BUSINESS TAX AND

INVESTMENT INCENTIVES

CORPORATION TAX

Corporation tax rates and bands are as follows:

ANTI AVOIDANCE

The Chancellor closed with effect from today two tax loopholes being exploited by multinational companies. The first measure is in relation to Controlled Foreign Companies (CFCs) that have used UK dividends to satisfy their Acceptable Distribution Policy (ADP). Dividends that a CFC pays to the UK will no longer count towards satisfying the ADP if they are paid out of UK dividends, which do not count toward computing the chargeable profits of the CFC.

Secondly, the use of complex schemes whereby multinational companies have secured tax advantages by draining value from subsidiaries, via tax free dividend payments, and have then sold these subsidiaries to offshore group members before onward sales to third parties have been closed from today.

In the past there has been confusion over the taxation treatment of reverse premiums i.e. inducements by landlords to potential tenants. Sums payable under agreements made on or after Budget day will be subject to tax in all cases.

The Chancellor said that the general anti-avoidance rule (GAAR) for corporate direct taxes remained an option for the future, but that the Government would not be proceeding with a GAAR in this Budget.

ASSISTANCE FOR SMALL COMPANIES AND BUSINESSES

The Chancellor announced four new measures to assist small business, the most significant being a reduction in the corporation tax burden on small and growing companies. A new 10 per cent starting rate for corporation tax will take effect from 1 April 2000 and will apply to companies with taxable profits of up to £10,000. For companies with taxable profits between £10,000 and £50,000 there will be a scaled increase up to the small companies rate, which will start at £50,000. The 10 per cent rate will not apply to close investment holding companies.

Small employers can currently pay their PAYE and NIC quarterly if the average monthly total is less than £600: with effect from 6 April 1999 this limit is increased to £1,000. The Chancellor also announced the launch of a new Small Business Service (SB S), which will provide independent business advice, and help with statutory compliance matters including a new payroll service, to make it easier for employers to comply with PAYE and NIC regulations. The SBS will be run as a joint venture with Customs and Excise and will also promote the use of IT by small businesses including electronic filing of statutory returns, which will attract a discount. Full details are to be announced.

A new tax credit on research and development by small and medium sized enterprises will be introduced in 2000: no details are available at present.