Inland Revenue 8
17 March 1998
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CORPORATION TAX RATES:
A FURTHER REDUCTION FROM APRIL 1999
A one per cent cut in corporation tax rates announced by the
Chancellor today will benefit around 400,000 companies,
enabling them to retain more of their profits for investment
and growth.
This reduction, which follows a two per cent cut in last
summer's Budget, ensures that the United Kingdom's main rate
of corporation tax remains the lowest among major
industrialised countries.
The change will take effect from 1 April 1999.
DETAILS
1. The main rate of corporation tax remains at 31 per cent
for the year beginning 1 April 1998. The small companies'
rate (which applies to companies with taxable profits of up
to 300,000 pounds) remains at 21 per cent.
2. These rates will be reduced to 30 per cent and 20 per
cent respectively for the year beginning 1 April 1999. For
the largest companies, liable to corporation tax at the main
rate, the reduction will ease the transition to quarterly
instalment payments of corporation tax, which is being
introduced from 1999 as part of the Government's initiative
to modernise the company tax regime. Details are contained in
press release Inland Revenue 9.
3. The UK's main rate of corporation tax remains the lowest
among major industrialised countries. And within the European
Union, the UK has the most generous combination of a low rate
and a high profits limit for small companies with profits up
to 300,000 pounds.
4. There will be no change for either financial year in the
lower or upper profits limits, which establish whether a
company is eligible for the small companies' rate or for
marginal relief. This relief tapers out the benefit of the
small companies' rate. The profits limits are 300,000 pounds
and 1,500,000 pounds.
NOTES FOR EDITORS
1. The main rate of corporation tax is paid by companies with
taxable profits of 1,500,000 pounds or more. Approximately 10
per cent of companies which pay corporation tax do so at the
main rate, contributing around 85 per cent of the total
yield.
2. Companies with taxable profits of up to 300,000 pounds pay
corporation tax at the small companies' rate. Around 85 per
cent of tax paying companies are charged at this rate.
3. For companies with profits in the band lying between the
lower and upper profits limits, the average rate of tax
increases gradually from the small companies' rate to the
main rate as profits increase. A statutory formula reduces
the tax charged at the main rate by a fraction of the amount
by which 1,500,000 pounds exceeds the profits. The fraction
for the financial year 1997 was set by the Finance Act 1997
at one fortieth and remains unaltered for the financial years
1998 and 1999.
4. Of the around 700,000 companies within the charge to
corporation tax, about 400,000 actually have corporation tax
to pay after taking into account reliefs etc.
5. The estimated effects of the changes on corporation tax
receipts are as follows:
Measure Exchequer cost (-million pounds)
1999-2000 2000-2001 2001-2002 2002-2003
Reduction
in main rate - -700 -1,000 -1,100
Reduction
in small
companies'
rate - -80 -120 -120
6. The full cost of the cut in the small companies' rate
will not feed through until the year 2001-2002 because such
companies do not pay corporation tax until a full nine months
after the end of their accounting periods (and will continue
to do so after 1999). For large companies liable at the main
rate, the switch to quarterly instalment payments of
corporation tax from 1999 will gradually be phased in over
four years (Inland Revenue 9).
7. These latest reductions follow the 2 per cent reductions
in the main and small companies' rates in last summer's
Budget (backdated to 1 April 1997).
INLAND REVENUE PRESS OFFICE
Media enquiries to: 0171 438 6692/6706/7327