■ From 1 April 2000 a new starting rate of corporation tax at 10% has been introduced. This lower rate will apply to small companies whose profits do not exceed £10,000. Companies with profits between £10,000 and £50,000 will qualify for marginal relief. The profits falling within these limits will effectively be taxed at 22.5%.
■ The rate of 20% applicable to small companies where profits do not exceed £300,000 and the 30% rate applicable to large companies continue to apply for the forthcoming year.
■ The much debated personal service companies provisions announced in last year's Budget come into effect from 6 April 2000. The tax legislation relevant to these businesses will not however be enacted until later in the year. The National Insurance enabling legislation has already been enacted in the Welfare Reform and Pensions Act.
As mentioned above, the profit cut off point and commencement point for small and large companies will remain at £300,000 and £1,500,000 respectively. Companies with profits between these two amounts will continue to qualify for marginal relief which means that profits between £300,000 and £1,500,000 will effectively bear tax at 32.5%.
While the above changes were originally announced in the 1999 Budget, further changes to corporate taxation were announced by the Chancellor in his 2000 Budget. These include the following:
Further improvements to the Corporate Venturing Scheme (to be introduced from 1 April 2000) which 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.
The ability from 1 April 2000 for companies to transfer assets on a tax neutral basis in a wider range of circumstances than before
Ability to claim interest relief on certain loans ("ratchet loans") with interest rates linked to profits (with effect from 21 March 2000)
Simpler procedures on matching gains and losses within a group
Reduction of the rate of interest on underpayments of corporation tax under the quarterly instalment arrangement (to one point above the base rate, down from two)
An increase in the de minimis limit which exempts companies from the quarterly payment requirement – at present a company is exempt (regardless of its level of profits) if the total tax liability is £5,000 or less. This is to increase to £10,000 for accounting periods ending on or after 1 July 2000.
The Chancellor also announced that the Government is to consult on the possibility of introducing a rollover relief for gains on substantial shareholdings held by companies.
As a reminder, payment of corporation tax in instalments applies for accounting periods ending on or after 1 July 1999 but only applies to companies with profits in excess of £1,500,000. The change is being phased in over a four year period.