Some Highlights of the Recent Pre-budget Report
January 2006
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.
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
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