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Wehave highlighted key changes below.

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For tables of rates and allowances for 2004/05 and 2003/04 click here

KEY CHANGES

COMPANIES / EMPLOYERS

GOOD NEWS

• Small & medium size companies are to be exempted from the changes to Transfer Pricing Rules
• Clarification of the definition of R&D may enable more companies to benefit from this tax relief
• The increase in thresholds for UK companies to qualify as small or medium has resulted in an increase in the number of companies who can claim 40% rate of first year allowances on plant expenditure and 100% on information and communication technology expenditure
• Audit exemption will be available to all companies satisfying the new small company criteria

BAD NEWS

• Proposals are to be made for action in Budget 2004 to increase the tax paid by owner managers of small incorporated businesses on the profits extracted by way of dividend

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• Further changes to the corporation tax system are still expected over the next few years

INDIVIDUALS

GOOD NEWS

• No change was made to the taxation of company vans
• Personal allowance is to be increased

BAD NEWS

• Childcare vouchers in excess of £50 per week will be subject to NIC. These had previously been completely exempt from NIC

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• It is still the belief of many tax consultants that changes will eventually be made to the taxation of company vans

MORE DETAILS

COMPANIES / EMPLOYERS

National insurance

No increase in the rates of national insurance have been announced but the earnings levels have increased slightly.

 Corporation tax rates

No changes in corporation tax rates have been announced.

Small & medium size company thresholds

The Department of Trade and Industry will be laying regulations shortly and it is expected that they will come into force in January 2004. The following increased thresholds will apply for accounting periods ending on or after the date the regulations come into force.

	Turnover (Not more than)	Balance sheet (Not more than)	Number of employees (Not more than)
Small	£5.6 million	£2.8 million	50
Medium	£22.8 million	£11.4 million	250

Capital allowances

The new thresholds for small and medium size companies will apply to capital allowances and mean that first year allowances of 40% on plant expenditure will be available to a much larger number of companies, as will the 100% first year allowance on information and communication technology, which can be claimed only by small companies.

Audit exemption

Audit exemption is to be applied to all “small” companies as defined above.  Previously only companies with a turnover less than £1,000,000 could utilise the audit exemption rule.  It is expected that this will come into force in January 2004.

R&D tax credits

In July 2003 the Inland Revenue published a consultation document aimed at clarifying a number of areas related to R&D.  As a result subjective terms such as ‘innovation’ and ‘novelty’ are replaced with a more objective test based on an ‘advance in science or technology’

The Inland Revenue is to publish further guidance once the definitional aspects have been agreed.

Small owner managed businesses

The Chancellor has expressed his desire “to ensure that the right amount of tax is paid by owner managers of small incorporated businesses on the profits extracted from their company, and so protect the benefits of low tax rates for the majority of small businesses”.

No further information was given on this point but it is expected that tax increases will be announced in the Budget 2004.

INDIVIDUALS

Income tax

The starting rate, basic rate and higher rate are unchanged on the previous year.

Personal allowances

The tax free allowance for all individuals has increased slightly.

Employer provided childcare

The Chancellor announced that the following new measures, which are restricted to ‘approved’ childcare are to be implemented in April 2005.

• The first £50 per week of any childcare vouchers provided to an employee will be tax and NIC free. Any  vouchers in excess of £50 will be taxable and liable to NIC.
• Where an employer supports any type of approved childcare then the first £50 per week per employee is exempt from tax and NIC. This is provided that the childcare support is contracted by the employer and is generally available to all employees.
• The current exemption for workplace nurseries will continue to apply.

Chargeable gains

The Chancellor announced that new measures were to be introduced to change the capital gains tax rules with immediate effect in relation to gift relief. The main purpose of the changes are to prevent gifts being made to trusts under which the settlor or their spouse enjoy an interest.  The new rules will deny relief for disposals to a trust on or after 10 December 2003.  There are also provisions to claw back holdover relief where a gift is made to a trust which subsequently becomes a settlor trust.

Employer provided vans

At present there is a benefit on employees, who take their vans home, of £500 and no fuel benefit even if private mileage is paid for by the employer.  The government is intending to reform these rules and it is expected that in future years the benefit will be based on emissions, as with company cars.  A consultation document will be issued in due course.

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