Budget 2004 Summary

This guide is summary of measures described in the 2004 budget. Where available links have been provided for more detailed information.

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General

VAT

Future Considerations

General provisions

• Personal Allowance - increases from £4615 to £4,745
• Married couple's allowance for people aged under 75 - £5,725
• Capital gains tax annual exempt amount (individuals) -increased from £7900 to £8,200 (most trustees) £4,100
• Inheritance Tax Threshold - increased from £255,000 to £263,000
• Pension schemes earnings cap - £102,000
• Income tax: taxable bands
• Starting rate: (10 per cent) £0 - £2,020
• Basic rate: (22 per cent) £2,020 - £31,400
• Higher rate: (40 per cent) over £31,400
• NICs
• Lower earnings limit, primary Class 1 - £79 p/wk
• Upper earnings limit, primary Class 1 - £610 p/wk
• Employees' primary Class 1 rate - 11% of £91.01 to £610 per week. 1% above £610 per week
• Class 2 rate increased from £2.00 to £2.05 per week
• Class 4 lower profits limit - £4,745 per year
• Class 4 upper profits limit - £31,720 per year

Miscellaneous business provisions

• VAT registration threshold £58,000- 1 April ( CE 5/04 )
• VAT Annual Accounting and Cash Accounting Schemes increased to £660,000 ( CE 6/04 ) ( CE 7/04 )
• European Company Statute tax measures( Rev BN 8 )
• Company Car Tax - 6 April 2006 ( Rev BN 41 )
• Company Car Fuel Tax - 6 April 2004 ( Rev BN 41 )
• Employer Provided Vans - 6 April 2005 ( Rev BN 42 )
• Enterprise Management Incentives: Qualifying Subsidiaries Rule( Rev BN 11 )

Dividends Tax - 1 April 2004

• profits that are distributed from a company to an individual will be subject to a minimum of 19% corporation tax, although the zero-rate band of £10000 will be applied on retained profit remaining.

Section 419 of the Income and Corporation Taxes Act

• This is an anti-avoidance provision that applies a notional tax rate of 25 per cent to loans made to directors of close companies under specific circumstances.

Newly incorporated business - Finance Bill 2004

• Disclose of basic tax information - Inland Revenue Form CT41 G , legislation will be brought forward in Finance Bill 2004 to make completion of this form compulsory.
• First Year Allowances for Small Enterprises rises to 50 per cent ( Rev BN 38 )

Jointly owned assets - 6 April 2004

• To ensure that married couples will be taxed on dividends from jointly owned shares in close companies according to their actual ownership of the shares. ( Rev BN 22 ) This will not apply to income from jointly owned shares in non-close companies or to other assets in joint names such as rental property.

• Corporation tax avoidance schemes involving companies operating through partnerships.
• The changes ensure that taxable profits wrapped up in untaxed increases to a company's share in a partnership are charged properly to corporation tax.

Accrued Income Scheme

• The Government will be consulting stakeholders on how to make the Accrued Income Scheme (AIS) simpler and easier.

Reform of corporation tax - Draft legislation taken forward

• Management Expenses: relief for the expenses of managing investments will be available to companies with investment business, whether or not they qualify as investment companies; ( Rev BN 24 )
• Transfer Pricing: the scope of transfer pricing and thin capitalisation rules will be amended to include wholly domestic transactions but exclude most domestic or cross border transactions undertaken by small or medium sized enterprises. ( Rev BN 17 )

• Corporation tax avoidance schemes involving companies operating through partnerships.
  ( Rev BN 23 )
• Stamp Duty Land Tax partnership property including an interest in land, brought within the scope of Stamp Duty Land Tax (SDLT). ( Rev BN 15 )

Venture capital schemes ( Rev BN 10 )

• Measures to modernise the venture capital schemes include:
• Venture Capital Trusts (VCTs) increase in rate of income tax relief from 20 per cent to 40 per cent;
• an increase to the annual investment limit for VCTs and Enterprise Investment Schemes to £200,000; and
• changes to the operation of the schemes to introduce greater flexibility and better reflect commercial realities.

Disclosure Requirements ( Rev BN 28 )

• This will require those who devise and market avoidance schemes to provide the Inland Revenue with details of these schemes.

Employer Supported Childcare

Employees will be able to receive up to £50 a week of childcare tax and National Insurance free where their employers contract with an approved child-carer or provide childcare vouchers for the purpose of paying an approved child-carer. ( Rev BN 16 )

Value Added Tax

Avoidance schemes:

A register of VAT abusive avoidance schemes will be published:

• A business with an annual turnover of £600,000 or more will be required to disclose use of these schemes to Customs and Excise. ( CE 1/04 ) Failure to disclose will result in a penalty of 15% of the tax avoided.
• Businesses with an annual turnover of £10 million or more will also be required to disclose details of VAT schemes and arrangements that meet certain criteria. There is a flat rate penalty of £5000.

Grouping - 1 August 2004 . ( CE 2/04 )

• The measure will change the rules for VAT group eligibility and is aimed at stopping abusive arrangements where a jointly owned entity is able to join a VAT group, even though it is run by and for the benefit of an external third party(i.e. one that is privately owned) .

Avoidance on commercial buildings - 18 March 2004 ( CE 30/04 )

• Legislation blocking VAT avoidance scheme relating to land and buildings.

Demonstrator cars - In place from Royal Assent ( CE 8/04 )

Tackling underpayments of VAT on the private use of demonstrator cars.

Research & development (R&D) tax credits ( Rev BN 6 )

• New guidelines defining R&D will have effect for company accounting periods ending on or after 1 April 2004 .
  wider range of costs will also qualify for the R&D tax credit.
• Qualifying costs now include expenditure on software, power, fuel and water.
• The R&D schemes will also be modified to prevent any change in the timing of the R&D relief from companies' adoption of International Accounting Schemes.
• The Inland Revenue will continue to focus on implementation of the tax credits by producing improved guidance in support of the R&D tax credits in advance of the 2004 Pre-Budget Report, after which it will embark upon a programme to improve delivery of the credit.
• It also plans to issue regular information on R&D tax credits in its publication of National Statistics.
• Business Regulation Team (Cabinet Office Regulatory Impact Unit)
• Plans to establish new industry/cross-government forums on policy and regulation development for the construction, chemicals and retail sectors.
• Review of the operation of the adjudication and payment provisions in the Housing G rants, Construction and Regeneration Act 1996

Future Considerations

Income of self-employed and owner/managers - 2004 Pre-Budget Report.

• The Government proposes to consider the issues raised by the interaction with the tax system of definitions of income of self-employment, and the remuneration paid to owner-managers.

Working Tax Credit

• Consulting on the implementation of phasing out payment via employers.

Panel for Regulatory Accountability

• This will be required to clear all new regulatory proposals likely to impose a major burden on business in the context of the overall burden of regulation and based on thorough impact assessments approved by the Cabinet Office;
• There will be a commitment to push for a clear work programme at the Spring Council for the EU Four Presidencies Initiative. The UK has today provided a list of priority areas for regulatory simplification to the Commission;
• A formal consultation with businesses in April about the feasibility of extending common commencement dates to further areas of regulation and tax;
• A commitment to work with business to reduce the burden of inspection and the overlap between enforcement regimes; and
• Progress on ongoing work to tackle deregulation in specific sectors - financial services, construction, retail and chemicals.

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