The Chancellor’s recent Pre-Budget
Report included two important business measures.
Firstly a starting rate of corporation
tax of 0% was introduced in 2002 and applies to companies
with taxable profits of £10,000 or less. Companies
with profits between £10,000 and £50,000 currently
enjoy a marginal relief from the small companies’
rate of 19%.
In 2004, the government thought the
system was being ‘abused’ and introduced a
‘non-corporate distribution rate’ of 19% on
companies to the extent that profits were distributed.
The result has been a complex system
and the government has therefore decided to replace the
non-corporate distribution and zero rates with a new single
banding set at the current small companies' rate of 19%.
Many will welcome the abolition of
a complex system but it does mean that all small companies
will pay corporation tax at 19% whether or not profits
are retained or distributed.
Secondly, changes were made in March
2005 which require income to be recognised as a ‘contract
for services’ progresses, and before an invoice
has been raised. This will mean that many businesses,
including accountants and other businesses who work under
service contracts, will be recognising income before an
invoice has been issued to a customer and therefore before
payment has been received.
Legislation will be introduced in Finance
Bill 2006 to allow businesses to spread any additional
tax charged as a result over three (or in some cases six)
years. This is a most welcome response to lobbying by
the professional bodies. Talk to us if you feel your business
may be affected by these changes.
Internet Link:
The Press Notices and other related
documents can be found at:
Pre-Budget
Report notices
