[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