A modern system for Corporation Tax payments

 

A modern system for Corporation Tax payments

A Consultative Document

Representations would be welcome on the matters discussed in this consultative document.

They should be sent to:

Alex Plant
Inland Revenue
Company Tax Division
Room S95, West Wing
Somerset House
Strand
LONDON
WC2R 1LB.

They should reach him by Friday, 30 January 1998.

Contents

1. Introduction

2. Outline of the proposed changes

3. Advance corporation tax

4. Quarterly instalments

5. Existing quarterly accounting arrangements

6. Taxation of shareholders' dividends

7. Simplification

8. International comparisons

9. Revenue effects


1. Introduction

1.1. This consultative document invites comments on proposed changes to modernise the system for corporation tax payments by companies (References to companies in this consultative document include authorised unit trusts and UK open-ended investment companies) that were announced by the Chancellor of the Exchequer in his pre-Budget report today.

1.2. The Government has authorised the issue of this consultative document to give companies early information about the proposed changes, particularly the introduction of quarterly instalment payments of corporation tax by large and medium-sized companies. It will help companies to assess the likely impact on them and to start preparing for the proposed changes. And, by covering the key issues together with some important second order points, the consultative document will:

  • provide a framework to inform the consultation process;
  • better enable companies and others to make representations, and to suggest ways of dealing with other second order points and more minor issues; and
  • give time for the Inland Revenue to consult with business on the details of how payment of corporation tax by quarterly instalments will work, which will help minimise administrative costs.

1.3. As a result, Ministers will be better placed to take the decisions required to complete the new system for companies' corporation tax payments, and to fine tune the framework set out in this consultative document should that prove to be necessary.

1.4. Representations on the proposed changes would be welcome. They should be sent to:

Alex Plant
Inland Revenue
Company Tax Division
Room S95
West Wing
Somerset House
Strand
LONDON
WC2R 1LB.

They should reach him by Friday, 30 January 1998.

2. Outline of the proposed changes

2.1. Advance corporation tax (ACT) is to be abolished from 6 April 1999.

2.2. From 1999, large companies will start to pay their corporation tax in four equal quarterly instalments on the basis of anticipated current year liabilities. Quarterly instalments will start in month 7, so two of them will be in-year. Medium-sized companies will pay half their corporation tax in instalments on the same basis as for large companies, and the other half as now. Small companies will not have to pay any of their corporation tax by instalments.

2.3. The change to quarterly instalment payments of corporation tax by large and medium-sized companies will begin at the same time as self assessment for companies is introduced, which means it will affect accounting periods ending on or after 1 July 1999. It will be phased in over a four-year transition period. And it will be accompanied by a 1 per cent cut, to 30 per cent, in the main rate of corporation tax from 1 April 1999.

2.4. The scheme under which companies have to account quarterly for income tax on gilt interest they receive gross will be scrapped from 1 April 1999.

2.5. There will be no further change in the way shareholders' dividends are to be taxed from 1999. Dividends will still carry tax credits, at a rate of 10 per cent from 6 April 1999, which shareholders will continue to be able to set off against their liability to tax on dividends. Companies (other than financial traders) will not generally have to pay corporation tax themselves on dividends they receive from other UK companies.

2.6. The changes will considerably simplify the company tax regime. Companies will be able to take a whole range of business decisions without having to worry about ACT and, more particularly, surplus ACT. Many companies have already said they would welcome this.

2.7. The change to quarterly instalment payments of corporation tax by large and medium-sized companies will bring the United Kingdom into line with other major industrial countries, which already require companies to pay their corporation tax bills in instalments.

3. ACT

Accounting for ACT

3.1. A UK company currently has to account for ACT if it pays dividends or makes other qualifying distributions. No ACT will be due on dividends paid or other qualifying distributions made on or after 6 April 1999.

3.2. The abolition of ACT will:

  • do away with the need for companies to make group income elections so that they can pay dividends to their parent companies without having to account for ACT; and
  • enable the tax rules covering payments representative of dividends (manufactured dividends) to be simplified from 1999.

Future surplus ACT

3.3. Scrapping ACT means that there will be no further build up of surplus ACT from 1999. So there will in no sense be double taxation of profits earned overseas when they are distributed by a UK company. Accordingly there will be no need for:

  • a successor to the foreign income dividend (FID) scheme when it is abolished in 1999, because the problem in respect of which FIDs were a partial solution will simply disappear; or
  • special rules to enable international holding companies to pay dividends out of foreign income without accounting for ACT, since ACT will not apply to any of their dividends from 6 April 1999, just as for other UK companies.

Past surplus ACT

3.4. The Government is committed to dealing fairly with surplus ACT built up by companies in the period up to 1999, which it is estimated will amount to about £7 billion. Companies' existing expectations as regards past surplus ACT will substantially be preserved, no more and no less. This will be achieved through a system of shadow ACT.

3.5. Shadow ACT does not mean any companies will have to pay ACT after it has been abolished in 1999. It will be used solely to limit the recovery by companies of past surplus ACT once ACT has been scrapped. It will only affect companies with past surplus ACT as at 1999, and only until they have utilised it.

3.6. Shadow ACT will work by:

  • retaining the existing limit on the set off of ACT, which allows companies to use ACT to meet the corporation tax bill on up to 20 per cent of their profits;
  • prescribing that the space for relieving ACT would first have to be filled by shadow ACT, computed at the same rate as now (without of course allowing that shadow ACT to result in any reduction in the corporation tax due); and
  • restricting the set off of past surplus ACT (which would lead to a real reduction in the corporation tax bill) to any space that remained after shadow ACT had used some or all of it up.

3.7. Some of the existing ACT rules will have to be retained to cater for shadow ACT. But there will be some scope for pruning them without increasing significantly the Exchequer cost associated with the recovery by companies of past surplus ACT.

4. Quarterly instalments

Categories of company

4.1. Before getting on to the detail of quarterly instalments it is necessary to define what is meant by large, medium-sized and small companies. This is because they are affected differently by the proposed change.

The definitions below are based on the existing rules which are used to determine whether companies qualify for the small companies' rate of corporation tax or for marginal small companies relief. Thus in each case:

  • the definition is by reference to a particular accounting period;
  • the reference to tax profits includes income from dividends paid and other qualifying distributions made by other UK companies, except where the other companies paying the dividends are in the same group as the recipient; and
  • where there are associated companies, the limits shown are reduced to the figures found by dividing those limits by one plus the number of associates (The existing concession under which some associates are disregarded in computing the limits for the small companies' rate and for marginal small companies relief will apply for this purpose); and
  • the limits will change if the Chancellor decides in future Budgets to alter the limits for the small companies' rate and the associated marginal relief.

4.3. Large companies are those whose tax profits are at least £1.5 million a year. They will generally pay corporation tax at the main rate.

4.4. Medium-sized companies have tax profits of between £0.3 million and £1.5 million per annum. In most cases they pay corporation tax at the main rate, but receive marginal small companies relief which reduces the effective rate of corporation tax.

4.5. Small companies are companies with tax profits of up to £0.3 million a year. They usually pay corporation tax at the small companies' rate. They will not have to pay any of their corporation tax by quarterly instalments, so the rest of the material in this section of the consultative document does not concern them.

Pattern of quarterly instalments
- after the transition

4.6. Once the transition to quarterly instalments has been completed, and for a twelve month accounting period:

  • large companies will pay their corporation tax in four equal instalments, in months 7, 10, 13 and 16 following the start of their accounting periods; and
  • medium-sized ones will pay half their corporation tax in instalments (to the same pattern as for large companies) and the other half, as now for mainstream corporation tax, nine months after the end of their accounting periods.

4.7. It is envisaged that corporation tax will be paid six months and 14 days from the start of the accounting period, then nine months and 14 days from the beginning and so on. For companies whose accounts end on quarter dates, this will align their quarterly instalments with the dates on which they currently have to pay ACT and will continue to account for income tax deducted by them from payments of interest etc (Schedule 16 amounts). Most companies that are faced with both sorts of tax liability will benefit from this. And it may be possible in due course to alter the rules fixing the dates on which companies have to pay Schedule 16 amounts so they are aligned with quarterly instalments of corporation tax for all companies.

4.8. Where a large company has a short accounting period after the transition:

  • the last quarterly instalment will be three and a half months from the end of the accounting period; and
  • if (but only if) they fall on earlier dates, there will be more instalments, up to a maximum of four, at three monthly intervals starting six and a half months from the start of the accounting period.

4.9. The same pattern of instalments will apply to medium-sized companies with short accounting periods.

- getting there

4.10. The Government does not expect companies to move to quarterly instalments in one go, because some would then have to pay close on two years tax in one year. To avoid that, there will be a four-year transition in which the proportion of their corporation tax paid by quarterly instalments will gradually increase. And the main rate of corporation tax will be reduced by 1% to 30% from 1 April 1999.

4.11. It is envisaged that large companies will pay:

  • 60% of their corporation tax by four equal instalments for accounting periods ending in year 1 of the transition, with the remaining 40% following nine months from the end of their accounting periods (when all their mainstream corporation tax is paid currently);
  • 72% through quarterly instalments for year 2, leaving 28% to follow nine months after the end of their accounting periods;
  • 88% of their corporation tax being paid by instalments for year 3, with 12% following nine months from the end of their accounting periods; and
  • 100% being paid by instalments for year 4, thus completing the transition.

4.12. Medium-sized companies would follow the same pattern, but with the amount paid by instalments halved (to 30% for year 1, followed by 36% for year 2 and 44% for year 3 then 50% for year 4).

4.13. For example, a large company with a 31 December year end would pay:

  • 15% of its corporation tax for 1999 (after the set off of ACT paid for the first part of 1999) in each of July and October 1999 and January and April 2000, with the other 40% due in October 2000;
  • 18% of its bill for 2000 in July and October 2000 and January and April 2001; leaving 28% for payment in October 2001;
  • 22% of its corporation tax for 2001 in July and October 2001 and January and April 2002, with the other 12% due in October 2002; and
  • 25% of its corporation tax for 2002 would be due in each of July and October 2002 and January and April 2003.
  • 4.14.

4.1.4. By way of further illustration, a medium-sized company, also with a 31 December year end, would have to make the following payments:

  • 7.5% of its corporation tax for 1999 (after the set off of ACT paid for the first part of 1999) in each of July and October 1999 and January and April 2000, with the other 70% due in October 2000;
  • 9% of its bill for 2000 in July and October 2000 and January and April 2001; leaving 64% for payment in October 2001;
  • 11% of its corporation tax for 2001 in July and October 2001 and January and April 2002, with the other 56% due in October 2002; and
  • 12.5% of its corporation tax for 2002 would be due in each of July and October 2002 and January and April 2003, together with 50% in October 2003.

- starting out

4.15. The change to quarterly instalment payments of corporation tax by large and medium-sized companies will begin at the same time as self assessment for companies is introduced. The appointed day for self assessment is to be 1 July 1999. This means that the transition to quarterly instalments will start with accounting periods ending on or after that date.

4.16. Companies might be tempted to delay their commencement of quarterly instalments, or to obtain excessive benefit from the transition (by, for example, arranging that more than one year's corporation tax liability was subject to 15% instalments in year 1). In the absence of counteraction they could do so by:

  • changing their accounting periods; and/or
  • transferring profitable activities to companies in the same group but with different accounting dates.

4.17. This is not acceptable. It might be sufficient to counter it by providing for a just and reasonable adjustment, in the shape of (additional) interest payable to the Exchequer, where there is a change to accounting periods or the intra-group transfer of profitable activities between companies with different accounting periods. The latter could be subject to a de minimis limit to avoid excessive record keeping.

Computing quarterly instalments
- working out tax payments

4.18. Companies will not generally have to pay any corporation tax by instalments until they are at least six months in to their accounting periods. This is later than is required in some other countries. And it means that it is feasible to expect companies to compute their quarterly instalments by reference to their anticipated net corporation tax liability for the relevant accounting period. The legislation will probably achieve this by amending the due dates for payment of corporation tax.

4.19. The amount of each quarterly instalment will be worked out by:

  • ascertaining the anticipated corporation tax liability (CT) for the accounting period, net of all reliefs and set offs (such as for income tax suffered by deduction);
  • working out 3 x CT/n, where n is the number of months in the accounting period;
  • allocating the smaller of that amount and CT to the first quarterly instalment; and
  • carrying on doing that for later quarterly instalments until the total amount so allocated is equal to CT.

4.20. This will give four equal quarterly instalments for twelve month accounting periods. It will also make it easier for companies to cope with accounting periods which end earlier than anticipated when the first or second quarterly instalments for them were paid. This is because, assuming corporation tax profits are generated at the same rate throughout the accounting period, the first and second quarterly instalments for, say, an eight month accounting period will be exactly the same as for a twelve month one. So in these circumstances a switch to a shorter accounting period will not of itself entail a need to recompute quarterly instalment payments that have already been made.

4.21. It will not be necessary to pay corporation tax by instalments if the net corporation tax liability is below a nominal amount, say £5,000. This will avoid companies in large groups having to make quarterly instalment payments of small liabilities. It will have the same effect for companies with a lot of dividend income but negligible corporation tax liabilities.

- consequences of getting it wrong

4.22. It is recognised that the use of anticipated net corporation tax liabilities means that the compliance regime for quarterly instalments should be operated with a relatively light touch. This regime will rely principally on the charging of interest on late payment to ensure companies work out their payments right, correct any mistakes quickly and respond speedily to changed circumstances (such as an increase in the number of associated companies during the accounting period). Thus:

  • companies will normally be able to have back any quarterly instalment payments already made if they later conclude they ought not to have been made (which will avoid any risk of forcing a company into liquidation by hanging on to tax payments that turn out not to be due on account, say, of an unexpected slide into loss); and
  • companies will get interest on any overpayments of corporation tax by instalments, from the later of when they arise and the date the first quarterly instalment is due for the relevant accounting period (which will save the need to allocate later payments to particular instalments to work out interest), up to the date of repayment or reallocation.

4.23. As is the case with the existing CT Pay and File regime:

  • interest on tax paid late will be set at a rate higher than that applying to repayment interest (which both follows commercial practice and reflects the fact that the Inland Revenue is not a bank);
  • interest paid by companies will not attract any tax relief and any repayment interest paid to companies will not be taxable (with this being taken into account in setting the rates of interest); and
  • groups of companies will be able to minimise their exposure to interest on tax paid late by surrendering overpayments between group members.

4.24. Interest on tax paid late and repayment interest will first be worked out when the company files its tax return including its computation of its corporation tax liability for the accounting period in question (or, in the absence of a tax return by the filing deadline, when a determination of its corporation tax liability is made). The amount of interest due from or payable to the company will have to be re-worked if its corporation tax liability changes subsequently (or when its tax return containing its self-assessment supersedes an earlier determination of its corporation tax liability).

4.25. A penalty will only be chargeable if a company deliberately and flagrantly fails to make an instalment payment, or an instalment payment of sufficient size, when it should have done so. It is anticipated that no more than a handful of such instances will arise each year. But the residual penalty is needed to guard against the possibility of a company reporting high profits and a high UK corporation tax charge but refusing to make adequate instalment payments.

Banking arrangements

4.26. It will be for companies themselves to identify that they need to make quarterly instalment payments of corporation tax, and to make them. The legislation will put the onus on them to do so.

4.27. In an endeavour to assist companies, those thought likely to fall into the large or medium-sized categories for their first accounting periods ending on or after 1 July 1999 will be issued with a reminder before their first quarterly instalment falls due. After that, companies making instalment payments will be issued with further reminders to cover later instalments.

4.28. To reduce paper handling and cut costs for both companies and the Inland Revenue, there is a case for encouraging companies to pay their quarterly instalments payments of corporation tax by inexpensive electronic payment methods. This could perhaps be done by charging interest from the date when cleared funds are obtained, the point being that electronic payment methods give same day assurance on cleared funds, but cheques do not. In such circumstances companies would be advised what details (such as reference, bank account and sort code) needed to be quoted when making payment electronically.

Filing of tax returns

4.29. There will be no change to the dates on which companies have to file their tax returns.

5. Existing quarterly accounting arrangements

5.1. There are some existing quarterly accounting arrangements for companies which require them to pay tax other than ACT or enable them to reclaim tax before they file their tax returns.

Quarterly accounting for gilt interest

5.2. Quarterly accounting for gilt interest (QAGI) was introduced when the last Government allowed gross payment of gilt interest. It collects income tax quarterly on gilt interest received by companies, and so maintains the previous Exchequer cash flow. Payment by larger companies of corporation tax by quarterly instalments will mean that QAGI is no longer needed. It will therefore be abolished for all companies, and for Lloyd's syndicates, with effect from 1 April 1999.

Quarterly repayments to insurance companies

5.3. Insurance companies and friendly societies are able to make quarterly claims for provisional repayment of income tax suffered by deduction on receipts attributable to their pension business. It is not intended to change this, but the arrangements will be adapted to fit with those for the payment by larger companies of corporation tax by quarterly instalments.

6. Taxation of shareholders' dividends

6.1. The way in which shareholders' dividends and other qualifying distributions they receive are taxed from 1999 will be as set out in the 2 July 1997 Inland Revenue news release entitled "Companies and their shareholders: tax changes to promote investment by companies". The changes announced in that news release are reflected in legislation which forms part of Finance (No 2) Act 1997. There will be no significant further changes as a result of the abolition of ACT.

6.2. This means that, from 6 April 1999, the rate of tax credits will still be halved to 10 per cent, and tax credits will no longer be payable to shareholders with no tax liability. Some other features of the tax regime for shareholders from 1999 are highlighted below for the convenience of readers.

UK individual shareholders

6.3. Individual shareholders whose income is within the lower or basic rate bands will be liable to tax at 10 per cent on their dividend income. So the tax credit will continue to satisfy their tax liability on UK dividends.

6.4. The higher rate on dividend income will be reduced to 32.5 per cent. This will compensate for the reduction in the rate of tax credits to 10 per cent.

6.5. The treatment of shares held in Individual Savings Accounts will be the subject of separate consultation.

UK company shareholders

6.6. UK companies receiving dividend income (and other distributions) from another UK company will generally not have to pay corporation tax themselves on that income. In other words, despite the abolition of ACT, it will be treated in essentially the same way as it is now. The existing exception for financial traders will be maintained.

Overseas shareholders

6.7. Most overseas shareholders will either cease to be able to obtain payment of tax credits or see the amount payable fall to less than 1 per cent of the dividends.

7. Simplification

Tax legislation

7.1. A number of companies and other bodies have already said that the abolition of ACT and its replacement by quarterly instalment payments of corporation tax by large and, to an extent, medium-sized companies will greatly simplify the company tax regime.

7.2. This is clearly the case. For example:

  • companies will not need to concern themselves with the rules governing the collection of ACT, which currently occupy ten pages of legislation;
  • international holding companies will not require their own special tax regime, the maintenance of which would have required at least five pages of legislation; and
  • the legislation covering quarterly accounting for gilt interest (QAGI) takes up 60 pages, including nine sets of regulations.

Business decisions

7.3. ACT currently distorts the tax system. For some companies surplus ACT effectively entails the double taxation of their overseas profits when they pay dividends out of them, not just payment in advance of corporation tax when dividends are paid. FIDs were the previous way of addressing that problem. But the Exchequer cost of FIDs would have escalated once payable tax credits were abolished. And FIDs added yet more complexity into the tax system, on top of already complicated ACT rules. The proposed changes will provide a simpler, permanent solution to the problem of surplus ACT.

7.4. The abolition of ACT will mean that companies can take decisions about investments and dividends without worrying about future surplus ACT. It will enable them to adopt the balance sheet structures which they think make most business sense without worrying about ACT. Many companies have already said they would welcome this.

8. International comparisons

Summary

8.1. Most other major industrial countries already have company tax regimes which require companies to pay their tax bills in instalments.

8.2. Overseas company tax payment systems are in many cases stricter than the one to be introduced in the UK. In particular:

  • although smaller companies are normally subject to less onerous requirements to pay their corporate tax bills by instalments, other countries often use much tighter definitions of what counts as small, and so bring within instalments companies which will be let off that requirement in the UK;
  • outside the UK it is common for companies to have to pay a very high proportion of their likely corporate tax bill for the year in-year, starting very early on in that year; and
  • other countries tend to require companies to file their tax returns very shortly after their year ends, so any balancing payment of corporate tax follows quickly.

8.3. The following examples illustrate this, and give other details of the company tax payment systems applicable in some other industrial countries. Obviously it is not possible to cover every circumstance or eventuality in what are no more than high level summaries.

Australia

8.4. Australia treats a company with a likely tax bill of over AUS$300,000 (£125,000) as large, together with grouped companies with smaller liabilities. That definition more than equates to the large and medium-sized categories to be adopted in the UK. Australia requires those companies to:

  • pay their corporate tax in four equal quarterly instalments starting in month 9;
  • base their instalment payments on their current year liabilities; and
  • file their tax returns by the date of the final instalment payment, which will be in month 18.

Canada

8.5. In Canada, only companies with estimated tax liabilities of less than CAN$1,000 (£400) are exempt from instalments. Companies covered by its instalments regime have to:

  • pay their corporation tax in monthly instalments, starting in month 1;
  • base their instalment payments on their current or (mainly) previous year liabilities, with any balance being due two months after the end of their accounting periods; and
  • file their tax returns not later than six months from the end of the tax year.

France

8.6. The French company tax payments system exempts from instalments companies whose previous year corporate tax liability is less than FFr1,000 (£100). Where companies are covered by the instalments regime they have to:

  • make equal payments on account of their corporate tax liabilities on 15 March, 15 June, 15 September and 15 December;
  • ensure that the total of those payments on account equals one-third of their previous year liabilities (with an option to switch to a current year basis in some circumstances);
  • pay the balance due by three and a half months from the end of their accounting periods; and
  • file their tax returns by three months from their year ends.

Germany

8.7. Germany also has a company tax payment system which involves instalments. The German tax year is the calendar year, so if a company has a period of accounts other than a calendar year, corporate tax is assessed on the income for the period of accounts ending in a particular calendar year.

8.8. Companies have to:

  • make instalment payments on 10 March, 10 June, 10 September and 10 December, regardless of their periods of accounts;
  • pay 25% of their previous year liabilities on each instalment date (with an option to switch to a current year basis in some circumstances), with the balance due for the current year payable within a month from its assessment; and
  • file their tax returns by 31 May in the year following the tax year.

Japan

8.9. Companies in Japan have to make instalment payments if their estimated half yearly liabilities exceed Yen100,000 (£500).

8.10. Where a company is subject to instalments under the Japanese company tax payment system, it must:

  • make an interim payment equal to 50% of its previous year liability or 100% of its estimated liability for the first half of its current year by the end of month 8;
  • pay the balance of its corporate tax liability by the end of month 14; and
  • file its tax return within two months of its year end.

United States

8.11. The United States has a company tax payment system which involves in-year instalments. It defines a large company as one which has had tax income of at least US$1 million (£0.6 million) in any of the three tax years preceding the one concerned.

8.12. Companies that count as large are required to:

  • pay their corporate tax in four equal instalments in months 4, 6, 9 and 12;
  • base their instalment payments on their current year liabilities (or, in the case only of the first instalment, previous year liabilities); and
  • file their tax returns within, in practice, eight and a half months from the end of the fiscal year.

9. Revenue effects

Headlines

9.1. The estimated effects of the proposed changes on tax receipts are provided below to assist with the framing of representations.

table

9.2. Inevitably, the numbers shown are subject to wide margins of error because of the many uncertainties inherent in predicting the future baseline (that is, the Exchequer yield without further changes to the tax regime) and the impact of the proposed changes.

9.3. It will be seen that:

  • advancing the timing of large and medium-sized companies' corporation tax payments produces a short term cash flow benefit to the Exchequer in the four main years (that is, 1999-00 to 2002-03) during which quarterly payments of corporation tax will be phased in;
  • after the transition, the annual impact is an Exchequer cost of about £2 billion a year, principally because the yield from quarterly payments is more than offset by:
  • the cost of a 1 per cent cut to 30 per cent in the main rate of corporation tax; and
  • the loss of future surplus ACT.

Cut in the main rate of corporation tax

9.4. The effect of a 1 per cent cut to 30 per cent in the main rate of corporation tax from 1 April 1999 is shown before any adjustment to the timing of corporation tax payments.

Effect of quarterly payments and the loss of surplus ACT

9.5. There are three components to the yield from introducing quarterly payments of corporation tax for large and medium-sized companies:

  • the transitional impact of bringing forward the dates when companies pay their (previously mainstream) corporation tax bills and subsuming previous ACT (excluding any surplus ACT) payments in quarterly instalments;
  • after the transition, the permanent cash flow benefit to the Exchequer of getting corporation tax in sooner, which arises because, taking one year with another, corporation tax liabilities are expected to rise as a result of growth and inflation; and
  • the impact on receipts of possible changes in taxpayer behaviour as a result of the proposed changes in the company tax payment system.

9.6. The proposed changes mean that companies will no longer pay ACT that becomes surplus. The Exchequer cost of this is expected to average about £1 billion a year after taking account of the abolition of FIDs in April 1999 and expected changes in company distribution policy. This cost will mainly be in respect of structural surplus ACT which would have arisen on the distribution by international companies of overseas income on which foreign tax had already been paid.

Abolition of QAGI

9.7. The abolition of QAGI from 1 April 1999 will mainly result in a one-off Exchequer loss, because QAGI receipts due in 1999-00 will generally be deferred to the next financial year.

25 November 1997

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