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TaxationWeb by Mark McLaughlin ATII TEP

This article summarises some of the main changes brought by the Chancellor in the 2003/04 Budget.BUDGET HIGHLIGHTS - Budgets these days are arguably not the major event that they used to be. This may be because, in addition to the Budget, there is also a Pre-Budget report towards the end of the year for the following year. In addition, the Government can (and does) make changes to the tax system during the year. Many changes for 2003/04 and subsequent years were already known (e.g. NIC increases, plus the new Tax Credits system), and so Budget 'highlights' are more difficult to find. However, some of the main changes are summarised below.

Further information can be downloaded from the Budget section of the Inland Revenue website:
http://www.inlandrevenue.gov.uk/budget2003/index.htm

For Budget commentary affecting VAT, see the VATease Budget Newsletter.

CAPITAL GAINS TAX (CGT) – The rules to determine whether the CGT pages of self-assessment tax returns need to be completed will be relaxed from 2003/04 onwards. Individuals will not normally need to fill them in if total chargeable gains (after taper relief) does not exceed the annual exemption, unless either non-exempt disposal proceeds exceed four times that amount, or they have allowable losses to offset against their gains for that year. Similar rules will apply to trustees and personal representatives;

CHILD TRUST FUND (CTF) - Children born from September 2002 will benefit from an initial endowment at birth of £250, rising to £500 for the poorest families. Additional contributions by parents, family members, friends etc of up to £1,000 per annum will also be possible. The fund will be accessible when the child reaches 18 years of age;

CGT TAPER RELIEF - Business asset taper relief is to be made available in respect of property (and other business assets) let to or used by unincorporated businesses, i.e. sole traders and partnerships. Properties let to certain trading companies can already qualify as business assets for taper relief purposes, in appropriate circumstances;

100% CAPITAL ALLOWANCES (I) - 100% first year Capital Allowances on information and communications technology (e.g. computers) acquired by small businesses will be available for a further year, until 31 March 2004 (originally the 100% relief was only available until 31 March 2003);

100% CAPITAL ALLOWANCES (II) – 100% ‘Enhanced Capital Allowances’ (ECAs) will be available to all businesses investing in designated water efficient technologies made on or after 1 April 2003;

EMPLOYEES WORKING FROM HOME – From 6 April 2003, an employer may contribute up to £2 per week (£104 per year) towards the additional household costs of an employee working from home, without a tax (or NIC) liability. Up to this level, supporting evidence will not be required of the costs the employee has incurred;

EMPLOYEES – An employee who receives a non-cash gift from a third party will be able to receive gifts of up to £250 in value (increased from £150), without having to pay any tax thereon;

EMPLOYERS (I) – Christmas (or other annual celebrations) paid for by employers and generally open to employees will be tax-exempt if the cost is not more than £150 per head (increased from £75 per head).

EMPLOYERS (II) - The tax-free limit for long service awards (not in cash) by employers to employees is increased, from £20 to £50 for each qualifying year of service, after a qualifying minimum of 20 years’ service with the employer;

FOSTER CARERS – A new tax relief is introduced for foster carers from 6 April 2003. Foster carers whose gross receipts from foster care do not exceed an ‘individual limit’ in a year will be exempt from tax on their foster care income. If this individual limit is exceeded, foster carers can choose a simplified method of calculating their profits, as an alternative to calculating profits under the normal rules;

INHERITANCE TAX (IHT) – For 2003/04, the IHT threshold (the ‘nil rate band’) is increased from £250,000 to £255,000;

IR35 – The ‘personal services’ (IR35) rules are being extended from 10 April 2003 to include domestic workers (e.g. nannies and butlers) who provide their services through a personal services company or other intermediary

NATIONAL MINIMUM WAGE (NMW) – The NMW for adult workers aged 22 or over increases from £4.20 to £4.50 per hour from October 2003. The NMW rate for workers aged between 18 and 21 and those in training also increases, to £3.80 per hour;

RESEARCH AND DEVELOPMENT (R&D) TAX CREDITS – Improvements to the R&D tax credit system are being introduced for all companies, in some cases from 9 April 2003. The minimum R&D expenditure threshold is being reduced from £25,000 to £10,000 in an accounting period;

STAMP DUTY (I) – From December 2003 (subject to further consultation), the existing Stamp Duty rates applying to leases will be replaced with a single 1% charge on the total value of rental payments. A new exemption for all commercial transfers under £150,000 will also be introduced;

STAMP DUTY (II) – From 1 December 2003, Stamp Duty will be abolished on transactions involving property other than land, shares and interests in partnerships (e.g. book debts and other receivables);