank. The rents repay the loan at interest. By exchanging future income for a lump sum in this way the borrower aims to get tax relief that would otherwise not be available for loan repayments. 3. Legislation will be introduced to ensure that the lump sum obtained will be taxed as an income receipt under Schedule A. It will apply where either the borrower’s accounts, or the consolidated accounts of the borrower’s group, should treat the arrangements as in substance a loan rather than as a disposal of property interests. 4. The Inland Revenue believes that some such lump sum receipts may already fall within Schedule A under existing law. This legislation puts the position beyond doubt for the future. It does not affect the Inland Revenue’s view of how existing schemes should be taxed. 5. The new provisions will be drawn up so as not to affect the taxation of genuine investment in property. A typical rent factoring scheme lasts up to 10 years or so, but is structured in a way that attempts to avoid a charge to tax under Schedule A. The legislation will therefore not apply to arrangements: · with an effective economic life of more than 15 years; · where any lease granted to the lender is regarded for tax purposes as having a life of no more than 15 years; or · where the economic life of the arrangements is not significantly different from the tax life of the lease. 6. Neither will the legislation be aimed at capital allowances based finance leasing. The new provisions will not apply when the pricing of the arrangements is significantly influenced by the anticipated availability to the lender of capital allowances on plant or machinery or a building or structure attached to the land being leased. 7. The new rules will not apply if the receipt is already chargeable to corporation tax as trading income under Case I of Schedule D. And where a premium is chargeable under this new provision, it will not also be chargeable under section 34 ICTA 1988. 8. The legislation will apply to transactions entered into on or after Budget day. Background Notes 1. Schedule A is the normal charging provision for rents payable in respect of interests in property in the United Kingdom. In rent factoring schemes it is claimed that the effect of exchanging an entitlement to receive future rents for a lump sum from a financier means that the lump sum is only chargeable to tax, if at all, as a capital receipt. These changes counter this by ensuring that the lump sum is nonetheless taxable as though it was rent. 2. These proposals are expected to yield £20 million in 2000-2001, £50 million in 2001-2002 rising to £150 million in a full year (2004-05). INLAND REVENUE PRESS OFFICE Media enquiries to: 020 7438 6692/6706/7327 (Out of hours: 07860 359544) Non-media enquiries to: 020 7438 6420/6425 (Office hours only) www.inlandrevenue.gov.uk © Crown Copyright | home | budget index | budget press notices REV1 21 March 2000 INLAND REVENUE TAX RATES AND ALLOWANCES FOR 2000-01 Rates and allowances for income tax, corporation tax, capital gains tax, inheritance tax and the pension schemes earnings cap are set out below. All allowances, thresholds and limits for 2000-01 have risen in line with statutory indexation and rounding rules. 1999-00 2000-01 Increase (£) (£) (£) Income tax allowances Personal allowance 4 335 4 385 50 Personal allowance – age 65-74 5 720 5 790 70 Personal allowance – age 75 and over 5 980 6 050 70 Married couple’s allowance – age 65 5 125 5 185 60 before 6 April 2000 5 195 5 255 60 Married couple’s allowance – age 75 or more 1 970 2 000 30 Married couple’s allowance – minimum amount Income limit for age-related 16 800 17 000 200 allowances Widow’s bereavement allowance 1 970 2 000 30 Blind person’s allowance 1 380 1 400 20 Capital gains tax annual exempt 7 100 7 200 100 amount Individuals etc 3 550 3 600 50 Other trustees Inheritance tax threshold 231 000 234 000 3 000 Pension schemes earnings cap 90 600 91 800 1 200 Taxable bands 1999-00 (£) Taxable bands 2000-01 (£) Starting rate 10 per 0 – 1 500 Starting rate 10 0 – 1 520 cent per cent Basic rate 23 per 1 501 – 28 000 Basic rate 22 per 1 521 – 28 400 cent cent Higher rate 40 per Over 28 000 Higher rate 40 per Over 28 400 cent cent Corporation tax 1999-00 (£) Corporation tax 2000-01 (£) profits profits Starting rate 10 0 – 10 000 per cent Marginal relief 10 001 – 50 000 Small companies’ 0 – 300 000 Small companies’ 50 001 – 300 rate 20 per cent rate 20 per cent 000 Marginal relief 300 001 – 1 Marginal relief 300 001 – 1 500 000 500 000 Main rate 30 per 1 500 001 or Main rate 30 per 1 500 001 or cent more cent more The main rate of corporation tax for 2001-02 will be 30 per cent. NOTES FOR EDITORS Income tax rates and allowances 1. The rate of tax applicable to savings income in section 1A, ICTA 1988, other than dividends, is 10 per cent for income in the starting rate band, and 20 per cent for income falling between the starting rate and basic rate limits. The rates of tax applicable to dividends are 10 per cent for income below the basic rate limit and 32.5 per cent above it. 2. The married couple’s allowance for couples in which neither partner has reached the age of 65 before 6 April 2000 and the associated reliefs (the additional personal allowance, widow’s bereavement allowance and relief for maintenance payments) are withdrawn from April this year. Women who were widowed during 1999-2000 keep their widow’s bereavement allowance in 2000-01 for the second year of their entitlement, unless they remarry before 6 April. The rate of relief for the widow’s bereavement allowance, and the continuing married couple’s allowance and maintenance relief for people born before 6 April 1935, is 10 per cent. The Children's Tax Credit, which replaces the married couple's allowance, will be introduced from April 2001-02. Capital gains tax 3. The annual exempt amount is increased to £7,200 for individuals, certain trustees, and personal representatives of the estate of a deceased person, and £3,600 for other trustees. In 1999-00, capital gains above the annual exempt amount are taxed at 20 per cent below the basic rate limit and 40 per cent above it. For 2000-01, gains below the starting rate limit will be taxed at 10 per cent, gains between the starting rate and basic rate limits will be taxed at 20 per cent, and above the basic rate limit at 40 per cent. Rates for trusts 4. The rate applicable to trusts remains unchanged at 34 per cent for 2000-01 and the Schedule F trust rate remains unchanged at 25 per cent. Inheritance tax 5. The value of estates above the threshold is taxed at 40 per cent. The estimated number of taxpaying estates in 2000-01 will be about 23,500 compared with 21,000 in 1999-00. This is around 4 per cent of all deaths. Pension schemes earnings cap 6. The maximum level of earnings from which tax approved occupational and personal pension provision may be made is increased to £91,800. The cap’s main effect is to set a ceiling on the contributions that can be paid to, and the benefits that can be paid by, tax approved pension schemes. It generally applies to people who contribute to a personal pension scheme, joined an occupational scheme set up since 14 March 1989, or joined any occupational scheme from 1 June 1989 which was set up before 14 March 1989. Corporation tax 7. The small companies’ rate for 2000-01 will be 20 per cent. The main rate for 2001-02 will be 30 per cent. The main rate for 2000-01 was set at 30 per cent in the last Budget. 8. Marginal relief will ease the transition from the starting rate to the small companies' rate for companies with profits between £10,000 and £50,000. The fraction for calculating this marginal relief will be one fortieth. Marginal relief will also apply to companies with profits between £300,000 and £1,500,000. The fraction for calculating this marginal relief will also be one fortieth. 9. The starting rate and the small companies' rate do not apply to close investment holding companies. INLAND REVENUE PRESS OFFICE Media enquiries to: 020 7438 6692/6706/7327 (Out of hours: 07860 359544) Non-media enquiries to: 020 7438 6420/6425 (Office hours only) www.inlandrevenue.gov.uk © Crown Copyright | home | budget index | budget press notices REV2 21 March 2000 TAX AND NICs REFORM FOR WORKING FAMILIES More measures to make work pay and improve support for families with children were announced by the Chancellor today. As part of the drive to eliminate child poverty: - the credit for children under 16 in the Working Families’ and Disabled Person’s Tax Credits is to rise from June 2000 by £4.35 a week. This is in addition to the £1.10 real terms increase in the credit for children aged under 11 and the uprating for indexation already planned in April. These increases will provide more help to around 1.4 million low-income working families and disabled people. Working Families’ Tax Credit will guarantee a family with one child and someone working full-time a minimum income of £207 a week from June; - the Children’s Tax Credit is also to rise to £442 a year from its introduction in April 2001. From April 2001, the minimum guaranteed income for a family with one child and someone working full-time will be £214 a week. More help is to be directed at families when a baby is born, with a package of tax credit reforms to give mothers more choice about their return to work: - from May 2001, entitlement to Working Families’ and the Disabled Person’s Tax Credits will be re-assessed as soon as a child is born, to reflect the change in circumstances straight away; and, - so that all families can benefit from this change, a woman who previously worked at least 16 hours a week and receives Statutory Maternity Pay or Maternity Allowance will be treated as meeting the work test for tax credits. The reforms mean that these families could be up to £30 a week better off in the critical first weeks of a child's life. The next steps in the income tax and National Insurance Contributions reforms already in the pipeline take effect in April. 24 million taxpayers benefit from the cut in the basic rate of income tax to 22p in the pound – the lowest for 70 years. 16 million employees will pay less in National Insurance Contributions as a result of the increase in the point at which contributions start. ____________________________________________ DETAILS Tax credits measures include: q increases in child tax credits 1. Budget 1999 had already announced that the child tax credit for children under 11 in Working Families’ Tax Credit (WFTC) and Disabled Person’s Tax Credit (DPTC) was to rise by an extra £1.10 over and above indexation from April 2000, to align it with the tax credit for children aged 11 to 16. The rates and thresholds for WFTC and DPTC rise by 1.6% from 11 April, in line with the increase in the Rossi index in the year to September 1999. And, from June 2000, the child tax credit for children from birth to 16 in WFTC and DPTC will rise by a further £4.35 a week. The additional credit in the DPTC for a disabled child (worth £22.25 a week) will also be extended to WFTC from this October. Around 1.4 million low-income working families and disabled people will benefit from these increases. They will provide a minimum income guarantee in April 2001 of £214 a week for a family with one child in receipt of WFTC and £246 for a family with one child on DPTC. (These figures are based on one earner in full-time work – working 35 hours a week - receiving the national minimum wage of £3.70 an hour.) q more help for working mothers 2. The Chancellor also announced a package of measures to help families when a child is born. These include an increase of £100 from autumn 2000 in the Sure Start Maternity Grants made to all low income families and changes in WFTC and DPTC to help those working families who are on low incomes. From May 2001, all families will be able to have an existing WFTC or DPTC award re-assessed as soon as a baby is born, instead of waiting up to six months for it to run out. Immediate re-assessment will make these families eligible straightaway for extra child payments (£25.60 per week per child before statutory indexation) and possibly for extra support if their family income has fallen. 3. Currently families where the mother is the sole earner would be unable to benefit from this change because she would not be eligible for a tax credit once she went on maternity leave. So, from May 2001, any mother who works 16 hours or more prior to the birth and is in receipt of Statutory Maternity Pay (SMP) or Maternity Allowance (MA) will count as being in work. This change will also mean that families who receive help with their childcare costs for existing children will continue to be eligible for these payments while the mother receives SMP or MA. SMP and MA will continue to be disregarded in calculating the family’s income. q New credits for the longer term 4. To make work pay and relieve poverty for people in employment whether or not they have children, an employment tax credit will be introduced from 2003, the Chancellor has announced. It will extend the principle of the WFTC to people without children. Paid through the wage packet, it will complement the minimum wage and the New Deal, providing additional help to people in low paid work. It will be brought in alongside an integrated child credit, also to be introduced from 2003, which will bring together the existing forms of child support (from WFTC, Income Support, Jobseeker’s Allowance and the Children’s Tax Credit) into one seamless children’s payment built on the foundation of universal Child Benefit. The integrated child credit will create a more transparent system of child support and will be paid to the child’s main carer whether in or out of work. It will be administered by the Inland Revenue. (Further information about the new credits can be found in the Treasury paper, Tackling poverty and making work pay – tax credits for the 21st century, published today.) Income tax measures include q the cut in the basic rate to 22% 5. The Chancellor confirmed today that the basic rate of tax is to be cut with effect from 6 April 2000 to 22p in the pound. Someone on mean male earnings will gain £3.63 a week as a result of the change. The Chancellor also announced increases in income tax rate bands, income limits and allowances for 2000-01 in line with the rise in the Retail Prices Index to September 1999. q extending the starting rate to savings income 6. The 10p starting rate of tax is being extended to savings income with effect from 6 April 1999, as the Chancellor announced in his Pre-Budget Report on 9 November. As a result, over 2.5 million individuals will pay up to £152 a year less tax and gain an average of £1.15 a week. The change will particularly benefit 1.5 million pensioners. The existing structure for taxing dividends at 10% and 32.5% remains unchanged. q an increase in the amount of Children’s Tax Credit 7. The Children’s Tax Credit will rise to £8.50 a week when it comes in in April 2001. Legislation will be brought forward in the Finance Bill to increase the amount of the credit (which is given at the rate of 10%) to £4,420 from £4,160. The credit will now be worth up to £442 off the tax bill of a family with one or more children under 16 living with them. The Children’s Tax Credit replaces the married couple’s allowance and associated allowances (the additional personal allowance, widow’s bereavement allowance and relief for maintenance payments) which are withdrawn from April this year. Women who were widowed during 1999-2000 keep their widow’s bereavement allowance in 2000-01 for the second year of their entitlement, unless they remarry before 6 April. q indexed allowances for people aged 65 or more 8. The personal allowances for people aged 65 or more rise in line with inflation to £5,790 for those aged 65-74 and to £6,050 for those aged 75 or more. No one aged 65 or more need pay any income tax until their income rises above £111 a week. The annual income limit, above which the age-related element of the allowances is gradually withdrawn, rises to £17,000 for 2000-01. Married couples in which either spouse had reached the age of 65 before 6 April retain the married couple’s allowance when it is withdrawn for other couples. Similarly, a relief for maintenance payments is retained when at least one of the parties to the former marriage had reached the age of 65 before 6 April. The amounts of married couple’s allowance, including the minimum amount of the allowance, are also indexed for 2000-01. The personal allowance for people aged under 65 rises to £4,385, in line with indexation, as announced in the Pre-Budget Report. National Insurance Contributions 9. The reform of National Insurance contributions (NICs) set out in previous Budgets continues to improve work incentives for the lower paid. With effect from 6 April 2000, the point at which employees start to pay NICs increases from £66 a week to £76 a week. From April 2001, it will be increased again to align with the income tax personal allowance. These changes will take around 1 million people out of NICs altogether, while protecting their benefit entitlement. At the same time, there will be changes to the Upper Earnings Limit, to maintain its relationship with the point at which people start to pay NICs. Also with effect from 6 April 2000, the self?employed will see the flat rate “entry fee” of Class 2 NICs reduced from a weekly payment of £6.55 to £2 - reducing the burden on low earners and encouraging business start?ups. The Lower Profits Limit is reduced at the same time and the Class 4 rate of NICs is increased to 7%. Tax rate for trusts 10. The tax rate applicable to trusts remains unchanged at 34 per cent for 2000-01 and the Schedule F trust rate remains unchanged at 25 per cent. Home income plans 11. The Chancellor also announced today changes to the interest relief given for loans to purchase certain life annuities (home income plans). For loans in existence on 9 March 1999 that still qualify for relief, these changes will fix the rate of relief at 23 per cent, and fix the limit at £30,000, with effect from 6 April 2000. NOTES FOR EDITORS 1. The tables attached set out the income tax rate bands, allowances and income limit for age-related allowances and the rates and thresholds for WFTC and DPTC for 2000-01. Tables setting out the effects of Budget measures for people in different circumstances can be found on the Inland Revenue web site at www.inlandrevenue.gov.uk. 2. The Indexation Order which sets out the indexed values of income tax rate band limits, the income limit for age-related allowances and income tax allowances for 2000-01 has today been published by the Treasury. 3. The Up-rating Order which sets out the WFTC and DPTC rates and thresholds for 2000-01 will be published shortly. 4. The relevant Regulations for NICs changes are published in: · the Social Security (Contributions) (Amendments) Regulations 2000/175 for Great Britain; and · the Social Security (Contributions) (Amendments) (Northern Ireland) Regulations 2000/176; · The Social Security (Contributions) (Re-rating and National Insurance funds Payments) Order 2000 (S.I. 2000 No. 755). 5. Copies of these orders can be obtained from the Stationery Office. INLAND REVENUE PRESS OFFICE Media enquiries to: 020 7438 6692/6706/7327 (Out of hours: 07860 359544) Non-media enquiries to: 020 7438 6420/6425 (Office hours only) www.inlandrevenue.gov.uk Bands of taxable income 2000-011 1999-2000 £ a year 2000-01 £ a year Starting rate 10 0- 1,500 Starting rate 10 0- 1,520 per cent per cent Basic rate 23 per 1,501-28,000 Basic rate 22 1,521-28,400 cent per cent Higher rate 40 Over £28,000 Higher rate 40 Over £28,400 per cent per cent 1The rate of tax applicable to savings income in Section 1A ICTA 1988 remains at 20 per cent for income over the starting rate limit but below the basic rate limit. The rates applicable to dividends are 10 per cent for income up to the basic rate limit and 32.5 per cent above that. Income tax allowances 2000-01 (£ a year) (£ a year) (£ a year) 1999-2000 2000-01 Increase Personal allowance age under 65 4,335 4,385 +50 age 65-74 5,720 5,790 +70 age 75 and 5,980 6,050 +70 over Married couple’s - allowance1 age 65 5,125 5,185 +60 before 6 April 2000 age 75 and 5,195 5,255 +60 over minimum 1,970 2,000 +30 amount 2 Income limit for 16,800 17,000 +200 age-related allowances Widow’s bereavement 1,970 2,000 +30 allowance3 Blind person’s allowance 1,380 1,400 +20 1Tax relief for these allowances and widow’s bereavement allowance is restricted to 10 per cent.. 2 This is also the maximum relief for maintenance payments where at least one of the parties is aged 65 before 6 April 2000. 3 Withdrawn in respect of deaths occurring after 5 April 2000. Working Families’ Tax Credit (WFTC) and Disabled Person’s Tax Credit (DPTC) weekly amounts and thresholds 2000-2001 1999-00 April Increase June Increase Oct. Increase £ 2000 £ 2000 £ 2000 £ £ £ £ WFTC 52.30 53.15 0.85 53.15 - 53.15 - – basic tax credit DPTC 54.30 55.15 0.85 55.15 - 55.15 - – single person DPTC 83.55 84.90 1.35 84.90 - 84.90 - – lone parent /couple 30 hours tax 11.05 11.25 0.20 11.25 - 11.25 - credit (WFTC and DPTC) Child tax 19.85 21.25 1.40 25.60 4.35 25.60 - credits (WFTC and DPTC) Under 11 20.90 21.25 0.35 25.60 4.35 25.60 - 11-161 25.95 26.35 0.40 26.35 - 26.35 - 16-181 Disabled child - - - - - 22.25 tax 22.25 credit – WFTC2 Disabled child 21.90 22.25 0.35 22.25 - 22.25 - tax credit – DPTC WFTC threshold 90.00 91.45 1.45 91.45 - 91.45 - DPTC threshold 70.00 71.10 1.10 71.10 - 71.10 - – single person DPTC threshold 90.00 91.45 1.45 91.45 - 91.45 - – lone parent/couple 1 The 11-16 and 16-18 child tax credits apply from the September following the 11th and 16th birthday respectively. 2 The disabled child tax credit in the Working Families’ Tax Credit is to be introduced from October 2000. © Crown Copyright | home | budget index | budget press notices REV 3 21 March 2000 BOOSTING PRODUCTIVITY AND FAIRNESS: EMPLOYEE SHARE OWNERSHIP Improvements to the new all-employee share plan were announced today following a further period of consultation. The plan is now more attractive to companies of all sizes and easier to operate. The rules for SAYE Sharesave and the Company Share Option Plan (CSOP) remain as they are. The Approved Profit Sharing (APS) scheme is to stay until 2002, but then employers will have to move their APS schemes into new plans, if they have not already done so, for tax breaks to continue. Financial Secretary Stephen Timms said : “This new plan is a cornerstone of the drive to tackle the productivity gap and promote a high investment Britain, a Britain where we reward enterprise and provide fairness for all. Only by pursuing both enterprise and fairness together can we equip Britain for the future and secure rising living standards for everyone. This is why employee share ownership is so important to this Government and why we have put in place a range of measures to promote employee share ownership that is unparalleled in the world.” To help smaller companies, the number of employees who can be granted options under the new Enterprise Management Incentives will be increased to 15. _________________________________ DETAILS The new plan in outline · Employers can give employees up to £3,000 of shares each year free of tax and National Insurance, and · Some or all of these shares can be awarded to employees for reaching performance targets · Employees will be able to buy partnership shares out of their pre-tax salary, up to a maximum of £1,500 a year, free of tax and National Insurance · Employers can match partnership shares by giving employees up to 2 free shares for each partnership share they buy. The new plan - the improvements · Companies will get corporation tax relief for the costs they incur in providing shares for employees to buy to the extent such costs exceed the employees’ contributions · Shares held in a qualifying employee share ownership trust (QUEST) on Budget Day can be transferred to a new plan trust without losing the corporation tax relief already given on the contribution made to the QUEST to buy the shares · Companies can award free shares in respect of performance periods that begin before the 2000 Finance Bill becomes law · As a transitional measure - companies can run an APS scheme alongside a new plan that provides partnership shares · A simplification for trustees – employers can operate PAYE and account for National Insurance · The dividend re-investment limits are simplified - up to £1,500 of dividends may be re-invested in shares tax free each year · The time limit for providing information to the Inland Revenue is extended from 30 days to 3 months · The 30 day time limit for taking shares out of the trust when employees leave is replaced by a new rule which gives employees and trustees freedom to make their own arrangements about transferring the shares Improvements specifically to help smaller companies · A new capital gains roll-over relief for existing shareholders who want to sell their shares to a new plan trust to be used for the benefit of employees · The existence of arrangements to enable employees to sell shares held in a new plan trust will not of itself make those shares readily convertible into cash and require employers to operate PAYE and account for National Insurance Implementation from April · Companies will be able to send in draft plans for approval under a fast track approvals process · There will be a dedicated Helpline for initial queries · For those seeking more guidance, there will be detailed help, including model rules and trust deeds, on the Revenue’s share schemes web page around the time the Finance Bill is published. The share schemes web page can be found at : www.inlandrevenue.gov.uk/shareschemes The new plan will eventually cost around £400 million a year and it is expected that around 450 employers are expected to use the plan to set up their first all employee share scheme. As a result more than 500,000 employees will own shares in their company for the first time. The total number of employees having shares in a new plan is estimated to reach 2.5 million in the next 3 to 5 years. The existing approved schemes · SAYE Sharesave (SAYE) and the Company Share Option Plan (CSOP) are to continue unaltered · No further tax free awards can be made under the Approved Profit Sharing (APS) from April 2002 · Provisions in the Finance Bill will prevent the use of the APS and the new plan in arrangements designed to replace Profit-Related Pay rather than give employees a continuing stake in the business Over 1,200 companies have a SAYE scheme and around 1.75 million employees participate in these. This scheme currently costs in the region of £600 million a year. Around 3,750 companies have a CSOP with some 450,000 employees holding options. CSOP costs in the region of £130 million a year. Fewer than 900 companies have an APS with some 1.25 million participants. It is expected that the vast majority of companies with APS schemes will replace this with the new plan. NICs and unapproved share option gains NICs are charged on gains arising when share options are exercised outside an Inland Revenue approved scheme and the shares are readily convertible into cash. Many e-commerce and high tech companies offer their employees substantial share options as part of their remuneration package. While employers can plan for NICs on regular pay, it is much less easy for them to plan for NICs on share options, particularly where the share price is volatile. Employers have expressed concern that their exposure to unpredictable NICs liability in these circumstances could put at risk their investment strategies, damage their future growth by deterring investors and even make them insolvent. At present, employers would be statutorily barred from asking their employees to reimburse their NICs liability, even where share prices have risen substantially and employees have realised large share option gains but the employing company does not yet have a track record of profitability. The Government has received suggestions that employers’ exposure to these difficulties could be resolved, for example by allowing a voluntary agreement between employer and employee that: · All the employer’s NICs liability on unapproved share option gains will be met by the employee, · Part of the employer’s liability on these gains, or the excess above a predetermined amount, will be met by the employee, or · The employer’s NICs liability is to be met by the employee but, by mutual agreement, the employer could take on the statutory liability at the time it is incurred. All three suggestions would give employers, particularly those with high growth potential, much more certainty about their exposure to NICs liability. The Government is attracted to improving flexibility in this area for business and is considering legislation. It is also implementing a number of changes which particularly help employees in high growth companies. These include Enterprise Management Incentives, to attract “hard to recruit” people in companies with high growth potential, and the reform of CGT, benefiting all employees holding shares in their employer. Any views on these suggestions should be sent to the Financial Secretary Stephen Timms, (NICs and Share Options), HM Treasury, Treasury Chambers, Parliament Street, London SW1P 3AG. NOTES FOR EDITORS 1. Over 150 responses were received on the draft legislation for the new plan which was published in November. While the main concern was the future of SAYE, respondents were overwhelmingly in favour of the new plan. Many respondents commented positively on the flexibility of the plan, although others were worried about possible complexity. The changes announced today address many of the concerns raised. A number of drafting and technical suggestions on the detail of the legislation have been adopted to make it easier to understand. 2. Under the new plan: · Employees who keep their shares in the plan for five years will pay no income tax or National Insurance in respect of those shares · Employees who keep their shares in the plan for three years will only pay income tax and National Insurance on the initial value of the shares - any increase in the value of their shares will be tax free · Employees who keep their shares in the plan until they sell will have no capital gains tax to pay. If they take them out and sell later, they will pay capital gains tax only on any increase in value after the shares come out of the plan · Shares have to come out of the plan when employees leave their job. Companies can decide that employees lose their free shares if they leave within three years 3. Companies will be able to transfer any shares already held in a qualifying employee share ownership trust (QUEST) to a new plan trust. This will apply to: · All shares in the company held in the QUEST on Budget day, and · Cash held by the QUEST on Budget day provided this is used to acquire shares in the company. 4. Shares fulfilling these requirements transferred to a new plan trust will be treated as “qualifying transfers” under Section 69 Finance Act 1989. As a result there will be no clawback of any earlier corporation tax relief. Shares transferred to a new plan trust from a QUEST must be used as either free or matching shares under the normal rules of the plan. 5. Under Enterprise Management Incentives (EMI): · Independent trading companies with gross assets not exceeding £15 million will be able to reward up to 15 key employees with tax-advantaged share options, each receiving options worth up to £100,000 at the time of grant; · There is no tax on the grant of the option and there will be normally no tax or National Insurance for the employee to pay when the options are exercised; nor will there normally be any National Insurance charge for the employer · When the shares are sold, CGT taper relief will normally start from the date the options are granted · Red tape will be cut by using a simple notification process rather than the normal approvals system. 6. The Inland Revenue estimates that over 2,500 companies will take up EMIs over the first three years at a cost of around £45 million a year to the Exchequer by 2005-06. The Government intends to review EMI after 5 years to see if it is fulfilling its purpose and aims. 7. The Inland Revenue approved share schemes are: · SAYE Sharesave (or SAYE) – employees are granted options at a discount of up to 20% at the start of a savings contract. Employees can save a fixed monthly amount of between £5 and £250 for 3, 5 or 7 years. At the end of the savings contract a tax-free bonus is payable. Employees use the proceeds of the savings contract, including the bonus, if they want to exercise the option. If they do not, the proceeds are repaid in cash, tax free. There is no tax or National Insurance charged on the discount or on the gain made when the option is exercised · Company Share Option Plan (CSOP) – employees are granted options to acquire shares at the market price at the time of grant. Employees may be granted options over shares worth up to £30,000 at any one time. There is no tax or National Insurance charged on the gain made when the option is exercised, provided that the options are held for at least 3 years and there is a gap of at least 3 years between each tax-relieved exercise · Approved Profit Sharing (APS) – employees are awarded free shares up to the value of £3,000 a year or up to 10% of salary up to a maximum of £8,000, whichever is greater. The shares must be left in a trust for 2 years but can be taken out after 3 years free of tax and National Insurance. 8. Under proposals announced today: · New APS schemes will continue to be approved where applications for approval are received by the Revenue before 6 April 2001 · Tax-free awards of shares under APS schemes will be allowed up to 5 April 2002 · Companies may claim a deduction under Section 85 ICTA 1988 for contributions made to an APS trust up to and including 5 April 2002 provided the trustees use these contributions to acquire shares and those shares are awarded to employees within 9 months of the end of the accounting period in which the contribution is made or 5 April 2002, whichever is earlier 9. Other proposals having effect from today stop arrangements intended to replicate the effect of Profit Related Pay (PRP) by using arrangements involving an APS. Tax free PRP has been phased out and is now no longer available for any PRP periods starting on or after 1 January 2000. These arrangements take a variety of forms, but typically seek to provide employees with tax free cash, either at the end of 3 years or monthly through the use of loan arrangements, and/or through the use of shares with unusually restricted rights which may be shares in a service company. As of today: · Companies will not be able to use in APS schemes shares in companies where the employees perform services for a business carried on by a third party unless the employer company is an independent business. Shares in these companies already held by trustees of approved APS trusts on Budget day will continue to get the benefit of tax relief under Section 186 ICTA 1988 · Companies will not normally be able to use shares with more limited rights than those which apply to all ordinary shares of the company, and · Where a loan facility is provided by reason of the employment the Revenue may withdraw approval of the plan if the loans are used as part of arrangements to provide employees with tax free cash rather than a continuing stake in the company. 10. Similar provisions will also be included in the legislation for the new plan. 11. The Inland Revenue has published today a revised draft Regulatory Impact Assessment (RIA) on the costs and benefits arising from the new plan and would welcome any comments. The Inland Revenue has also published today a final RIA on the costs and benefits arising from Enterprise Management Incentives. Again, comments are welcome. Copies of both RIAs may be obtained from: Richard Lambert Room 138 New Wing Somerset House Strand London WC2R 1LB Richard.V.Lambert@ir.gsi.gov.uk The RIAs are also available on the Inland Revenue’s website www.inlandrevenue.gov.uk _____________________________________ INLAND REVENUE PRESS OFFICE Media enquiries to: 020 7438 6692/6706/7327 (Out of hours: 07860 359544) Non-media enquiries to: 020 7438 6420/6425 (Office hours only) www.inlandrevenue.gov.uk © Crown Copyright | home | budget index | budget press notices REV4 21 March 2000 CAPITAL GAINS TAX CUTS TO BOOST BUSINESS INVESTMENT A package of major tax cuts to the capital gains tax (CGT) taper rules will boost productivity and increase the provision of risk capital, the Chancellor announced today. A maximum CGT rate of 10% will apply for business assets after just 4 years. These changes will boost productivity by: · reducing the CGT rates more quickly to reflect shorter holding periods of business asset investments and encouraging serial entrepreneurs · promoting wider share ownership among employees, and · increasing the incentive for the provision of risk capital to early-stage, entrepreneurial companies by ‘business angel’ investors. The holding period for CGT taper relief for business assets will be reduced from 10 years to 4 years. A higher rate CGT payer will pay tax at 20% after 3 years and 10% after 4 years. The scope of the business taper will be greatly increased by reducing the present thresholds of 5% (for full-time employees) and 25% (for others), so that: · all shareholdings in unquoted trading companies · all shareholdings held by employees in quoted trading companies, and · shareholdings held by outside investors in quoted trading companies above a 5% threshold will qualify as business assets. All employees, not just full-time employees, will benefit from these changes. The changes, which go further than those suggested at the time of November’s Pre-Budget report, will apply for disposals of assets after 5 April 2000. __________________________________ DETAILS 1. For disposals on or after 6 April 2000, the new 4 year taper for business assets will apply for holding periods from 6 April 1998. The gains charged to tax will be reduced as set out in the table: Period asset held Percentage of gain Equivalent rate for (years) chargeable (%) higher rate CGT payer (%) 0 – 1 100 40 1 – 2 87.5 35 2 – 3 75 30 3 – 4 50 20 > 4 25 10 2. For business assets, the additional year for assets held at 17 March 1998 will be consolidated into the new 4 year taper so that it will not be added for disposals on or after 6 April 2000. All CGT payers holding business assets will benefit from the enhanced taper relief. 3. For non-business assets, the existing 10 year taper, together with the additional year for assets held at 17 March 1998, will continue to apply. 4. The present thresholds for shareholdings in unquoted and quoted trading companies of 5% for full-time employees and 25% for others will be reduced so that the following shareholdings will qualify as business assets: · all shareholdings held by employees and others in unquoted trading companies; · all shareholdings held by employees in quoted trading companies; · shareholdings in a quoted trading company where the holder is not an employee but can exercise at least 5% of the voting rights. 5 All employees, including part-time employees, of the company in which they hold shares (or any group company etc.) will qualify. Officers of a company are presently treated in the same way as employees and this will continue. 6. The threshold reductions will apply from 6 April 2000. Where shares qualify as a business asset only from that date, an apportionment of the eventual gain will be necessary so that part qualifies for business taper and the balance for non-business taper. The apportionment will be carried out under existing rules. 7, Unquoted companies will be defined as those which have no shares or securities listed on a recognised stock exchange. Shares traded on the Alternative Investment Market of the London Stock Exchange will be treated as unquoted. __________________________ NOTES FOR EDITORS 1. CGT taper relief was introduced following the 1998 Budget to reduce the CGT charge, the longer an asset has been held prior to disposal. The present taper reduces the gain charged to tax over a 10 year period for both business and non-business assets. 2. The taper reduces the effective CGT rates for a higher rate CGT payer from 40% to 10% for business assets and from 40% to 24% for non-business assets. 3. Business assets are those used for the purposes of a trade and shareholdings in trading companies in which the holder can exercise 5% or more of the voting rights if a full-time employee and 25% or more otherwise. 4. The changes announced by the Chancellor reflect comments received following the announcement in the Pre-Budget Report (IR Press Release of 9 November 1999) of plans to shorten the taper and assess the case for substantial reductions in the thresholds to widen the scope of CGT incentives towards entrepreneurial investment. A summary of the responses to the consultation is being placed on the IR website www.inlandrevenue.gov.uk. 5. The changes announced today reflect the rapidly changing holding characteristics of equity investment, particularly in high-tech companies. They will encourage employees to hold a stake in the company they work for and outside ‘business angel’ investors to provide risk capital for growing companies. 6. These changes are estimated to cost: Negligible in 2000/01; £225 million in 2001/02; £275 million in 2002/03. The cost will rise to £600 million in 2004/05 and then fall to an on-going level of £400 million per year by 2009/10. __________________________________ INLAND REVENUE PRESS OFFICE Media enquiries to: 020 7438 6692/6706/7327 (Out of hours: 07860 359544) Non-media enquiries to: 020 7438 6420/6425 (Office hours only) www.inlandrevenue.gov.uk © Crown Copyright | home | budget index | budget press notices REV5 21 March 2000 STAMP DUTY New reliefs to promote social housing, consultation on a possible new relief for new developments on brownfield sites, and firm action to counteract avoidance devices were announced today. There will also be a ½% increase in the rates of duty on property over £250,000. This leaves unaltered the current exemption and 1% rate which cover 95% of all residential property transactions. The main proposals will: · introduce new reliefs for transfers of property to registered social landlords; · exempt sales of intellectual property from Stamp Duty; · block a number of avoidance devices and introduce a measure to allow new avoidance schemes to be countered as they arise. · increase the rates of Stamp Duty on sales of property (excluding shares) for more than £250,000 The commencement dates for these measures are given below. ________________________________________ DETAILS Rates and thresholds for transfers of property The new rates and thresholds 1. Under the proposals the rates of duty on sales will be: Up to £60,000 - nil Over £60,000 up to £250,000 - 1 per cent Over £250,000 up to £500,000 - 3 per cent Over £500,000 - 4 per cent 2. The rate of duty applies to the whole price paid. So for example a purchase at £170,000 will attract duty of £1,700, and a price of £300,000 will give rise to duty of £9,000. Leases 3. Stamp Duty on the assignment of an existing lease is charged in the same way as the transfer of a freehold. 4. On the grant of a new lease, duty is charged separately on the premium (at the same rate as for a sale) and on the average annual rent (under a scale of rates varying with the length of the term). The new rates will apply to lease premiums as they do for sales of freeholds. The separate scale of rates of duty on rent is unchanged. (But a technical defect in last year’s Finance Act will be put right, as previously announced.) Increase in the threshold for short leases 5. To help both tenants and landlords it is proposed to increase from £500 to £5,000 the threshold for the Stamp Duty charge on the annual rent for new leases of up to seven years (or of indefinite term). So, where no lease premium is involved, tenants will not need to have such leases stamped, and landlords will not need to have the counterparts stamped. Other types of property 6. The new rate scale, like the old one, will apply to a range of transactions in property other than land and buildings, such as goodwill and some forms of debt. The rates of duty on transfers of shares and other securities (normally 0.5 per cent) are unchanged. Commencement 7. On the basis that the necessary Budget Resolution is passed by the House of Commons before 28 March, the new rates will generally apply to documents executed on or after 28 March. But the present rates will apply where the document gives effect to a contract made on or before 21 March, unless the document results from the exercise of an option, an assignment, or further contract made after 21 March. 8. Where an agreement for lease has been made on or before 21 March, but the lease resulting from the agreement is not granted until 28 March or later, the present rates of duty will apply to both the agreement and the subsequent lease. (Any duty paid on the agreement is credited against the duty on the lease.) Registered social landlords 9. With effect from Royal Assent to the Finance Bill, new Stamp Duty reliefs are being introduced for transfers and leases of land and buildings to Registered Social Landlords (RSLs). RSLs provide social housing and are registered under the Housing Acts. The relief will also apply to equivalent bodies in Scotland and Northern Ireland. 10. Many RSLs are charities and benefit from the general Stamp Duty relief for charities. The new reliefs will in addition exempt · all transfers to resident-controlled RSLs, from whatever source; · transfers between RSLs; · transfers to RSLs from local authorities and Housing Action Trusts. · acquisitions by RSLs which are assisted by public subsidy, including Social Housing Grants. Brownfield property developments 11. In the light of the recommendations made by Lord Rogers’ Urban Task Force report, the Government is attracted to the idea of offering relief from Stamp Duty for the first sale of property developed on appropriate brownfield sites. The Government will consult with interested parties on how this measure might best be targeted to help meet the Government’s objectives of generating an urban renaissance and encouraging better use of brownfield land, and how it could work in practice. Intellectual property 12. Transactions in intellectual property will be exempted from Stamp Duty to help boost R&D and foster an environment in which invention and innovation are encouraged. This will exempt transfers of patents, trade marks, registered designs, copyrights, plant breeders’ rights, and licences in respect of them. The exemption will apply to instruments executed on or after 28 March. 13. A further Technical Note will be issued by the Inland Revenue later in the year on the more general review of the taxation of intellectual property. This will consider whether new acquisitions of all other intangible assets within Financial Reporting Standard 10 should be brought within a reformed regime. 14. Transfer documents which relate only to intellectual property will no longer need to be stamped. Where property sold under an instrument consists partly of intellectual property and partly of other chargeable property, an apportionment of the sale price will be made to determine the amount chargeable to duty. 15. Where an instrument is to be certified as not forming part of a larger transaction or series of transactions, the value of any intellectual property involved will in future be disregarded. Anti-avoidance measures 16. Faced with growing avoidance of Stamp Duty, it is proposed to stop five devices which seek to reduce the rate at which duty is payable. A. Exchanges 17. These changes will apply to documents executed on or after 28 March subject to the commencement provision described in paragraph 7 above. Structuring transactions without using sales 18. Transfers of land or buildings in consideration for other forms of property can be arranged in ways that avoid there being a conveyance on sale of the land or buildings concerned. This enables the normal rates of Stamp Duty applying to transfers of land and buildings to be avoided. 19. In future, such transfers will be treated as conveyances on sale, so that Stamp Duty on the transfer of the land will be calculated in the normal way, whether the documents effecting the transfer are drafted to result in: · two sales; · a sale of one piece of property in consideration for the transfer of other property; or · a legal exchange. 20. The changes do not affect · the amount of any Stamp Duty due on the transfer of the other property. · cases where land is sold in consideration of the transfer of a second piece of land together with equality money. In such cases there will, as now, be only one charge to ad valorem Stamp Duty, the transfer of the second piece of land attracting fixed duty at £5. · the position where land is sold in consideration of something that is not property, such as an obligation to carry out building works or an obligation to pay benefits under a pension scheme. Such transfers remain chargeable only with fixed duty at £5. · situations where specific exemptions (such as those for conveyances to charities or within groups of companies) apply. 21. A parallel change will be made to ensure that Stamp Duty at the rate of 0.5% is charged on transfers of marketable securities within the scope of Stamp Duty. This change will apply where such securities are exchanged for securities which are not chargeable to Stamp Duty Reserve Tax (e.g. gilts). Transfers of land and buildings to connected companies 22. Transfers of land to a company have been arranged in ways which avoid paying the full amount of duty. Typically this involves a transfer of land to a company with which the transferor is connected in consideration for securities whose value is less than that of the land. At present, Stamp Duty is only charged on the value of those securities. 23. Where: · land is transferred to a connected company, or · part of the consideration for the transfer of land to a company consists of the issue or transfer of securities of a connected company (whether or not the company to which the land is transferred) Stamp Duty will be chargeable on the market value of the land transferred. B. Group relief 24. The present relief for transfers of assets between companies within a group is open to exploitation because group membership can be readily manipulated. To stop this abuse, the Stamp Duty provisions relating to group membership will be fully aligned with those for corporation tax. C. Company re-organisation reliefs 25. There are Stamp Duty reliefs for certain company re-organisations where there is no significant change of underlying ownership. One of the conditions of these reliefs is that cash does not constitute a significant part of any consideration given for shares being issued under the re-organisation. Schemes which use redeemable shares to undermine this principle will be countered. D. Consideration in the form of a future issue of securities 26. Consideration in the form of securities is taken into account when computing Stamp Duty. However, consideration in the form of rights to receive a future issue of securities does not count as consideration at present. This loophole will be closed. E. Surrender of leases 27. When a lease is surrendered for consideration it is possible to avoid Stamp Duty by surrendering the lease by operation of law rather than by means of a deed of surrender. In such cases, registration is commonly achieved by the submission of a statutory declaration to the Land Registry. Such a statutory declaration (or other documentary evidence provided to a Land Registry) will in future be subject to Stamp Duty as if it were a deed of surrender. 28. Measures B, C, D and E will take effect from Royal Assent. F. Countering Stamp Duty avoidance devices as they arise 29. As part of the Government’s continuing commitment to tackle avoidance, a mechanism will be introduced in the Finance Bill to allow new Stamp Duty avoidance schemes to be countered between Budgets and with immediate effect, as is already the case for other taxes including Stamp Duty Reserve Tax. The mechanism will require a House of Commons vote when it is used. And it will not be possible to use it for general changes in tax rates or thresholds. Ratchet Loans 30. Transfers of most loan capital are exempt from Stamp Duty and Stamp Duty Reserve Tax. But the exemption does not apply to loan capital where the interest rate is linked to the profits of a business. 31. Ratchet loans, where the rate of interest reduces as business results improve (or conversely, the interest rate increases as business results deteriorate) will be brought within the scope of the Stamp Duty loan capital exemption, in line with a corresponding measure which will allow companies to claim interest relief on ratchet loans. Northern Ireland Assembly Commission 32. With effect from 28 March, all transfers of property to the Northern Ireland Assembly Commission will be exempted from Stamp Duty. Transfers to the Assembly itself are already exempt. Statutory Declarations supporting claims to group relief 33. To simplify the procedure for companies making group relief claims, the Stamp Office will no longer routinelyrequire formal statutory declarations. This change to long standing administrative practice is being made in response to representations, and will take effect immediately. __________________________________ NOTES FOR EDITORS Effect on revenue yield 1. The net revenue yield of the Stamp Duty package is estimated to be £325 million in 2000-01, £370 million in 2001-02, and £440 million in 2002-03. Rates and thresholds 2. The Stamp Duty charge on property sales arises under the Conveyance or Transfer on Sale head of charge in Part 1 of Schedule 13 to the Finance Act 1999 (formerly in the First Schedule to the Stamp Act 1891). The lease duty charge is in Part II of Schedule 13. Seven year leases 3. A defect in Schedule 13 to the Finance Act 1999 meant that from 1 October 1999 the 1 per cent charge on the rental element of leases not exceeding 7 years ceased to apply to leases of exactly 7 years. As previously announced, in an Inland Revenue Press Release dated 17 September 1999, this defect is being corrected in the Finance Bill. Intellectual Property 4. Sales of interests in some categories of intellectual property are dutiable under the Conveyance or Transfer on Sale head of charge. There are also fixed rate charges of £5 on certain transactions other then sales, under Part III of Schedule 13 to the Finance Act 1999. Northern Ireland Assembly Commission 5. The Commission was set up by Section 40 of the Northern Ireland Act 1998. Stamp Office Manual 6. The Stamp Office Manual was published through CRONER CCH Editions Ltd on 14 March. It will be updated to reflect the Budget changes later in the year. ________________________________ INLAND REVENUE PRESS OFFICE Media enquiries to: 020 7438 6692/6706/7327 (Out of hours: 07860 359544) Non-media enquiries to: 020 7438 6420/6425 (Office hours only) For detailed enquiries about these Stamp Duty changes the Stamp Office Help Line is 0845 603 0135 (Office hours only) www.inlandrevenue.gov.uk © Crown Copyright | home | budget index | budget press notices REV6 21 March 2000 PROTECTING THE ENVIRONMENT: REFORM OF COMPANY CAR TAXATION The Government has confirmed that it is proceeding with the revenue-neutral reform of company car taxation. Cleaner and more fuel efficient cars are to be rewarded by linking the tax charge to the car’s exhaust emissions. This reform will help tackle global warming and improve local air quality, saving up to one million tonnes of carbon by the end of the decade. From 6 April 2002, the Government will: · base the tax charge on a percentage of the car’s price graduated according to the level of the car’s carbon dioxide (CO2) emissions. The charge will build up from 15 per cent of the car’s price, for cars emitting 165 grams per kilometre (g/km) CO2, in 1 per cent steps for every additional 5g/km over 165g/km. The maximum charge will be on 35 per cent of the car’s price; · abolish existing business mileage discounts when the new system starts. These have, unintentionally, provided tax incentives to drive more business miles in order to get bigger discounts and have been responsible for up to 300 million extra miles being driven each year. Their abolition will help to reduce pollution and congestion. Age-related discounts, which provide an incentive to keep older, more polluting cars, will be abolished at the same time; and · subject diesel cars to a 3 per cent supplement in recognition of their higher emissions of pollutants that damage local air quality. This will not take the maximum charge above the current maximum of 35 per cent of the car’s price. Following further consultation, details will be announced of a waiver for very low emission diesel cars and discounts for other environmentally friendly cars, such as those that run on electricity or a combination of petrol and gas or electricity (which could reduce the charge below the usual minimum of 15 per cent of the car’s price). There will also be increases in fuel scale charges for company cars, in line with the 5 year programme announced in Budget 98. For the longer term, the Inland Revenue will be considering how the authorised mileage rates for drivers who use their own cars for business journeys might be improved, on a revenue neutral basis, to send better environmental signals. DETAILS A Company cars 1. Following an announcement in last year’s Budget of a major, revenue neutral, reform of the taxation of company cars, and a period of informal consultation with interested parties, the Government today outlined details of how the reform will work in practice. 2. From 6 April 2002, the existing system, based on 35 per cent of the car’s price, subject to business mileage and age-related discounts, will be abolished. The new system will, therefore, apply to all company cars, including second cars. Calculating the charge 3. The starting point for calculating the tax payable remains the car’s price. The charge will be based on a percentage of that price graduated according to the car’s carbon dioxide (CO2) emissions measured in grams per kilometre (g/km). The exact CO2 figure will be rounded down to the nearest 5g/km for company car tax purposes. 4. Cars emitting CO2 at or below a specified level will be taxed on 15 per cent of the car’s price (the usual minimum charge). This qualifying level of CO2 emissions will gradually be reduced over the first few years of the reform, reflecting anticipated improvements in the fuel efficiency of new cars. The level of CO2 emissions qualifying for the minimum charge will be as follows: · 2002-03 165g/km CO2 · 2003-04 155g/km CO2 · 2004-05 145g/km CO2 5. The table in Annex A shows how cars will be taxed in the first three years of the reform. A car emitting 168g/km CO2 when first registered, for example, will be charged to tax on 15 per cent of the car’s price in 2002-03, 17 per cent in 2003-04 and 19 per cent in 2004-05. CO2 emissions data 6. The Vehicle Certification Agency produces a free, indicative guide to the fuel consumption and emissions figures of all new cars. This guide is available on the Internet at www.roads.detr.gov.uk/vehicle/fuelcon/index.htm. For all cars first registered from at least November 2000, the definitive CO2 emissions figure for tax purposes will be recorded on the Vehicle Registration Document (V5). Under an agreement with the Inland Revenue, the Society of Motor Manufacturers and Traders (SMMT) is providing a CO2 emissions enquiry service over the Internet at www.smmt.co.uk for cars first registered from January 1998. Diesel cars 7. Diesel cars emit less CO2 than petrol cars and so would be taxed on a lower percentage of the car’s price if the charge was based purely on CO2 emissions. This tax advantage is unwarranted, however, as diesel cars emit greater quantities than petrol cars of the two local air pollutants of most concern (particulates and oxides of nitrogen), and are expected to continue to do so even with the introduction of tighter vehicle emission standards. In order to ensure the new system does not have any adverse air quality implications, a supplement of 3 per cent of the car’s price will, therefore, apply to all cars that run solely on diesel. This means, for example, that a diesel car emitting 177g/km CO2 in 2002-03 will be charged to tax on 20 per cent of the car’s price (17 per cent plus 3 per cent). The table in Annex A illustrates how the supplement will be capped to ensure it does not increase the maximum charge above 35 per cent of the car’s price. 8. Recent developments in diesel after-treatment technologies have the potential to offer significant emission reductions, to the extent that some diesel cars could eventually have comparable emissions performance to the cleanest petrol cars. Following proper evaluation of these emerging technologies, provisions will be put in place so that the diesel supplement is waived for these very low-emission diesel cars. Further details about the criteria for exemption will be issued in due course. Consideration will also be given to the case for granting a discount, expressed as a percentage of the car’s price, to these cars. Comments would be welcome on the nature of any exemption from the diesel supplement. Alternative fuels and technologies 9. Cars that are propelled by alternative fuels and vehicle technologies have the potential to offer significant environmental benefits. These cars also tend to be more expensive than similar conventional vehicles so employees could potentially face a higher tax liability. Therefore, following consultation, discounts expressed as a percentage of the car’s price will be introduced to mitigate the impact of their higher price. Bi-fuel gas powered cars 10. Cars that are propelled by a mixture of petrol and road fuel gas, such as compressed natural gas (CNG) or liquefied petroleum gas (LPG), will receive special treatment. If the car has a type approved CO2 emissions figure for gas (that is, a bi-fuel car produced by a manufacturer and first registered from 2000 onwards), that figure will be used to calculate the percentage of the car’s price charged to tax. If the car does not have a CO2 emissions figure for gas (because it registered before 2000 or has been converted to run on road fuel gas post-production), the CO2 emissions figure appropriate to the petrol element will be used to calculate the percentage of the car’s price charged to tax. 11. For those cars assessed on their petrol CO2 emissions figure, the element of the car’s price solely attributable to the equipment necessary to allow the car to run on gas, or the costs of the conversion, will be ignored for tax purposes. For bi-fuel cars assessed on their gas CO2 emissions figure, the full price of the car will be used. 12. Following consultation, provisions will be put in place so that gas powered cars qualify for discounts, expressed in terms of a percentage of the car’s price. This is in recognition of the air quality benefits from these cars, as well as their higher price. Hybrid electric cars 13. Cars propelled by a combination of petrol and electricity, the so-called “hybrid electric” cars, have the potential to deliver very low CO2 emissions, as well as producing lower emissions of local air pollutants and less noise, but they are expected to have a higher price than conventional models. Following consultation, provisions will be put in place so that these cars also qualify for a discount expressed in terms of a percentage of the car’s price. Electric cars 14. Cars that are propelled solely by electricity will be charged to tax on 15 per cent of the car’s price, as these vehicles do not produce any tailpipe CO2 emissions. Following consultation, provisions will be put in place so that these cars also qualify for an appropriate discount expressed in terms of a percentage of the car’s price, in recognition of their higher price. Cars with no CO2 emissions figure 15. Cars first registered after 1 January 1998 that have no approved CO2 emissions figure, perhaps because they have been imported from outside the European Community (EC), will be assessed on engine size as follows: Engine Size (cc) Percentage of car’s price charged to tax 0 – 1,400 15 per cent 1,401 – 2,000 25 per cent 2,001 and more 35 per cent 16. If the car is one without a cylinder capacity, it will be taxed on 15 per cent of the car’s price (if it is a car propelled solely by electricity), and 35 per cent in all other cases (rotary engine cars). Older cars 17. Car manufacturers have been obliged to report CO2 emissions for all new cars on sale in the EC from January 1998. There are no reliable sources of CO2 emissions data for cars first registered before that date. These cars will, therefore, be taxed according to their engine size as follows: Engine Size (cc) Percentage of car’s price charged to tax 0 – 1,400 15 per cent 1,401 – 2,000 22 per cent 2,001 and more 32 per cent 18. Older cars without a cylinder capacity will be taxed on 15 per cent of the car’s price (if it is a car propelled solely by electricity), and 32 per cent in all other cases (rotary engine cars). Disabled Drivers 19. If an employee is obliged to drive a company car with automatic transmission because of his or her disability, the CO2 emissions figure appropriate to the closest make and model of car with manual transmission will be used, if it is lower, to calculate the percentage of the car’s price charged to tax. Employee Contributions 20. There are no changes to existing rules. Payments by employees for the private use of a car will continue to reduce the value of the benefit pound for pound. Contributions of up to £5,000 made by employees towards the cost of the car and/or accessories will continue to reduce its price for tax purposes. Classic cars 21. The rules for classic cars remain unchanged. If the car is 15 or more years old at the end of the tax year, and has a market value of £15,000 or more (which is higher than its list price when the car was first registered), the price of the car for tax purposes is its then open market value on the last day of the tax year. Company car available for only part of the year 22. The rules remain unchanged. The value of the benefit is reduced proportionately if the car is unavailable for part of the year. The benefit is also reduced if the car is not available for a continuous period of at least 30 days. B Fuel Scale Charges 23. The following table shows the increased fuel scale charges for 2000-01 where free fuel is provided for private motoring in company cars: Engine Size Scale charges for Scale charges for 1999-00 2000-01 cc £ £ PETROL 0-1,400 1,210 1,700 1,401-2,000 1,540 2,170 2,001 + 2,270 3,200 DIESEL 0-2,000 1,540 2,170 2,001 2,270 3,200 Cars without a 2,270 3,200 cylinder capacity _____________________________________ NOTES FOR EDITORS Company cars 24. Directors and employees earning at a rate of £8,500 a year or more (including the value of expenses payments and benefits in kind) are taxable on benefits in kind. Income tax is charged on the benefit of a company car and separately on the benefit of free fuel where this is provided for private motoring in a company car. Cars provided exclusively for business use and which are not available for private use are not taxed. 25. References to company cars in this press release include all cars made available for private use to employees (and their families) by reason of their employment. 26. For 2000-01 and 2001-02, the tax treatment of company cars remains as follows: · where a company car driver drives less than 2,500 business miles in the car in the tax year, the full tax charge is on 35 per cent of the price of the car; · for 2,500 to 17,999 business miles, the tax charge is on 25 per cent of the price of the car; · for 18,000 or more business miles, the tax charge is on 15 per cent of the price of the car; · the tax charge is further reduced by one quarter if the car is four or more years old at the end of the tax year; and · second cars are taxed on 35 per cent of the price of the car each year. If, exceptionally, the second car is also used for at least 18,000 business miles a year, the charge is reduced to 25 per cent. 27. For income tax purposes, the price of the car will usually be: · the UK list price of the car (including delivery and VAT) at the time it was first registered, plus · the price of any accessories: - provided with the car when it was first made available to the employee; - added after the car was first made available to the employee, and fitted after 31 July 1993, with a price of £100 or more; but - excluding, since 6 April 1998, the extra cost of enabling the car to run on road fuel gases. 28. The price of a car is restricted to an upper limit of £80,000 (including accessories) for the purposes of the tax charge so that where the price of the car exceeds this figure, its price for those purposes is taken as £80,000. Timing of the change 29. The new system will start on 6 April 2002. It will, therefore, apply in 2002-03 and in subsequent years to all company cars. This timetable gives people time to prepare. From April 2001, the employer reporting requirements will be revised so that employers can provide emissions data on forms P46 (car), where a car is changed or first supplied. Further guidance will be issued in due course. Cost/yield implications 30. The reform will be revenue neutral so that it produces around the same yield in 2002-03 as in the year preceding the reform. Inland Revenue estimates show that, after behaviour, the reform will have a cost of around £25 million in 2003-04 and around £75 million in 2004-05. These estimates are uncertain, particularly because of the scale of anticipated changes in behaviour. The cost or yield in future years will depend upon behavioural change, the prices of company cars and advances in technology and fuel efficiency. Free fuel 31. The taxable value of petrol provided for private motoring is fixed by reference to three bands of engine size: 1,400 cc or less; 1,401 to 2,000cc and over 2,000cc. Two bands are used for diesel: 0 to 2,000cc and over 2,000cc. A car without a cylinder capacity is treated as if had over 2,000 cc capacity. 32. The new scale charges give the amounts on which employees provided with free fuel will pay tax in 2000-01. The charge is apportioned if a company car (but not the fuel alone) is available for only part of a year. The charge is reduced to nil if the employee makes good the cost of all the fuel used for private journeys, including miles driven in commuting from home to work. 33. In 1997-98, of the 1.73 million directors and employees who had a company car, over half (990,000) got free fuel for private motoring. Those who continue to get free fuel will pay more tax on this benefit. This will be collected by adjustment to PAYE codes in May, so no action need be taken by those affected, or their employers. Class 1A National Insurance contributions 34. The car benefit charge and fuel scale charges are also used as the basis for employers’ Class 1A National Insurance contributions (NICs). A preliminary guidance leaflet, CWG5 – “Class 1A National Insurance Contributions on Benefits in Kind” was issued in the Employer’s pack earlier this year. Class 1A NICs are charged (for 2000-01) at 12.2 per cent of the taxable value of the benefit. Regulatory Impact 35. The reform introduces a simpler and easier to operate system of taxing company cars, which dispenses with the need to keep business mileage records for tax purposes. It lets the majority of employers calculate the tax and Class 1A NICs due at the outset, by reference to readily available list prices and emissions data, rather than having to wait until the end of each tax year. Impact Assessment 36. An Integrated Impact Assessment covering the environmental and regulatory impacts of the reform has been prepared and is available from the address given below or on the Internet at www.inlandrevenue.gov.uk/cars. Further details 37. More details about the company car tax reform, including a series of questions and answers and worked examples, have been placed on the Internet at www.inlandrevenue.gov.uk/cars. Details about the reform of Vehicle Excise Duty (VED) which will also link the amount charged to the car’s rate of CO2 emissions, may be found on the Internet at www.dvla.gov.uk/newved or in the Budget Day press notice HMT/DETR 1. Consultation 38. Comments on the proposals to waive the supplement for very low emission diesel cars, give discounts to environmentally friendly cars and on the anticipated compliance cost savings following the first year changeover are welcome. 39. Comments may be sent to: Kim Linton Personal Tax Division Room 81, New Wing Somerset House Strand London, WC2R 1LB e-mail Kim.Linton@ir.gsi.gov.uk By 31 July 2000 _____________________________________________ INLAND REVENUE PRESS OFFICE Media enquiries to: 020 7438 6692/6706/7327 (Out of hours : 07860 359544) Non media enquiries to 020 7438 6420/6425 (Office hours only) www.inlandrevenue.gov.uk ANNEX A NEW SYSTEM IN FIRST THREE YEARS OF THE REFORM (Note: The exact CO2 emissions figure should be rounded down to the nearest 5 grams per kilometre) CO2 EMISSIONS IN GRAMS PERCENTAGE OF CAR’S PRICE TAXED PER KILOMETRE 2002/03 2003/04 2004/05 165 155 145 15* 170 160 150 16* 175 165 155 17* 180 170 160 18* 185 175 165 19* 190 180 170 20* 195 185 175 21* 200 190 180 22* 205 195 185 23* 210 200 190 24* 215 205 195 25* 220 210 200 26* 225 215 205 27* 230 220 210 28* 235 225 215 29* 240 230 220 30* 245 235 225 31* 250 240 230 32* 255 245 235 33** 260 250 240 34*** 265 255 245 35**** Diesel Supplements * add 3 per cent if car runs solely on diesel ** add 2 per cent if car runs solely on diesel *** add 1 per cent if car runs solely on diesel **** maximum charge so no diesel supplement © Crown Copyright | home | budget index | budget press notices REV7 21 March 2000 BOOST FOR ISA SAVERS Keeping this year’s £7,000 subscription limit for a further year will give savers the chance to save more tax free, Chancellor Gordon Brown announced today. This means that the previously planned reduction in the ISA limit to £5,000 for 2000-01 will be deferred, giving people the opportunity to save more tax free. The Chancellor made his announcement as Inland Revenue figures showed that around £17.3 billion had been put into ISAs during their first nine months. This is an increase of around 40 per cent on the estimated £12.2 billion put into PEPs and TESSAs in the same period last year. The Economic Secretary Melanie Johnson said: “ISAs have got off to an excellent start, and have really caught the imagination of those wanting to save. Savers have already put over £17 billion into ISAs in just nine months. Nearly 6.7 million accounts have been opened. That is very encouraging but we wish to see still more being saved. The measure announced today will give what is already a successful scheme a further boost, resulting in even more tax free saving.” ______________________________ DETAILS 1. For the tax year 1999-00 savers can subscribe up to £7,000 overall of which no more than £3,000 may go into cash and £1,000 into life insurance. Originally these limits were going to be reduced for the tax year 2000-01, and later tax years, to up to £5,000 overall of which no more than £1,000 could go into cash. This planned decrease in the limits will now be deferred until the tax year 2001-02. 2. The review of the operation of ISAs will start in April 2000, after ISAs have had the chance to be up and running for a whole year. The review will involve discussions with representatives of the savings industry and look at such operational issues as: resolving any problems encountered during that first year of operation; the possibility of bringing PEP rules on issues like qualifying investments and phone instructions into line with the more flexible rules for ISAs. 3. The ISA take up figures for the nine months from 6 April 1999 to 5 January 2000 show: around £17.3 billion paid into a total of nearly 6.7 million ISA accounts during that period; over £8.5 billion paid into mini ISAs, including: - almost £7.7 billion into cash - over £820 million into stocks and shares - around £34 million into life insurance over £8.7 billion paid into maxi ISAs, including: - over £8.2 billion into the stocks and shares component - over £500 million into the cash component - around £10 million into the life insurance component. 4. The amount put into stocks and shares over the nine month period exceeds that put into cash. This was not the case after the first three or six months. 5. These figures show an increase of around £4.6 billion and 1.5 million accounts over the figures for the previous account 6 July to 5 October 1999. The figure of £4.6 billion also exceeded significantly the figure of £3.2 billion for subscriptions to PEPs and TESSAs in the comparable quarter last year. ____________________________ NOTES FOR EDITORS 1. The cost of the retention of the existing ISA subscription limits for a further year will be £40 million in 2000-01 and £70 million in 2001-02. 2. Early consultation will take place with representatives from the savings industry on the extent of any additional administrative costs arising out of the deferral of the planned reduction in ISA subscription limits. 3. Regulations retaining the current ISA limits for a further year were laid before the House of Commons today. The change in the limits will be available from 6 April 2000. The new regulations are the Individual Savings Account (Amendment) Regulations 2000. They will be available from The Stationery Office Limited shortly, and will be available on the Inland Revenue website. ___________________________ INLAND REVENUE PRESS OFFICE Media enquiries to: 020 7438 6692/6706/7327 (Out of hours: 07860 359544) Non-media enquiries to: 020 7438 6420/6425 (Office hours only) www.inlandrevenue.gov.uk Individual savings accounts Period Number of Amounts subscribed Average ending (£ million) accounts Stocks & Cash Life All subscription shares insurance (thousands) componentcomponent component components per account (cumulative (£) from 6 April 1999) 5 January20001 Mini Stocks & 947 826 - - 826 870 ISAs shares Cash 3,201 - 7,693 - 7,693 2,400 Life 83 - - 34 34 410 insurance Total 4,231 826 7,693 34 8,554 Maxi 2,438 8,203 507 10 8,720 3,580 ISAs Total 6,669 9,029 8,201 44 17,274 1 Provisional. Notes: (a) Totals may not equal the sum of the individual components due to rounding. (b) Average subscriptions are rounded to the nearest £10. © Crown Copyright | home | budget index | budget press notices REV8 21 March 2000 ONE MILLION LOW INCOME HOMES TO GET CHEAPER, BETTER HEATING Up to one million low income homes will be better heated with lower fuel bills as a result of changes to the tax rules announced by the Chancellor today to combat fuel poverty. Central heating systems leased under the Government’s Affordable Warmth Programme will qualify for capital allowances, bringing down the cost and encouraging landlords to participate in the programme. The Affordable Warmth Programme, which will substantially improve the quality of one million low income homes, will benefit urban regeneration, health and the environment: - more efficient heating means lower fuel bills so families will not have to choose between food and warmth; - warmer homes mean less illness and better health; and - lower fuel use means cleaner air and less green house gasses. DETAILS 1. The Affordable Warmth Programme has been developed by Transco (the pipe-line arm of BG plc), DTI and DETR. It will combat fuel poverty by supporting the installation over the next 7 years of insulation and energy-efficient central heating systems in 850,000 local authority and registered social landlord homes and 150,000 over 60s owner-occupied and private rented homes. It will enable those who need help most to heat their homes properly, while at the same time cutting their fuel bills. 2. The Affordable Warmth Programme will be underpinned by public spending. This will be supplemented through a public/ private partnership, which will allow the programme to help many more households than would otherwise be possible. The partnership will see the boilers and radiators being leased from commercial lessors. 3. At present, no capital allowances are available on boilers and radiators installed in residential property. In order to encourage local authorities and registered social and private landlords to participate fully in the programme, this bar will be relaxed. Capital allowances will be made available to lessors on boilers and radiators installed under the programme. This will bring down the cost of leasing and help to ensure that the target of installing modern central heating in one million low income homes can be met. 4. Two related minor changes to the capital allowance rules are also being made. 5. First, it is confirmed that the special rules for giving capital allowances on fixtures apply to boilers and radiators installed as part of a central heating or hot water system. This will remove doubts that have been expressed over the correct tax treatment of boilers and radiators that can be removed easily without damage to the rest of the system or the building. As the change is being made to confirm existing practice and understanding of the law, it will be treated as always having had effect. 6. Second, the new rules clarify the treatment of machinery or plant for capital allowances where both the special rules for fixtures and for hire-purchase could apply. They ensure that the special rules for fixtures take precedence. This will apply where an asset becomes a fixture on or after the Finance Bill receives Royal Assent. NOTES FOR EDITORS The Affordable Warmth Programme 1. The Affordable Warmth Programme is based on a pilot scheme in Leeds that demonstrated the fuel savings would allow the installation of modern energy efficient central heating systems and related insulation measures in low income homes on a commercial basis. But the Leeds pilot also indicated that the programme would not be financially attractive to landlords unless the leasing costs could be reduced. 2. Under the existing rules, a lessor cannot write off against its taxable income the cost of investments in machinery or plant fixtures that are leased either for use in a home or to a non-taxpayer. These rules will be relaxed for boilers and radiators leased under the Affordable Warmth Programme. Lessors will be able to write off 25% of the cost of this equipment each year against their profits on the reducing balance basis. This support will reduce the amount lessors need to charge and make the programme financially attractive to landlords. 3. These changes will support up to £1 billion of investment in central heating systems spread over the next 7 years. The Government assistance from this new capital allowances measure will peak at about £45 million in 2004/5 and 2005/6. Fuel Poverty 4. Fuel poverty is commonly defined as where a household needs to spend more than 10% of household income in order to maintain a satisfactory heating regime. The English House Condition survey showed there were at least 4.3 million such households in 1996. The effects of fuel poverty are mainly health related. Research shows cold homes are linked to winter mortality, ill-health and impaired quality of life. The people most vulnerable to cold related ill-health are those aged 60 years or more, children, the disabled and chronically sick. 5. An inter-ministerial group, jointly chaired by Helen Liddell and Lord Whitty, is considering the Government’s overall strategy to the problem. Action already taken includes: · introduction of the £100 Winter Fuel Payment; · reduction in VAT on domestic fuel and energy efficiency measures; · benefits to low income households through price reductions from reform of the energy market. 6. In addition, from June, the new Home Energy Efficiency Scheme (HEES) will start improving the heating and insulation of vulnerable households through grants of up to £2,000. The scheme will focus on the private sector where nearly 70% of the fuel poor are found. For low income over-60 households, new HEES will offer efficient central heating systems as part of the Affordable Warmth Programme. Leasing 7. For central heating systems installed under the Affordable Warmth Programme, boilers and radiators will be leased from commercial lessors. This will boost spending on the programme by bringing in private finance for boilers and radiators. Giving capital allowances to the lessors will reduce the tax they pay on the lease rentals. Lessors participating in the scheme will pass on the tax saving to the property landlord in the form of lower lease rentals. INLAND REVENUE PRESS OFFICE Media enquiries to: 020 7438 6692/6706/7327 (Out of hours: 07860 359544) Non-media enquiries to: 020 7438 6420/6425 (Office hours only) www.inlandrevenue.gov.uk © Crown Copyright | home | budget index | budget press notices REV9 21 March 2000 ENCOURAGING EMPLOYERS TO PROVIDE CHILDCARE Childcare provision by employers is to remain free of NICs, the Chancellor announced today, to encourage employers to provide more childcare facilities for employees. This will include employers contracting for places in commercial nurseries or for the services of a childminder, as well as providing workplace nurseries or childcare vouchers. Employers can already deduct the cost of providing all forms of childcare from their pre-tax profits. Today’s announcement means that when the employer’s Class 1A National Insurance Contributions (NICs) liability is extended in April 2000 to cover most taxable benefits in kind, childcare provided as a benefit in kind will remain free of NICs. There will continue to be no employee’s NICs on most benefits in kind including childcare. Where, however, employers help by providing cash to meet or reimburse childcare expenses incurred by employees, this cash remains, as now, subject both to employer’s and employee’s NICs, though the employer will still be able to deduct the cost for tax purposes and the employee may qualify for help in meeting the childcare expenses via Working Families’ and Disabled Person’s Tax Credits. _______________________________ DETAILS 1. Benefits in kind provided by employers for employees are generally taxable if employees earn £8,500 a year or more (including benefits and expenses). 2. Class 1A NICs are currently paid by employers on car and car fuel benefits only. The Government announced in the March 1999 Budget that from 6 April 2000, Class 1A NICs were being extended to cover all other taxable benefits in kind provided by employers and not already subject to Class 1 NICs. Under this new proposal, an exception is being made for childcare benefits in kind. 3. The new employer’s NICs exemption builds on the existing exemption from employer and employee NICs for childcare vouchers. 4. It means all forms of childcare provision in kind will remain exempt from employers NICs. There are no employee’s NICs on most benefits in kind including childcare. 5. All forms of employer help with childcare, whether in kind or in cash, are allowed as a deduction against profits in calculating the employer’s tax bill (if any). 6. Employees will continue to be taxable on employer help with childcare whether in kind or in cash, except where the employee is provided with a place in a qualifying workplace nursery or receives a childcare benefit and earns less than £8,500 a year (including benefits and expenses). 7. Employees in low and middle income households who are eligible for Working Families’ or Disabled Person’s Tax Credits may be able to get help through the childcare tax credit. This provides help with up to 70% of childcare costs for which the employee is responsible, regardless of whether the employer gives the employee additional cash to meet these costs or settles part or all of the employee’s bill. Help is not given to the employee through the childcare tax credit for costs borne by the employer as a benefit in kind. ____________________________ INLAND REVENUE PRESS OFFICE Media enquiries to: 020 7438 6692/6706/7327 (Out of hours: 07860 359544) Non-media enquiries to: 020 7438 6420/6425 (Office hours only) www.inlandrevenue.gov.uk © Crown Copyright | home | budget index | budget press notices REV10 21 March 2000 HELPING TO GET IT RIGHT A substantial package of measures to help and support businesses and individuals in their dealings with Government was set out by the Chancellor today. The measures include: · A £30 million package of increased support for small businesses running a payroll including expansion of the New Enterprise Support Initiative (NESI) helpline and doubling the number of Business Support Teams (BSTs) from April 2000. · Improvements to the Self Assessment system including; easier and more convenient ways to pay; clearer self assessment statements; and, from April 2000, no longer asking up to 400,000 more people on lower incomes to fill in self assessment forms. · A new page on the Inland Revenue’s website – Taxback – for savers on low incomes with bank or building society interest. · Proposals for simplifying tax and National Insurance Contributions technical rules and procedures for employers, including proposals for common and appropriate powers for Inland Revenue officers. · Measures to encourage small business to invest in Information and Communication Technology equipment and embrace E-commerce. These build on the significant support available through Inland Revenue offices and helplines for people to get help or check that they have paid the right amount. ______________________________ DETAILS More support for small employers from April 2000 The Inland Revenue will spend £30 million over the next two years to expand the range of help available on payroll issues. Building on the successful introduction of the New Enterprise Support Initiative (NESI) which was launched last year the Inland Revenue will: · Increase both the size and the scope of the work carried out by the helpline for new employers to offer a payroll support service over the phone. · Double the size of the Inland Revenue Business Support Teams who will: Ø offer new and small employers a visit by the Business Support Teams to talk the employer through various payroll issues Ø offer a detailed “health check” of an employer’s payroll systems to see whether they are robust and reliable, and that the employer understands how to use them properly Ø offer further one-to-one visits to help where there is evidence that the new employer is getting into difficulty; and Ø look to make effective links between the BSTs and the help and assistance that will be available from the Small Business Service (SBS). Getting payroll records in order The Inland Revenue offers a free service to all employers to ensure payroll records are in order. It is a fast and efficient method of ensuring that errors in employee’s personal details and National Insurance Numbers are identified and corrected before the employer needs to make the End of Year Returns. Employers can ask for their payroll records to be cross-checked with Inland Revenue records. The Inland Revenue then pursues any discrepancies identified in this data with the individual employees directly, and appropriate amendments made. An employer whose records have been checked will have more accurate payroll records leading to fewer errors on End of Year Returns. Self Assessment (SA) improvements A number of improvements to ensure the Self Assessment system works efficiently and fairly were announced to day. These are the result of ongoing work the Inland Revenue is doing involving taxpayers and their representatives, · Easier and more convenient ways to pay. - The Inland Revenue plan to mount national schemes as soon as possible to enable all SA taxpayers and employers to pay by Debit Card over the telephone or the Internet, or on account by direct debit if they want to · Clearer forms and making statements easier to understand. - The first revised statements were issued in January following feedback from customers – with further refinements to be included in the June 2000 issues. · Opening enquiry notices. - The Inland Revenue will be consulting with representative bodies on a revised version of the formal notice opening an income tax Self Assessment enquiry. This is to address concerns that the present version is unnecessarily “threatening”. · Reducing the numbers of people who have to complete tax returns. - By raising the monetary threshold for bringing PAYE taxpayers with minor sources of income into Self Assessment, up to 400,000 people, about half of whom are pensioners, could be taken out of SA from this April if their tax affairs are up to date. The Inland Revenue will continue to keep the criteria for bringing people into Self Assessment under review. Taxback Campaign The new Taxback website page is for savers with bank or building society interest who do not have to pay tax or who have very little tax to pay. It tells them how to work out if they may be eligible to claim back all or some of the tax that banks and building societies have to take off interest. Then it explains how to claim back any repayment of tax due. The new website page also provides information for non-taxpayers about how to tell their bank or building society not to take tax off in future. Useful telephone numbers are given for anyone who would like some help. This is the first step in an Inland Revenue Taxback campaign that will run throughout the year 2000, culminating with a high profile theme week in the autumn. Other events are planned throughout the year. Details will be announced later. Pensioners Guide The Inland Revenue have produced a new updated and clearer version of its "Income tax and pensioners " leaflet. The new leaflet brings together in one place information that is likely to be of most interest and use to pensioners Simpler National Insurance Contributions procedures for employers The Inland Revenue will be publishing for consultation this Spring proposals for simplifying some of the aspects of National Insurance Contributions (NICs) that create complexity and worry for employers and their payroll administrators. These will include giving employers more time to deal with particular difficult payments and providing simplified arrangements for accounting for NICs paid on behalf of employees seconded abroad. And the Inland Revenue will set out options for ensuring that its officers have common and appropriate powers for their examination of employers' tax and NICs records. Research and consultation To help business and individuals to "get it right" it is important that Government identifies and addresses the conditions that lead to businesses and individuals not complying. A number of ongoing research and consultation exercises will help Inland Revenue and Customs and Excise to promote compliance and ease administrative obligations. These include: · A joint 4 year programme of research by Inland Revenue and Customs and Excise to understand business compliance costs · Commissioning two pieces of research on payroll, the first looking at the practical problems experienced by new and small employers and the second looking at the scope for Internet filing to reduce payroll costs · Listening to and working with taxpayers and their representatives. Further help for small business The substantial package of further help to small business announced by the Chancellor today (REV/CE1), includes a number of measures to incentivise small business to make more use of IT to increase their efficiency and cut their costs. The measures include 100% first year capital allowances for small businesses that invest in Information and Communication Technology equipment (computers, software and internet-enabled mobile phones) over the next three years and a £60Million expansion of Government electronic services to help SME's get on line and use online services. The Chancellor also announced an extension to the discounts available to small employers who file and pay via the Internet (REVxx) and the Inland Revenue published a Payroll Software standard today to encourage small employers to use accredited software to calculate their payroll. ______________________________ NOTES FOR EDITORS The Government is determined to do as much as possible to keep regulatory requirements on small business to a minimum and wherever possible to reduce them. The Inland Revenue and Customs and Excise will continue to offer small business and individuals practical help and support them in their dealings with Government. It is particularly important to make it as easy as possible for businesses and individuals to claim their entitlements and to comply with their obligations under the law while keeping their costs to a minimum. If at any time people think they have not paid the right amount of tax or National Insurance Contributions for this or a previous year they should approach the Inland Revenue with the necessary evidence and claim the repayment. More support for small employers The outline of the expansion of the NESI helpline and Business Support Teams was announced on 11 November in a joint Inland Revenue/DTI Press Release. Further details on today’s detailed announcement can be obtained from the NESI helpline - 0845 60 70 143. Taxback Campaign Building societies, banks and other deposit-takers are required by law to deduct income tax from the interest they pay to savers. Tax is deducted at 20%. There are some exceptions. Anyone whose income is below the taxable limit does not have to pay tax. People who can say in advance that their income will be below the taxable limit can register to get their interest paid without tax taken off. The majority do so. Many other people claim back the tax they are not due to pay. But some savers who are eligible to register or to claim tax back do neither. This campaign is aimed at raising awareness about Taxback and encouraging savers to take action to claim back tax and/or to register if they are able to do so. Representative organisations such as The Low Incomes Tax Reform Group, Age Concern and Help the Aged are being consulted, as well as the British Bankers’ Association and The Building Societies Association. The Taxback website page can be accessed at www.inlandrevenue.gov.uk/taxback. Getting Payroll records in order To register for this service Employers should contact either Customer Account Services in Kings Lynn on 0155 36 66 866 or Customer Account Services in Newcastle on 0191 22 56 110 who can supply appropriate employers packs and advice on reference of data by paper or specific IT mediums. Joint research programme Inland Revenue and Customs and Excise have embarked on a 4 year programme of research to understand business compliance costs. This will cover the costs to business of dealing with VAT, Income Tax Self Assessment and Corporation Tax Self Assessment. The results of this research will help identify those areas of the tax system that are most burdensome to business and enable the Revenue Departments to look for ways of making improvements in those areas. Payroll responsibilities The Revenue, with the support of the DTI, has commissioned KPMG to undertake a major piece of research on the practical problems experienced by new and small employers. This innovative study will look at 200 employers at different stages of the annual payroll cycle. The aim of the research is to report in detail on what exactly employers find to be the main stumbling blocks, and what is preventing them from complying with their responsibilities accurately and on time. The results are expected in October and will be used to set in train a programme of work for the Revenue, aimed at providing employers with better information and guidance at the right time, and where practicable, simplified procedures. Savings to Employers from Internet Filing The Inland Revenue has awarded a small compliance cost contract to Bath University to study the scope for Internet filing to reduce employer compliance costs associated with the end of the year process for forms P14s and P35s. This study will concentrate on the opportunities for using Internet filing to produce faster validation of returns, certainty of receipt and other ease of use benefits which are expected to reduce compliance costs of employers using payroll software - and provide an incentive to manual filers to use the Internet. This study is expected to report during the autumn. Listening to taxpayers Correspondence and complaints about the system, statistical information from the annual customer surveys and feedback from bodies such as contact centres and regional consultation panels are to be brought together and evaluated centrally so that they can have a real impact on the planning of future services. Working with taxpayers and their representatives The Inland Revenue is co-operating with the main professional bodies of tax practitioners in an innovative exercise to improve the quality of their members' tax work and so the service they give to their clients in preparing their self assessment tax returns. On a trial basis, where the Revenue identifies practitioners making persistent errors in their clients' returns, they will, if the problem cannot be resolved by direct discussion, pass the name of the member and details of the matters of concern to the professional bodies to consider what help and support the member needs to improve their standards. It will not be possible for those bodies to identify individual clients from the information provided. From April 2000 the Chartered Institute of Taxation (CIOT), the Institute of Chartered Accountants (England and Wales) (ICAEW), and the Inland Revenue will launch “Working Together” – a scheme for strengthening local liaison between practitioners and Revenue offices. Building on established links they will introduce fast track mechanisms to identify issues at local level that could have a national impact. This will provide for quicker and more flexible resolution of problems. ___________________________________ INLAND REVENUE PRESS OFFICE Media enquiries to: 020 7438 6692/6706/7327 (Out of hours: 07860 359544) Non-media enquiries to: 020 7438 6420/6425 (Office hours only) www.inlandrevenue.gov.uk © Crown Copyright | home | budget index | budget press notices REV11 21 March 2000 CONSTRUCTION INDUSTRY SCHEME A package of measures to improve the new Construction Industry Scheme, was set out by the Chancellor today. · To reduce costs and streamline the flow of paperwork, the procedures for CIS24 vouchers will be simplified. · Fewer subcontracting companies will need to make a formal business case to qualify for a CIS5 certificate following the reduction of the turnover threshold from £5 million to £3 million from today · Two new consultative forums will be established to review the scheme:- - A Joint Working Group comprising officials from the Inland Revenue, the Department of the Environment, Transport and the Regions (DETR), and representatives from the Construction Industry. - A User Panel consisting of a cross-section of people from the industry who have hands-on experience of operating the Scheme. Subcontractors will also benefit from · The recent announcement of a reduction in the deduction rate from 23% to 18% from 6th April. · The increase in the PAYE quarterly payments limit announced today which will help the cash flow of many smaller subcontracting businesses. ______________________________ DETAILS Streamlining the CIS24 Voucher procedures When payments are made to a subcontractor who has qualified for a gross payment certificate (CIS6) the subcontractor must complete a voucher - CIS24 - showing the details of the payment. The voucher, which has three parts, is sent to the contractor who completes further information on it before returning the subcontractor’s copy to them. From 6 May, a subcontractor completing a CIS24 voucher will no longer be required to send their copy of the voucher to the Contractor. The subcontractor will remove their copy of the voucher and retain it for their records. The remaining two parts will be sent to the Contractor as before. This measure will reduce the amount of paperwork that is currently exchanged between contractors and subcontractors and will reduce the costs of complying with the scheme. Letters explaining the change will be issued to all contractors and CIS6 holders in mid-April Reduction in the CIS5 qualifying Turnover Threshold Under the scheme all subcontractors must have registered with the Inland Revenue to obtain a registration card (CIS4) or certificate (CIS6). Both of these documents need to be presented in person. Some companies who have qualified for a CIS6 may be granted a CIS5 - which does not need to be presented in person - if they are able to fulfil one of a number of criteria. One of the criteria is a gross turnover threshold. With effect from today the turnover threshold that allows a company, which has qualified for a CIS6, to qualify for a CIS5 has been reduced from £5million to £3million. This means that those companies with a turnover of between £3million and £5million will no longer need to make a business case to show that they fulfil one of the other criteria in order to qualify for a CIS5. Where a subcontracting company has been granted a CIS6 and has made an application for a CIS5 that has not been successful, but the gross turnover of the business is in excess of £3million, they should reapply. Joint Working Group The Inland Revenue will be working together with The Department of the Environment, Transport and the Regions (DETR), and all sections of the Construction Industry. This group will consider ways in which the scheme can be improved whilst continuing to protect the flow of revenue to the Exchequer. In particular the group will consider: · The results of independent market research commissioned by the Inland Revenue. · Similarities between the regulatory requirements of the Inland Revenue and Customs and Excise and how these could be brought together to help businesses. · The difficulties which CIS6 holders face in complying with their obligations to show their cards in person. · Ways in which the different criteria for granting a certificate to companies and to individuals and partnerships can be made more acceptable to the industry. · Introducing in-year repayments for companies. · Advances in information technology and electronic business and ways in which these could be used to support a streamlining of the scheme. User Panel This panel will consist of a cross-section of people from the industry who have hands-on experience of operating the Scheme who will work closely with joint working group. They will identify issues and possible solutions and provide practical advice. Other measures The Government announced in a Press Release published on 25th February 2000 that the rate of deduction that will apply to payments under the Construction Industry Scheme is to fall from 23% to18% from 6th April. This means that subcontractors within the industry without gross payment certificates will have substantially less tax deducted from payments made to them during the 2000-2001 tax year, which they would otherwise have to reclaim from the Inland Revenue. In addition, the increase in the Quarterly Payments limit will improve cash flow for those subcontracting businesses who have not qualified for a gross payment certificate but who pay employees or subcontractors under deductions of tax. For further details see Budget Note REVBN1A. _______________________________ NOTES FOR EDITORS A tax deduction scheme for the Construction Industry was introduced in 1971 to tackle the substantial tax leakage in the industry. The new scheme that took effect from the 1st August was built largely on the principles of the old scheme. Changes to the Scheme were introduced in Schedule 27 Finance Act 1995 and Section 178 Finance Act 1996. Further minor changes were introduced in Schedule 8 of Finance Act 1998. Changes were necessary because the rules that governed the entitlement of 714 certificates – which allowed subcontractors to be paid gross - proved increasingly ineffective in limiting the numbers of certificates in circulation. The widespread availability of certificates encouraged misuse of the documents and tax evasion continued at an unacceptable level. The loss to the Exchequer is believed to be well above £100m per annum. Under the new scheme, all subcontractors must register with the Inland Revenue and present their documents to the contractor before they can receive payment for work they have done. Vouchers need to be completed (either by the contractor or subcontractor) for all the payments that are made under the scheme. These are ultimately sent to the Revenue to facilitate compliance checks. The majority of subcontractors have been given a CIS4 registration card, which requires them to be paid after deductions on account of tax and class 4 National Insurance Contributions. The card carries a photograph of the card holder and must be presented in person. The CIS6 certificate is issued to those subcontractors who pass the statutory tests and allows them to receive payment gross. It is the normal gross payment certificate available to those working within the industry. It carries a photograph of the certificate holder and must be presented in person. The CIS5 certificate is issued only to companies that can make a business case – there are published rules – or have a turnover in excess of the set limit – this has today been reduced from £5 to £3 million. This certificate does not carry a photograph and need not be presented in person. The scheme is already proving effective: to date at least 50,000 businesses have registered with the Inland Revenue of whom they were previously unaware. _______________________________ INLAND REVENUE PRESS OFFICE Media enquiries to: 020 7438 6692/6706/7327 (Out of hours: 07860 359544) Non-media enquiries to: 020 7438 6420/6425 (Office hours only) www.inlandrevenue.gov.uk © Crown Copyright | home | budget index | budget press notices REV12 21 March 2000 MODERNISING AND SIMPLIFYING CAPITAL ALLOWANCES A deregulatory package of measures to modernise the capital allowances system was announced by the Chancellor today. This will give business fairer and simpler rules. It will make the legislation on capital allowances clearer and easier to use in the Tax Law Rewrite Bill, which is planned to be ready for introduction in Parliament later this year. The main changes are to: · abolish the requirement to notify expenditure on which machinery and plant capital allowances may be claimed · remove the requirement to put expenditure on cars costing less than £12,000 into a separate pool for capital allowances · give capital allowances to oil companies on machinery and plant used under an oil production sharing contract · encourage investment in machinery and plant by making it easier to finance investment through leasing · set out a clear code for giving machinery and plant capital allowances to non-residents · extend the herd basis to shares in production animals and confirm that capital allowances are not due. ____________________________________ DETAILS Abolition of notification 1. At present businesses have to notify expenditure on which machinery and plant capital allowances may be claimed within fixed time limits, broadly within two years after the period for which the business may wish to claim the allowances. Capital allowances cannot be claimed on expenditure that has not been notified. Expenditure may be notified by inclusion in a tax computation or by separate notice. Many businesses routinely notify all expenditure by separate notice, which puts an unwelcome compliance burden upon them. 2. In order to reduce burdens on business and to make the capital allowance system simpler and fairer, the requirement to notify expenditure will be repealed. This will also remove the consequential restriction on the capital allowances that can be claimed. It will apply to all periods for which the time limit for notification falls on or after 1 April 2000, that is for chargeable periods ending on or after 1 April 1998 for corporation tax or 6 April 1998 for income tax. Removal of separate pool for cars costing less than £12,000 3. At present expenditure on cars costing less than £12,000 goes into a separate pool for computing capital allowances, together with certain pre-1986 expenditure on leased assets. There have been suggestions from business that this rule, which imposes additional record keeping requirements, should be removed. 4. The separate pool will be abolished from the start of the present chargeable period, that is the chargeable period that includes 1 April 2000 for corporation tax or 6 April 2000 for income tax. The balance brought forward on the separate pool will be added to the main pool. 5. In order to give businesses flexibility to arrange their tax affairs in ways that are most beneficial to them, they will be able to choose to delay the abolition of the separate pool until the start of the chargeable period that includes 1 April 2001 for corporation tax or 6 April 2001 for income tax. Oil production sharing contracts 6. Oil companies sometimes enter into contracts with foreign governments to extract oil under which the ownership of machinery and plant used for the contract passes from the oil company to the foreign government at some point. In the past, we have adopted ad hoc arrangements to deal with this type of contract, which is not adequately provided for by the present rules. 7. The new rule, which will apply to expenditure incurred on or after today, will allow oil companies to claim capital allowances on machinery and plant used under such a contract. It also provides for any disposal proceeds to be brought into account or, where there are no such proceeds, for the disposal value to be nil. It has been welcomed by the oil industry as providing fairness and certainty. Sale and leaseback 8. Since 1972, the amount on which the lessor can claim capital allowances where machinery and plant, on which capital allowances have not been claimed by the lessee, is sold and leased back has been restricted to the current open market value of the asset. In 1997, further restrictions were placed on sale and finance leaseback to prevent the recycling of unused allowances. 9. The new rule, which has been developed in consultation with the leasing industry, will relax these restrictions, so that allowances can be claimed by the lessor on the lower of cost to and sale by the lessee, provided certain conditions are met. The main conditions are that: · the equipment is new when acquired by the lessee · the acquisition is not from a connected person, a sale and leaseback or a main benefit sale · the equipment is sold to the lessor not more than four months after it is first brought into use and · the lessee does not claim capital allowances. 10.The new rule, which has been welcomed by the leasing industry, will make it easier for businesses to finance investment in new equipment through leasing. Non-residents and other persons with non-taxable activities 11.There are no specific rules for giving capital allowances to non-residents at present, which can create uncertainty over the way in which the rules should operate in some circumstances. 12.The new rules provide a clear code for giving machinery and plant capital allowances to non-residents and other persons with non-taxable activities, which will assist business by providing fairness and certainty. 13.The main rule confirms that capital allowances are due on machinery and plant for use in a trade only if the trade is taxable in the UK. Where only part of the trade is taxable, for instance where a non-resident carries on a trade partly through a branch in the UK, the capital allowances rules are applied to the part of the trade taxable in the UK as if it were a separate trade. This applies to chargeable periods ending on or after today. 14.There are two further small changes, which will make the rules fairer. These apply to events taking place on or after today. 15.Where machinery or plant begins to be used other than for qualifying purposes, an adjustment is made to bring the allowances given into line with the depreciation suffered. The new rule will provide for an adjustment also to be made if the proportion of qualifying use is reduced and exceptionally, for that item of machinery or plant, the amount written off for tax exceeds the commercial depreciation suffered by more than one million pounds. 16.Where machinery or plant is acquired from a connected person who has not claimed capital allowances, the amount on which allowances can be given is limited to the lower of the current open market value and the original cost to the connected person. Where machinery or plant, on which capital allowances have not been claimed, is brought into qualifying use without a change of ownership, capital allowances are given on the current open market value. The latter rule will be brought into line with the former, so that allowances are given on the lower of the current open market value and the original cost. Production animals 17. There are special rules, collectively known as the “herd basis”, which ensure that the keeping of production animals, such as cows or sheep, is taxed on a trading basis, using either of two alternative methods. These are applied by extra-statutory concession to shares in production animals, for instance in share farming. 18.The new rule will put the existing treatment on a firm legal basis, by extending the special rules to shares in production animals, and confirm that capital allowances, which are not given on assets taxed on a trading basis, cannot be claimed. 19.These changes will provide certainty and fairness over the taxation of production animals. As they are being made to confirm existing practice and understanding of the law, they will be treated as always having had effect. __________________________________________ NOTES FOR EDITORS Deregulation 1. The abolition of notification will benefit those businesses that routinely notify by separate notice expenditure on which machinery and plant allowances may be claimed. Practices vary, but perhaps half of all larger businesses routinely notify by separate notice, printing out the items of expenditure on which allowances may be claimed in a substantial document, which is delivered to the Tax Office. Abolition will save businesses the cost of this exercise. 2. The abolition of the separate pool for cars costing less than £12,000 will provide a modest saving in the records that need to be kept for tax by businesses with a number of such vehicles for use by employees or otherwise for use wholly in the business. Separate records will however continue to be required for cars used partly for private purposes, in order to work out the private use adjustment. 3. The new election for sale and leaseback will make it easier to finance investment through leasing where sale and leaseback is preferred for commercial reasons, with consequential savings for both lessees and lessors. The leasing industry advise that the main benefit will be in the middle ticket market, where around a quarter to a third of leases are structured in this way. 4. The other changes provide some deregulatory benefit by removing uncertainty over the rules that should be applied. 5. The two further changes to the rules for non-residents and other persons with non-taxable activities may add some costs. The first rule, which provides for an adjustment to be made where the proportion of qualifying use is reduced, will require the market value at the end of the chargeable period to be established. It will however apply only very exceptionally, as it is limited to cases where the open market value of the item of machinery or plant exceeds the tax written down value by more than one million pounds. The second rule, which limits allowances on machinery or plant that has not previously qualified for allowances to the lower of open market value and original cost, will require the original cost to be established. It also applies only rarely in practice. A main purpose of both these measures is to protect future Exchequer yield. Exchequer yield 6. These measures will have a negligible effect on Exchequer yield. Tax Law Rewrite Project 7. The Tax Law Rewrite Project is rewriting direct tax legislation to make it clearer and easier to use, but without changing its general effect. The project commands the support of all parts of the tax community. A Bill is planned to be ready for introduction in Parliament towards the end of 2000. It will rewrite the capital allowances legislation. Draft clauses were published for comments on 29 February. A draft Bill will be published in July for a final round of consultation. ___________________________________ INLAND REVENUE PRESS OFFICE Media enquiries to: 020 7438 6692/6706/7327 (Out of hours: 07860 359544) Non-media enquiries to: 020 7438 6420/6425 (Office hours only) www.inlandrevenue.gov.uk © Crown Copyright | home | budget index | budget press notices REV13 21 March 2000 TAX TREATMENT OF EXPENDITURE ON FILMS: CLARIFICATORY MEASURES Measures to ensure the continued smooth operation of the present tax relief regime for the UK film industry are to be introduced in the forthcoming Finance Bill. This is to clarify the legislation governing the tax treatment of expenditure on films, and is being done to provide certainty in a number of areas on which doubts have been expressed in the past. _____________________ DETAILS 1. Questions have been raised about the application of the legislation with respect to what rights are covered by it and whether those rights come within the definition of plant and machinery. Questions have also been asked about what income and expenditure comes within the legislation and whether tax relief is available for old films. 2. To ensure the continued smooth operation of the present tax relief regime and because the UK film industry needs certainty when dealing with the legislation it has been decided to settle these questions in a short piece of legislation in the Finance Bill. 3. The new legislation is intended simply to clarify points of doubt at the boundaries of the existing legislation. The revisions will apply from 6 April 2000 and it is intended that Statement of Practice 1/98 will be amended in due course to reflect the new legislation. ___________________________________________ NOTES FOR EDITORS 1. There are six pieces of UK tax legislation dealing with films. These are Section 68 Capital Allowances Act 1990, Sections 41, 42, and 69 Finance (No 2) Act 1992, Section 48 Finance (No 2) Act 1997 and Section 62 Finance Act 1999. 2. Section 68 deems what would normally be capital expenditure to be revenue expenditure and allows it to be written off by two methods that roughly equate to accountancy practice. The effect is that no receipts from the film are charged to tax until all the production or acquisition expenditure of the film is written off. The section applies to tapes and disks, not just films. 3. Section 41 and subsequent sections apply only to British qualifying films i.e. those certified as ‘British’ by the Department for Culture, Media and Sport. S41 allows up to 20% of production expenditure to be written off on payment or later whilst s42 allows the same expenditure to be written off by one third a year over three years. S48 improved this for British films with budgets of £15 million or less completed on or after 2 July 1997 by allowing them a 100% write off of costs. S48 originally had a three year life, but was extended by the 1999 Finance Bill to 2 July 2002. ______________________________________ INLAND REVENUE PRESS OFFICE Media enquiries to: 020 7438 6692/6706/7327 (Out of hours: 07860 359544) Non-media enquiries to: 020 7438 6420/6425 (Office hours only) www.inlandrevenue.gov.uk © Crown Copyright | home | budget index | budget press notices REV14 21 March 2000 DOUBLE TAXATION RELIEF FOR BRANCHES OF EU/EEA RESIDENTS Residents of other EU/EEA Member States may claim double taxation relief for past years in respect of the income and gains of their United Kingdom branches and agencies. United Kingdom law already allows branches or agencies of non-residents to have the benefit of double taxation relief in some circumstances. Following a decision by the European Court of Justice last September the relief will now be available more generally to branches or agencies of residents of other EU/EEA Member States, subject to the normal time limits for claiming the relief. Claims should be sent to the office which deals with the tax affairs of the branch or agency. ________________________________________ DETAILS 1. On 21 September 1999 the European Court of Justice decided in the case Compagnie de Saint-Gobain v Finanzamt Aachen-Innenstadt (Case C-307/97) that Germany could not deny the company, which was resident in France, double taxation relief in respect of the income of its permanent establishment in Germany if such relief would be allowed to a German resident. 2. United Kingdom law enables relief for foreign tax to be claimed by persons who are resident in the United Kingdom. The relief extends also to non-residents but is currently restricted to foreign tax on the interest income of the branch or agency of a non-resident bank and on the income and gains of the branch or agency of a non-resident life insurance company. For the future, as foreshadowed in a discussion paper on double taxation relief for companies published by the Inland Revenue in March 1999, the Government proposes that the relief should be extended to the income and gains of branches and agencies of non-residents generally. See today’s Budget Note entitled Double Taxation Relief for Companies. (REVBN2D) 3. As regards the past, residents of other EU/EEA Member States who have not been able to claim double taxation relief under existing United Kingdom law in respect of the income and gains of their United Kingdom branches and agencies are invited to make claims to relief, subject to the normal time limits, as if the restrictions mentioned in the previous paragraph did not apply. If the profits include dividends from other non-resident companies, relief will be available for underlying tax if all the conditions for relief that apply if a dividend is paid to a United Kingdom resident company are met as regards the dividend and the non-resident companies concerned. 4. The time limit for claiming credit relief is six years from the end of the year of assessment or accounting period concerned (except that if relief is claimed against income tax or capital gains tax for 1996/97 or later, it must be claimed on or before the 5th anniversary of the 31 January following the end of the year of assessment concerned). _______________________________________ NOTES FOR EDITORS 1. The United Kingdom may tax the profits of a branch or agency which a non-resident person has in the United Kingdom. Double taxation may occur if the profits are taxed also in another country where they arise. 2. Underlying tax is the tax paid by subsidiary companies on the profits out of which they pay dividends. ______________________________________ INLAND REVENUE PRESS OFFICE Media enquiries to: 020 7438 6692/6706/7327 (Out of hours: 07860 359544) Non-media enquiries to: 020 7438 6420/6425 (Office hours only) www.inlandrevenue.gov.uk © Crown Copyright | home | budget index | budget press notices REV15 21 March 2000 CAPITAL GAINS TAX: COUNTERING AVOIDANCE USING TRUSTS There will be a crackdown on avoidance of capital gains tax by individuals exploiting the tax rules for trusts, announced the Chancellor today. The measures proposed will · apply a charge when certain interests in trusts are sold; · stop trust losses being offset against gains of people who have bought their way into a trust; · apply a charge when trustees incur debt and advance funds from the trust as part of a scheme to avoid capital gains tax; · prevent tax avoidance effected by bringing an offshore trust onshore and taking it offshore again; · make effective the current anti-avoidance legislation where gains are sheltered through the double tier of a trust and an offshore company. This package of measures complements action announced by the Chancellor in his Pre-Budget Report to stop capital gains gifts relief being used for tax avoidance. All the measures announced today will take effect from today. _____________________________ DETAILS 1. This package of measures is designed to prevent avoidance of capital gains tax (CGT) by individuals on the sale of valuable assets using a variety of sophisticated tax avoidance schemes which exploit the tax rules for trusts. Sale of an interest in a trust 2. Any gains arising on the disposal of an interest in (as opposed to the underlying trust assets of) a UK trust are not generally chargeable to CGT. The purpose of the exemption is to prevent a double tax charge - on both the sale by the trustees of trust property and by a beneficiary of an interest in the trust. This exemption is being exploited by individuals placing assets in trusts in which they retain an interest and then selling their interest in the trust. They are effectively using the exemption to sell assets tax-free to third parties. 3. From today, where an interest in a settlement in which the settlor has an interest is disposed of for consideration, the assets to which the interest relates will be deemed to be disposed of and reacquired by the trustees at their market value. Any resulting gains will be chargeable on the settlor under the normal provisions. Gifts hold-over relief will not be available on the gains arising on this disposal. 4. This rule will also apply to any property which formed part of a settlement in which the settlor had an interest at any time in the two previous tax years. There will be rules to stop the tax charge being avoided on property added to the trust after the contract for the sale of the interest has been entered into but before the transaction is complete. The amount of tax payable by the trustees under the new rule will be recoverable from the person who sells the interest. Use of trust losses 5. Under the current rules, capital losses accruing to trustees can be used to offset their capital gains. Following changes made in last year’s Finance Act, trust losses can be used to offset gains arising outside the trust only in very limited circumstances. Schemes have been developed to circumvent these rules by enabling individuals with large potential capital gains to buy their way into trusts with actual or potential losses. The idea is that the individuals transfer the assets in question into the trust using gifts hold-over relief and then use the losses to offset the gains arising on the subsequent disposal of the assets so that no tax is paid. Very large amounts of tax could be lost if these schemes were to succeed. 6. To counter these schemes, losses accruing to trustees will no longer be available to offset gains on assets which have been transferred into the trust using gifts hold-over relief where the transferor or a connected person has acquired an interest in the trust and any consideration has passed in connection with the acquisition. The new rule takes effect for any gains accruing to trustees on or after today. Trustees in debt 7. The third element in the package is designed to counter an avoidance device which has become commonly known as a “flip flop”. This is a device for extracting gains from a trust tax-free or with a significant tax saving. At its simplest, the trustees of a trust in which a UK resident settlor has an interest (so that the settlor is charged in respect of trust gains) borrow money on the security of assets in the trust and advance the money to another trust. The settlor then severs his interest in the first trust. In the following tax year the trustees sell the assets and use the proceeds to repay the debt. The settlor receives his money from the second trust. If successful, the outcome of the device is that in the case of an offshore trust no tax is paid by the settlor. In the case of a UK trust there is a 6% tax rate saving for the higher rate taxpayer. The device can also be used to eliminate entirely the CGT liabilities of UK beneficiaries of offshore trusts who receive capital payments from trustees. 8. From today, where trustees, at a time when they are in debt, transfer funds to another person (whether by transferring or lending property) and any borrowed money has not been wholly used for normal trust purposes, the trustees will be treated as making a disposal and reacquisition of settled property. They will be deemed to dispose of the whole (or, where the amount transferred is less than the value of the chargeable assets remaining in the trust, an appropriate fraction) of those remaining assets at the time of the advance, and immediately reacquiring them at market value Gifts hold-over relief will not be available on the gains arising on this disposal. 9. There will be no deemed disposal and reacquisition if borrowed money has been wholly used for normal trust purposes, namely – · expenditure on any ordinary trust assets (or ordinary trust assets representing those assets) that are still held by the trustees after the transfer of value is made; · the repayment of any debt where the money borrowed has been wholly (or substantially wholly) used for normal trust purposes; and · the meeting of the trustees’ bona fide current expenses in administering the trust or any of the settled property. 10. For this purpose, “ordinary trust assets” are shares, securities, tangible property (whether movable or immovable), and any property used for the purposes of a trade, profession or vocation carried on by the trustees or any beneficiary with an interest in possession in the settled property. 11. The new provisions will apply to all trusts except UK trusts in which the settlor does not have an interest. A UK resident settlor will be charged in respect of the resulting gains where existing rules provide for it. Where the resulting gains accrue to offshore trustees and an amount equal to those gains is not charged on a UK resident settlor, additional rules will be provided to ensure that UK resident beneficiaries who receive capital payments are charged in respect of the gains, irrespective of the source of the payments. For this purpose, a separate pool of gains will be created which will be drawn on where any transferor or transferee trust’s normal trust gains have been exhausted. 12. These new rules will apply to transfers of value by trustees on or after today. Beneficial interests in migrating trusts 13. Special capital gains tax rules apply to resident trusts which become non resident. At the time of emigration there is · a tax charge on unrealised gains; · an uplift to market value of beneficiaries’ interests in the trust. 14. The purpose of the uplift is to prevent a potential double charge - on any increase in value prior to the trustees’ migration of both the trust property (which is charged on exit) and of a beneficiary’s interest in that property (which is charged if the beneficiary later sells the interest). 15. These rules are being exploited by offshore trusts. Having realised gains which have not been charged to tax on either the settlor or beneficiaries of the trust (“stockpiled gains”), the trusts are brought onshore and then taken offshore again. The gains on the trust property escape a tax charge because they were realised while the trust was offshore. The beneficiary pays little or no tax on the sale of an interest in the trust because of the rule providing for its value to be uplifted on the trust’s exit from the UK. There will be no uplift in the value of any beneficial interest in a trust where, on or after today, the trustees become non-resident at a time when there are “stockpiled gains” in the trust, or the trust is a “transferor or transferee trust” which, under the change outlined at paragraph 11 above, is required to draw on a separate amount of gains. There will be no change in the rules for emigrating trusts which do not have “stockpiled gains” or which are not “transferor or transferee trusts”. Trustees participating in offshore companies 16. Special tax rules to combat tax avoidance apply where a UK resident is a participator in an offshore company which is a close company (a company under the control of five or fewer participators). Broadly, where such a company sells an asset (which is not tangible property used in a trade) at a gain, the gain is attributed to participators in proportion to their interest in the company. 17. These rules are being circumvented where assets are held in an offshore company owned by a trust – usually an offshore trust - rather than held directly by the trust. If the company is resident in a country with which the UK has a tax treaty and the treaty provides for gains arising to residents of the other country to be exempt from UK tax, the UK resident settlor or beneficiaries (or trustees if resident) of the trust cannot under present rules be charged on the gains of the offshore company. In many cases, to take advantage of the exemption, valuable assets are being shifted by trustees from tax havens to countries with which the UK has a tax treaty just prior to the sale taking place. This is an abuse of the tax treaty arrangements, which were never intended to facilitate tax avoidance. 18. Legislation will be introduced to prevent this abuse by ensuring that tax treaties do not prevent gains of offshore companies being attributed to resident or non-resident trustees as participators of those companies. The new rules will apply to gains accruing on or after today. _____________________________ NOTES FOR EDITORS 1. This package of measure is designed to deal with some very complex transactions involving trusts which are being entered into by individuals to avoid paying CGT. The yield from the package, including the measure announced in the Pre-Budget Report, is estimated to be £200 million per annum. The package is also expected to protect a further £300 million of tax revenue. 2. The measure to tackle avoidance of CGT announced by the Chancellor in his Pre-Budget Report was the withdrawal from 9 November 1999 of business assets gifts relief on the transfer of shares or securities to companies. This relief was primarily being used to facilitate tax avoidance rather than for any genuine commercial purpose. The measure is detailed in an Inland Revenue Press Release IR2 of 9 November - Capital Gains Tax – Countering Avoidance. The draft legislation was published in a further Press Release on 21 January 2000. _________________________________ INLAND REVENUE PRESS OFFICE Media enquiries to: 020 7438 6692/6706/7327 (Out of hours: 07860 359544) Non-media enquiries to: 020 7438 6420/6425 (Office hours only) www.inlandrevenue.gov.uk © Crown Copyright | home | budget index | budget press notices REV16 21 March 2000 PETROLEUM REVENUE TAX MISUSE OF SAFEGUARD RELIEF Oil companies will be stopped from gaining an unfair tax advantage by delaying their claims for relief for operating expenditure they have incurred while they are benefiting from ‘safeguard’ relief. Companies will not be able to use the deferral of claims for operating expenditure incurred from today, during a period in which safeguard applies, to reduce the PRT payable in any later period. ______________________________ DETAILS 1. The operation of safeguard can mean that no PRT is payable in a chargeable period, whether or not a company has incurred any significant expenditure which would qualify for 100% relief. The company therefore derives no benefit from claiming the expenditure it has incurred while safeguard still applies. Some companies have therefore instead deferred claiming the expenditure to a subsequent period, in which safeguard no longer applies, when the claim has a direct effect in reducing its PRT payable. 2. This deferral of claims is contrary to the intention of safeguard relief. This relief was introduced as a special overriding relief, designed to ensure that, while it applies, PRT – calculated after taking account of all other reliefs and allowances – does not reduce a participator’s return on capital in any chargeable period to 15% or less. It was not intended that further benefit should be available by deferring expenditure claims so that expenditure incurred during safeguard could be claimed and allowed against profits of a later chargeable period. 3. Although deferral of expenditure claims during safeguard is not a new practice, its extent has been increasing, and significant sums of revenue are now at stake. 4. In order to ensure that the change does not impact on investment in the North Sea, it will only apply to operating expenditure. The tax benefits of deferring claims for capital expenditure will remain available. ______________________________ NOTES FOR EDITORS 1. PRT is a field-based tax, with each separate oil or gas field being assessed for tax separately. PRT is currently charged, for half-yearly periods, at 50% on the value of oil and gas produced, tariffs received and any receipts from selling assets, less the expenditure incurred developing and running the field. PRT was abolished on 16 March 1993 for fields given development consent on or after that date. 2. PRT differs from most other taxes in that expenditure relief does not reduce a company’s tax liability until the expenditure has been claimed by the company and allowed by the Inland Revenue. When the expenditure has been claimed and allowed, it reduces PRT liability for the next half-yearly assessment rather than necessarily for the period in which it was incurred. 3. The PRT regime includes a number of reliefs and allowances which are designed to ensure that the tax does not impact unfairly on smaller or more marginal oil and gas fields. ‘Safeguard’ is one of these reliefs. It allows fields to achieve a certain level of return on investment before they incur any PRT liability. This relief applies in all half-yearly chargeable periods from the first production of oil or gas until ‘payback’ (i.e. when the company’s total revenue from the field has exceeded its total expenditure there), and then for half as many periods again. When safeguard applies, profits in the period are compared with a threshold level which is 15% of cumulative capital expenditure up to payback. If profits are below the threshold, no PRT is payable. If profits are above the threshold, PRT payable is limited to 80% of the excess, if that is less than the amount of PRT payable under normal rules. 4. The total amount of tax revenue raised by this measure is approximately £200 million. Because the effect will only arise when safeguard no longer applies to the fields in question and the deferred expenditure claims are finally submitted, the immediate effect is relatively small. It is expected that £10 million tax revenue will be raised in 2001/02 and £30 million in 2002/03 (nil in 2000/01). The additional tax yield will peak in 2004/05 at £55 million. _________________________________ INLAND REVENUE PRESS OFFICE Media enquiries to: 020 7438 6692/6706/7327 (Out of hours 07860 359544) Non media enquiries to: 020 7438 6420/6425 (Office hours only) www.inlandrevenue.gov.uk © Crown Copyright | home | budget index | budget press notices HM Customs and Excise C&E 1 21 March 2000 REFORM OF BETTING DUTY Customs will consult on reforming general betting duty to enable the gambling and racing industries to flourish in the internet age. Customs will be happy to receive any proposals, but the consultation document will focus on the leading options which are: · requiring the bookmaker to account for duty based on the location of the punter placing the bet; and · basing duty on the gross profits of a bookmaking business. The challenge is to create a robust tax regime that ensures: · a fair basis for UK bookmakers to compete internationally; · a fair opportunity for horse racing to secure financial support; and · a fair contribution from the industry towards general tax revenues. There is good news for seaside towns, as the Chancellor announced that he is abolishing duty on certain types of slot machines traditionally found in seaside arcades. Duty on the type of jackpot machines found in social clubs will also be cut. Duty on the popular modern "all cash machines", particularly common in pubs and inland arcades, will go up in the light of the higher prize levels allowed for these machines under social regulation. The increase will be introduced in August 2000. However because licences are renewed annually, the impact of the increase should not be felt until next year. Overall the reforms of duty on amusement machines will be revenue neutral in a full year, with seaside arcades and social clubs benefiting to the tune of £ 5 million. __________________________________________________ DETAILS The consultation exercise on the options for reforming general betting duty will run until 30 June 2000. The Government intends to take a decision on the way forward in time for the Chancellor’s autumn Pre-Budget Report, and hopes to make any necessary legal changes in next year’s Budget. Plans announced in the PBR to modernise the ban on advertising overseas betting services in the UK are no longer necessary as a recent Court of Appeal decision confirmed the comprehensive coverage of the existing law. To date the move of some bookmakers offshore has had little impact on the general betting duty yield which is still on the increase. In 1997/98, Customs collected £462 million which increased to £480 million in 1998/99. Receipts for the first eleven months of this financial year are 3% up on the same period last year. Overall the changes to amusement machine licence duty will reduce tax revenues by £5 million in 2000/01 but will be revenue neutral in subsequent years. Casinos will also benefit to the tune of about £2 million from a second year of indexation of the gaming duty bands. _____________________________________________________ NOTES FOR EDITORS General betting duty 1. General betting duty (GBD) applies to bets placed with a bookmaker in the UK, other than at a racecourse. It is charged at a rate of 6.75% on the value of the stake. Bookmakers generally make a total deduction of 9% on bets, to cover the duty, their 1.25% contribution to the Horserace Levy, and their administrative costs. GBD contributed £480 million in revenue in 1998/99, of which around £50 million came from credit bets placed over the telephone. The Levy is paid to the Horserace Betting Levy Board (HBLB) and is used to improve horseracing through the provision of prize money, fixture fees and grants. It is payable only on betting transactions on horse racing, and in 1998/99 amounted to £57 million. 2. In May 1999, Victor Chandler International, operating from a base in Gibraltar, started offering “tax free” telephone bets to UK customers, levying a deduction of 3%. The three largest UK bookmakers have, over the last year, also moved some of their operations offshore, and some smaller offshore operators have also started targeting the UK market. Typically, these bookmakers offer nil deductions over the internet and 3% over the telephone. So far, however, there has been no significant impact on GBD revenue, which has continued to rise, with receipts 3% higher in 1999/2000 (up to February) than in 1998/99. 3. The Government does, however, recognise that the bookmakers need a duty structure that allows them to take advantage of the increasing globalisation in this industry and remain competitive within the UK. HM Customs and Excise will be consulting on options for reforming GBD. Under one option, bookmakers would account for duty on all bets placed from the UK - so those who were offshore would still have to register and pay tax here on all the bets they took from UK punters. Under another option, suggested by the bookmakers themselves, UK-based bookmakers would account for tax on the balance between bets placed and winnings paid out, so the tax would no longer appear as a separate, additional charge to the customer. 4. The consultation document, “Our Stake In The Future”, is available at http://www.hcme.gov.uk Amusement machine licence duty 5. The removal of the £645 annual licence charge on small-prize “amusement with prizes” machines (AWPs), costing 10 pence per play or less, will provide a boost to seaside arcades, and will help to support the Government’s ‘Tomorrow’s Tourism’ initiative, aimed at reviving traditional seaside resorts. 6. Help has also been provided for the non-profit making club sector in the form of a duty cut for “10 pence per play” jackpot machines. The annual charge for a licence to operate one of these machines has been reduced from £1815 to £1375. 7. All cash machines (ACMs), which can be operated only in environments which restrict entry to children, such as pubs, are able to pay out up to £15 in cash, and it is inequitable to continue to band them with small-prize AWPs. The duty on ACMs costing more than 5 pence per play has, therefore, been increased to £680 a year. Because the duty is due on licences which can be bought for up to a twelve month period the impact of the increase should not be felt by operators until next year. 8. Some minor administrative changes have been introduced regarding arrears of licence duty; the duration of summer licences; and the duty liability of certain video games. 9. Overall, these changes to the structure of the duty align the licence charge more closely to the prize levels and price per play of particular types of machine. The changes will be introduced from 5 August 2000. 10. Details for businesses are published in Budget Notice 34/2000 which is available from Customs and Excise Advice Centres and from the Customs and Excise Internet site. Gaming duty 11. Gaming duty is charged as a percentage of casinos’ “gross gaming yield” (the difference between stakes placed and winnings paid out), on the basis of a banded structure. The Government is committed to adjusting the duty bands in line with inflation, for the lifetime of this Parliament. This protects the casinos against increases in their tax liability brought about by erosion of the value of the duty bands over time. The changes laid out in the table below are effective for accounting periods beginning on or after 1 April 2000. Details: Present bands Revised bands The first £462,500 of gross gaming The first £470,500 of gross gaming yield ......2.5% yield ......2.5% The next £1,027,500 of gross The next £1,045,500 of gross gaming yield ......12.5% gaming yield ......12.5% The next £1,027,500 of gross The next £1,045,500 of gross gaming yield ......20% gaming yield ......20% The next £1,798,500 of gross The next £1,830,000 of gross gaming yield ......30% gaming yield ......30% The remainder ......40% The remainder ......40% The changes will result in an industry gain of some £2 million. 12. Details for businesses are published in Budget Notice 67/2000 which is available from Customs and Excise Advice Centres and from the Customs and Excise Internet site. Media enquiries only to HM Customs and Excise, Communications Division , New King’s Beam House, 22 Upper Ground, London SE1 9PJ. Telephone: 020 7 865 5471/5472/5872. To contact the Duty Press Officer out of hours please call (020) 7620-1313. This news release and other information about HM Customs and Excise can be found at our website: www.hmce.gov.uk This news release can also be found at : http://www.hm-treasury.gov.uk Other Treasury material can also be found at this address. © Crown Copyright | home | budget index | budget press notices HM Customs and Excise C&E 2 21 March 2000 SPIRITS DUTY FROZEN FOR THIRD YEAR RUNNING The duty on spirits has been frozen for the third year running. The duties on most other alcoholic drinks will be increased in line with inflation in order to maintain the revenue. Duty on spirits is now 35% less in real terms than it was twenty years ago. _____________________________________________ DETAILS Main Alcohol Rates The new rates take effect from 1 April 2000. The changes will have the following effect on tax (duty plus VAT): Product Effect Pint of beer +1p 75cl bottle of table wine +4p Litre bottle of still cider +1p 33cl bottle of higher strength alcopop +1p _____________________________________________ NOTES FOR EDITORS 1. This is the third consecutive freeze on spirits duty and helps both UK producers and UK exporters. 2. Tax on beer (duty plus VAT) will be increased by 1p per pint. Equivalent percentage increases have been applied to cider and most categories of wine. This is necessary to maintain the revenue. 3. There has been no increase in the beer, wine and main cider duty rates since January 1999. 4. The estimated revenue cost of this alcohol package is £25 million against an indexed base in 2001/02. The RPI impact is estimated to be 0.02%. 5. There are details for businesses in Budget Notice 38/2000 which is available from Customs and Excise Advice Centres and on the Customs and Excise website. Media enquiries only to HM Customs and Excise, Communications Division, New King’s Beam House, 22 Upper Ground, London SE1 9PJ. Telephone: 020 7 865 5471/5472/5872. To contact the Duty Press Officer out of hours please call (020) 7620-1313. This news release and other information about HM Customs and Excise can be found at our website: www.hmce.gov.uk This news release can also be found at : http://www.hm-treasury.gov.uk Other Treasury material can also be found at this address. © Crown Copyright | home | budget index | budget press notices C&E3 21 March 2000 TOBACCO INCREASES TO UNDERPIN ANTI-SMOKING STRATEGY The Chancellor has today raised tobacco taxes by 5% on top of inflation, to support the Government’s anti-smoking strategy. This will release extra resources which will be included in the extra £2 billion for the National Health Service in 2000/01. DETAILS This will put 25p onto the price of a packet of cigarettes. Smoking is the single greatest cause of preventable illness and premature death in the UK. Tobacco use is detrimental to health with significant wider social costs. Duty increases raise the price of cigarettes and tobacco which supports the Government’s strategy to reduce smoking. The Government believes that there is a strong ongoing health case for year-on-year real terms increases in the price of cigarettes and other tobacco. The tax* on tobacco is increased from 6 pm today by: 25 pence on a packet of 20 cigarettes; 8 pence on a pack of 5 small cigars; 22 pence on a 25 gram pack of hand-rolling tobacco; and 13 pence on a 25 gram pack of pipe tobacco *Tax includes duty and VAT. The duty on cigarettes has ad valorem (% of price) and specific (per cigarette) elements. Raising the specific duty by approximately 6% in real terms and maintaining the ad valorem duty at 22% increases the total duty by about 5% in real terms. The duties on all other tobacco products are wholly specific. NOTES FOR EDITORS 1. The Chancellor forms his judgements on the appropriate rates of duty taking into account a wide range of factors including the Government’s health objectives. 2. The Government is committed to reducing levels of smoking, the White Papers, “Smoking Kills” and “Saving Lives”, set out ambitious targets for reducing smoking related diseases. Further announcements will follow tomorrow on additional health spending. 3. Increasing duty rates for tobacco products supports the Government’s strategy for reducing smoking and cutting the rates of death and disease attributable to smoking. It raises the price of cigarettes and tobacco which acts as a deterrent to smoking. 4. Following this duty increase the retail price of cigarettes will have risen by 25% in real terms since May 1997. 5. The Government is fully aware of the threat that smuggling poses to this policy. Further announcements will follow tomorrow on how this will be tackled. 6. The duty on cigarettes, cigars, hand-rolling tobacco, and on other smoking tobacco and chewing tobacco will increase by approximately 5% in real terms from 6 pm today 21 March 2000. 7. The RPI impact of the changes is estimated to be +0.08%. 8. Details for businesses are available in Budget Notice 36/2000 which is available from Customs and Excise Advice Centres and from the Customs and Excise Internet site. Press enquiries only to HM Customs and Excise, Communications Division New Kings Beam House, 22 Upper Ground, London SE1 9PJ. Telephone: 020 7 865 5471/5472 Others should contact their local Excise and Inland Customs Business Advice Centre, listed under Customs and Excise in the telephone book. Customs and Excise Internet address: http://www.hmce.gov.uk This news release can also be found at : http://www.hm-treasury.gov.uk Other Treasury material can also be found at this address. © Crown Copyright | home | budget index | budget press notices HM Customs and Excise C&E 4 21 March 2000 AIR PASSENGER DUTY SLASHED FOR MOST TRAVELLERS A new fairer structure for Air Passenger Duty was announced by the Chancellor today, at a revenue cost to the Exchequer of £80 million in 2001/02. Duty on economy flights within the European Economic Area (EEA) will be halved from £10 to £5 from April next year. On top of this, there will no longer be any duty to pay on flights from airports in the Scottish Highlands and Islands. Part of the cost of these changes will be met by removing the duty exemption for return flights within the UK in order to comply with European law. After all these changes, duty on all economy flights from the UK to other parts of the EEA will be halved to £5. Duty on single flights within the UK will be halved to £5. There will be no change in duty on return flights within the UK, and even lower rates on flights from the Scottish Highlands and Islands. The standard rates for those travelling first or club class will remain at the current £10 for destinations in the EEA and will rise to £40 to other destinations. These changes will make the duty fairer by bringing the rate of duty more in line with the cost of travel. The changes will come into effect from 1 April 2001, to allow airlines and tour operators plenty of time to adjust their marketing and pricing strategies to the new structure. _____________________________________________ DETAILS The changes announced today will: * introduce new reduced rates of duty for economy fares of £5 for flights to EEA countries and £20 to other countries. The standard rates will be £10 for flights to EEA countries and £40 to other countries. This structure will make the duty fairer; * exempt from duty flights from airports in the Scottish Highlands and Islands. This exemption has been introduced in recognition of the remoteness of this region and its dependence on air travel as part of everyday life; and * remove the exemption from duty for the return leg of a flight within the UK. This exemption, introduced under the last Government, must be removed to ensure compliance with European Treaty obligations. ________________________________________________ NOTES FOR EDITORS 1. At present, air passenger duty is payable by airlines on the number of passengers on board a plane on departure from a UK airport. The rate is £10 per head if the flight is a domestic one or to a destination within the EEA or £20 where the destination is elsewhere. 2. On return flights within the UK, there is an exemption from duty for the return leg. However, that exemption has been found to be incompatible with European law, and, in order to comply with European Treaty obligations, the Government has had to amend domestic law. 3. Air passenger duty receipts for the year 1998/99 were £837 million. 4. Details for businesses are available in Budget Notice 49/2000 which is available from Customs and Excise Advice Centres and from the Customs and Excise Internet site. Press enquiries only to HM Customs and Excise, Communications Division, New King’s Beam House, 22 Upper Ground, London SE1 9PJ. Telephone: 020 7 865 5471/5472. Others should contact the Aviation Sector Centre of Expertise on 01895 842226 (fax: 01895 814305). Customs and Excise Internet address: http://www.hmce.gov.uk This news release can also be found at : http://www.hm-treasury.gov.uk Other Treasury material can also be found at this address. © Crown Copyright | home | budget index | budget press notices HM Customs and Excise C&E 5 21 March 2000 TACKLING THE ENVIRONMENTAL COSTS OF QUARRYING A new levy to tackle the environmental costs of quarrying and encourage the use of recycled materials was announced by the Chancellor today. All of the revenues will be returned to business through a cut in employer NICs and a new Sustainability Fund to deliver environmental benefits to the local communities affected by quarrying. There will be no net gain to the Exchequer from this reform. The Government will be consulting on how the new Sustainability Fund can best be used to deliver local environmental benefits. _________________________ NOTES TO EDITORS 1. DETR commissioned research has shown that there are significant local environmental costs associated with the extraction and transport of aggregates, including noise, dust, vibration, loss of biodiversity and amenity and visual intrusion. But it is not just local communities who suffer. There is also evidence of wider public concern over the environmental impact of quarrying in protected areas such as national parks. The research found that the average environmental cost associated with the extraction and transport of aggregates was around £1.80 per tonne. 2. The Government is taking a cautious approach by introducing the levy at a lower rate than that justified by the research and by giving firms two years to plan for its introduction. 3. The levy will apply at a rate of £1.60 per tonne to sand, gravel and crushed rock extracted in the UK or its territorial waters. To protect international competitiveness, the tax will be levied on imports but exports will be exempt. Recycled aggregates will also not be subject to the levy. The levy will raise around £380 million per year. The levy will be administered by Customs and Excise and will take effect from 1 April 2002 4. The levy will not apply to other quarried or mined products, such as: * coal; * clay, shale and slate; * metals and metal ores; * gemstones or semi-precious stones; and * industrial minerals. 5. Blocks of stone ("dimension stone"), used for example for paving, facing or repairing buildings, will be outside the scope of the levy. Limestone used for the production of lime or cement will be exempt from the levy whilst limestone and silica sand used in prescribed industrial or agricultural processes (such as glass making or fertiliser manufacture) will be relieved. 6. In the 1998 Budget, the Chancellor announced that Customs and Excise would consult with the industry on how a potential aggregates levy might work. Customs issued a consultation document on 15 June 1998 inviting views on the design and operation of a levy on aggregates. Around 200 responses were received from all sectors of the aggregates industry and others potentially affected (glass, construction, ceramics etc); environmental groups and local authorities. In April 1999, the draft legislation was exposed to the trade, along with the consultation summary, for further comment. Responses, in the main, sought clarification on points of detail concerning liability issues. No fundamental concerns were expressed about the overall shape of the levy. The November 1999 Pre Budget Report announced that the Government was minded to introduce a tax in Budget 2000. 7. Customs will continue to work very closely with the industry on the detail of the levy and to ensure that any burdens and compliance costs are kept to an absolute minimum. A regulatory impact assessment (RIA) has been made of these measures. It sets out the risks, costs and benefits of the proposals, analyses who will be affected and explains why non-regulatory action would be insufficient. Copies of the RIA are available from: Environmental Tax Team, HM Treasury, Treasury chambers, Parliament Street, London SW1P 3AG Press enquiries only to HM Customs and Excise, Communications Division, New King's Beam House, 22 Upper Ground, London, SE1 9PJ. Telephone: 020 7 865 5471/5472 Other enquiries on the structure of the tax to HM Customs and Excise, Aggregates Tax Team, Ralli Quays, 3 Stanley Street, Salford. M60 9LA. Telephone 0161 827 0906 or 0913. Any enquiries specifically on the research undertaken into the environmental impact of aggregates extraction to Department of Environment, Transport and Regions, Minerals and Waste Planning Division, 4th Floor, Eland House, Bressenden Place, London SW1E 5DU. Telephone 0171 890 3865 Customs and Excise Internet address: http://www.hmce.gov.uk This news release can also be found at : http://www.hm-treasury.gov.uk. Other Treasury material can also be found at this address. © Crown Copyright | home | budget index | budget press notices HM Customs and Excise C&E 6 21 March 2000 GOOD NEWS FOR ALL HOUSEHOLDERS - VAT SLASHED ON ENERGY SAVING A cut in the rate of VAT on energy saving materials will make it cheaper for all people to insulate their homes, the Chancellor announced today. The cut comes as part of a social policy aimed at reducing winter deaths and ill health caused by cold homes and will make an important contribution to encouraging energy efficiency in the domestic sector. The cut, from 17.5 per cent to 5 per cent, will apply to all insulation, draught stripping, hot water and central heating system controls that people pay to have fitted in their homes. It will also apply to the installation of solar panels, which can make an important contribution to energy saving. Pensioners will also benefit from safer and warmer homes with a cut in VAT to 5 per cent for the installation of central heating and home security systems funded from new Government grants. ____________________________ DETAILS Reduced VAT rate for the installation of energy saving materials in all homes From 1 April, VAT on the installation of energy saving materials (including solar panels) in all homes will be 5%. This is the lowest VAT rate allowed under our EU agreements. Reduced VAT rate for grant funded central heating systems and home security goods In a joined up initiative, Customs, DETR and the Home Office have been working together to ensure a better deal for pensioners and the less well-off. The current reduced VAT rate of 5% for the installation of energy saving materials will be extended to cover the installation, maintenance and repair of central heating systems and the installation of home security goods in the homes of less well-off pensioners; and the installation of heating measures in the homes of the less well-off, where these are funded by Government grants. Together, these measures will cost approximately £35 million in 2000/01. _______________________________ NOTES FOR EDITORS 1. The UK has a disproportionately high level of winter deaths compared to other countries of continental Europe and Scandinavia. Research shows that cold homes are linked to winter deaths and ill health. The Government is, therefore, widening the reduced VAT rate to cover installation of energy saving materials in all homes in order to reap the widest benefit in health terms. 2. Installation of “energy saving materials” in all homes will include:- insulation for walls, floors, ceilings, roofs or lofts or for plumbing fittings; draught stripping for windows and doors; hot water and central heating system controls; and solar panels. 3. On 1 July 1998, the Government introduced a reduced VAT rate of 5% for the installation of energy saving materials funded by a government grant scheme (such as the Home Energy Efficiency System, or HEES). This reduced rate for installations in the homes of pensioners and the less well off is being extended to keep it in line with the new government grant scheme - New HEES. New HEES will fund the installation of central heating in the homes of pensioners, and the installation of heating system measures in the homes of the less well off. 4. In order to underpin the Home Office initiative on making pensioners’ homes more secure, the reduced rate will also apply to home security goods installed at the same time as central heating in the homes of less well-off pensioners. Home security goods include locks and bolts for windows, locks bolts and security chains for doors, spy holes and smoke alarms. 5. Grant funded installations of “heating system measures” include:- gas room heaters with thermostatic controls; gas fires with back boilers; electric storage heaters; closed solid fuel fire cassettes; electric dual immersion water heaters with foam insulated water tanks; and gas boilers and radiators. 6. The reduced rate does not apply to purchases for DIY installation. 7. Details for businesses are in Budget Notice 39/2000. This is available from Customs & Excise Business Advice Centres and from the Customs & Excise Internet site. Press enquiries only to HM Customs and Excise, Communications Division, New King’s Beam House, 22 Upper Ground, London SE1 9PJ. Telephone: 020 7 865 5471/5472. Others should contact their local VAT Business Advice Centre, listed under Customs and Excise in the telephone book. Customs and Excise Internet address: http://www.hmce.gov.uk This news release can also be found at : http://www.hm-treasury.gov.uk. Other Treasury material can also be found at this address. © Crown Copyright | home | budget index | budget press notices HM Customs and Excise C&E7 21 March 2000 VAT CUT FOR WOMEN’S SANITARY PRODUCTS To make the tax system fairer for women, VAT on women’s sanitary products will be cut to 5% from 1 January 2001, Paymaster General Dawn Primarolo announced today. Ms Primarolo said: “Today’s measure shows the Government’s willingness to listen to the views and concerns of women throughout the country. This is not a luxury consumer product. This is about fairness, and doing what we can to lower the cost of a necessity. Our action today sends a signal to women that we will continue to work towards equality in the tax system, the workplace and in society as a whole ” _______________________________________________ DETAILS In order to give businesses time to adjust their pricing structure, and retailers time to adapt their accounting systems, the reduced rate will be implemented from 1 January 2001. Customs are consulting trade groups to establish a clear and workable definition of those sanitary products which will be taxed at the reduced rate. __________________________________________________ NOTES FOR EDITORS 1. Women’s sanitary protection is currently taxed for VAT purposes at the standard rate of 17.5%. 2. European law allows sanitary products to be taxed at a reduced rate. The UK has agreed with its European partners not to extend its zero rates beyond those in place on 31 December 1975. Therefore, it is not possible to reduce the rate of VAT on sanitary products to zero. 3. The reduced rate of 5% applies currently to domestic fuel and power, and the installation of energy saving materials in the UK. 4. The measure will cost £35 million per year. Press enquiries only to HM Customs and Excise, Communications Division, New King’s Beam House, 22 Upper Ground, London SE1 9PJ. Telephone: 020 7 865 5471/5472. Others should contact their local VAT Business Advice Centre, listed under Customs and Excise in the telephone book. Customs and Excise Internet address: http://www.hmce.gov.uk This news release can also be found at : http://www.hm-treasury.gov.uk. Other Treasury material can also be found at this address. © Crown Copyright | home | budget index | budget press notices