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BUDGET: INLAND REVENUE RATES AND ALLOWANCES FOR 2003-04

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Rates and allowances for income tax, corporation tax, capital gains ...
Rates and allowances for income tax, corporation tax, capital gains

tax, inheritance tax, stamp taxes, national insurance contributions

and the pension schemes earnings cap are set out below.

(READ IN 3 COLUMNS)

2002-03 (£) 2003-04 (£) Increase (£)

Income tax allowances

Personal allowance 4,615 4,615 0

Personal allowance for people aged 65-74 6,100 6,610 510

Personal allowance for people aged 75 and over 6,370 6,720 350

Income limit for age-related allowances 17,900 18,300 400

Married couple's allowance for people born

before 6 April 1935 5,465 5,565 100

Married couple's allowance - aged 75 or more 5,535 5,635 100

Minimum amount of married couple's allowance 2,110 2,150 40

Blind person's allowance 1,480 1,510 30

Capital gains tax annual exempt amount:

Individuals etc: 7,700 7,900 200

Other trustees: 3,850 3,950 100

Inheritance tax threshold 250,000 255,000 5,000

Pension schemes earnings cap 97,200 99,000 1,800

Taxable bands 2002-03 (£)

Starting rate 10 per cent 0 - 1,920

Basic rate 22 per cent 1,921 - 29,900

Higher rate 40 per cent Over 29,900

Taxable bands 2003-04 (£)

Starting rate 10 per cent 0-1,960

Basic rate 22 per cent 1,961-30,500

Higher rate 40 per cent Over 30,500

Corporation tax profits 2002-03 (£)

Starting rate zero 0 - 10,000

Marginal relief 10,001 - 50,000

Small companies' rate 19 per cent 50,001 - 300,000

Marginal relief 300,001 - 1,500,000

Main rate 30 per cent 1,500,001 or more

Corporation tax profits 2003-04 (£)

Starting rate zero 0 - 10,000

Marginal relief 10,001 - 50,000

Small companies' rate 19 per cent 50,001 - 300,000

Marginal relief 300,001 - 1,500,000

Main rate 30 per cent 1,500,001 or more

The main rate of corporation tax for 2004-05 will be 30 per cent.

National insurance contributions

Rates previously announced in Budget 2002 and 2002 Pre-Budget Report

It em/2003-04

Lower earnings limit, primary Class 1 £77 per week

Upper earnings limit, primary Class 1 £595 per week

Primary threshold £89 per week

Secondary threshold £89 per week

Employees' primary Class 1 rate 11% of £89.01 to £595 per week

1% above £595 per week

Employees' contracted-out rebate 1.6 per cent

Married women's reduced rate 4.85% of £89.01 to £595 per week

1% above £595 per week

Employers' secondary Class 1 rate 12.8% above £89 per week

Employers' contracted-out rebate, salary-related schemes

3.5 per cent

Employers' contracted-out rebate, money-purchase schemes

1.0 per cent

Class 2 rate £2.00 per week

Class 2 small earnings exception £4,095 per year

Special Class 2 rate for share fishermen £2.65 per week

Special Class 2 rate for volunteer development workers

£3.85 per week

Class 3 rate £6.95 per week

Class 4 lower profits limit £4,615 per year

Class 4 upper profits limit £30,940 per year

Class 4 rate 8% of £4,615 to £30,940 per year

1% above £30,940 per year

Stamp taxes from Budget day to 30 November 2003

Transfers of property (consideration paid)

(READ IN 3 COLUMNS)

Rate (%)

All property

Disadvantaged areas / Residential / Non-residential

Zero £0-60,000 £0-150,000 All

1 Over £60,000-250,000 Over £150,000-250,000

3 Over £250,000-500,000 Over £250,000-£500,000

4 Over £500,000 Over £500,000

New leases (lease duty)

Duty on rent

Term / Rate of charge on average annual rent

Not exceeding 7 years 1 per cent *

More than 7 years but not exceeding 35 years 2 per cent

More than 35 years but not exceeding 100 years 12 per cent

More than 100 years 24 per cent

* applies only where the rent exceeds £5,000 per annum

Duty on premium is the same as for transfers of property (except

special rule s apply for premium where rent exceeds £600 annually)

Stamp taxes from 1 December 2003

(implementation of stamp duty land tax)

Transfers of property (consideration paid)

(READ IN 4 COLUMNS)

Rate (%)

All land in the UK - Residential/Non-residential

Land in disadvantaged areas - Residential/Non-residential

Zero £60,000 £150,000 £150,000 All

1 Over £60,000-250,000 Over £150,000-250,000 Over £150,000-250,000

3 Over £250,000-500,000 Over £250,000-500,000 Over £250,000-£500,000

4 Over £500,000 Over £500,000 Over £500,000

Property that is not land, shares or interests in partnerships will

no longer be subject to stamp duty.

New leases

Proposed duty on rent*

Rate (%) / Net present value of rent - Residential - Non-residential

Zero £0-£60,000 £0-£150,000

1% Over £60,000 Over £150,000

* Subject to consultation

Duty on premium is the same as for transfers of land (except special

rules apply for premium where rent exceeds £600 annually).

The rate of stamp duty / stamp duty reserve tax on the transfer of

shares and securities is unchanged at 0.5 per cent for 2003-04.

NOTES FOR EDITORS

Income tax rates and allowances

The Chancellor has today announced that, for 2003-04, the income tax

bands will increase by indexation and that there will be no change in

income tax rates.

As announced in Budget 2002, for 2003-04, the income tax personal

allowance for those aged under 65 will be frozen. The personal

allowance for those aged 65-74 will be increased above inflation to

£6,610, and for those aged 75 or over it will be increased to £6,720.

This means that no one 65 or over will pay tax unless their income

reaches £127 per week. Other allowances will be increased by

indexation.

The rate of tax applicable to savings income in section 1A, ICTA

1988, o ther than dividends, is 20 per cent for income falling between

the starting rate and basic rate limits. The rates of tax applicable

to dividends are 10 per cent for income below the basic rate limit

and 32.5 per cent above it.

The rate of relief for the continuing married couple's allowance and

maintenance relief for people born before 6 April 1935 is 10 per

cent.

National insurance contributions

National insurance (NIC) rates and thresholds for 2003-04 were

announced in Budget 2002 and the 2002 Pre Budget Report. The primary

and secondary thresholds will be frozen, along with the rate of Class

2 contributions. Other national insurance limits have been increased

in line with inflation.

Employers will pay 1 per cent more NICs on earnings above the

secondary threshold. All employees will pay an additional 1 per cent

on their earnings above the primary threshold up to the upper

earnings limit. They will also pay NICs at 1 per cent on earnings

above the upper earnings limit. This one per cent increase is purely

to fund extra resources for the NHS.

The self-employed will pay an additional 1 per cent Class 4

contributions on their profits or gains between the lower profits

limit and upper profits limit. They will also pay Class 4 NICs at 1

per cent on all profits or gains above the upper profits limit.

Capital gains tax (CGT)

The annual exempt amount is set at £7,900 for the tax year 2003-04

for individuals, personal representatives of deceased persons,

trustees of certain settlements for the disabled, and £3,950 for most

other trustees. For individuals, the amount chargeable to CGT is

added to the income liable to income tax and is treated as the top

part of that total. CGT is charged at the following rates: below the

starting rate limit at 10 per cent, between the starting rate limit

and basic rate limit at 20 per cent, and above the basic rate limit

at 40 per cent.

Rates for tr usts

The rate applicable to trusts remains unchanged at 34 per cent for

2003-04 and the Schedule F trust rate remains unchanged at 25 per

cent.

Inheritance tax

The value of estates above the threshold is taxed at 40 per cent. The

threshold is being increased by statutory indexation to £255,000 for

taxable transfers in 2003 - 04. The estimated number of taxpaying

estates in 2003-04 will be about 29,500. This is around 5 in 100

deaths.

Pension schemes earnings cap

The main effect of the cap is to set a ceiling on the contributions

that can be paid to, and the benefits that can be paid by, tax

approved pension schemes. It generally applies to people who

contribute to a personal pension scheme, joined an occupational

scheme set up since 14 March 1989, or joined any occupational scheme

from 1 June 1989 that was set up before 14 March 1989. From 6 April

2001 the cap applied to people who contribute to stakeholder pension

schemes. For 2003-04 the cap is increased to £99,000.

Corporation tax

The corporation tax main rate is 30 per cent. The small companies'

rate is 19 per cent for companies with taxable profits between

£50,000 and £300,000 and the starting rate is zero for companies with

taxable profits of £10,000 or below.

Marginal relief eases the transition from the starting rate to the

small companies' rate for companies with profits between £10,000 and

£50,000. The fraction used in the calculation of this marginal relief

will be 19/400. Marginal relief also applies to companies with

profits between £300,000 and £1,500,000. The fraction used in the

calculation of this marginal relief will be 11/400.

The profits limits may be reduced for a company that is part of a

group or has associated companies. The lower rates and marginal

reliefs do not apply to close investment holding companies.

Stamp taxes

>From midnight on Budget day sta mp duty on non-residential land and

buildings is removed altogether in around 2000 disadvantaged areas.

People investing in residential land and buildings in disadvantaged

areas will continue to benefit from an exemption from stamp duty

where the consideration does not exceed £150,000. The Inland Revenue

is today publishing a Statement of Practice on the definition of

residential property for the purposes of this relief.

Currently, stamp duty on leases (often called 'lease duty') is

calculated by reference to the average annual rent. From 1 December

2003 (the implementation of stamp duty land tax), the proposed charge

is to be based on the net present value (NPV) of all the rental

payments due over the term of the lease.

FAIRNESS IN TAXATION - PROTECTING TAX REVENUES

A package of reforms to tackle tax fraud and avoidance was unveiled

in Budget 2003 today. The reforms will produce additional revenue,

deliver significant savings and ensure that the burden of tax does

not fall unfairly on taxpayers who play by the rules.

Central to today's reform is the launch of a new compliance and

enforcement package for direct tax and national insurance

contributions (NICs). The package involves investment of £66 million

over the next three years, and is expected to produce at least an

additional revenue totalling £1.6 billion over the same period. The

package is the first step in a new strategic approach for Inland

Revenue compliance work, and is part of the Government's ongoing

commitment to create a modern and fair tax system. The additional

resources will be deployed in three areas:

- protecting the Exchequer from non-payment of tax and NICs debts and

from failure to file tax returns;

- tackling fraud involving concealment of undeclared income or

profits offshore; and

- countering avoidance of corporation tax and of NICs and tax on

employment income.

Commenting on the complianc e and enforcement package, Paymaster

General Dawn Primarolo said:

'We want to make sure that the burden of tax does not fall unfairly

on taxpayers who play by the rules and pay their fair share. This

package is the first step in a new strategic approach to compliance

work, designed to modernise the way risks to revenue are assessed and

managed by the Inland Revenue. It identifies areas of the tax system

where the potential loss of revenue is high and targets resources and

compliance activity accordingly; and creates a more stable framework

upon which to plan public investment'.

To complement this package, Budget 2003 also announces a range of

further measures to tackle instances of direct tax avoidance,

protecting around £250 million per annum in future years, including:

- action to prevent tax and NICs avoidance through the payment of

share-based renumeration;

- measures to close loopholes in the chargeable gains regime for

second-hand life policies and prevent avoidance of capital gains

tax through complex transactions using offshore trusts;

- steps to tackle avoidance though sale and repurchase agreements;

new measures to close loopholes in the loan relationships and

derivative contracts regimes; and

- as announced in March, action to counter tax avoidance using

relevant discounted securities and to prevent exploitation of the

100 per cent allowances for small business investment in nformation

and communications technology (ICT).

Rapid financial market and regulatory changes are leading to the

development of innovative debt instruments that are economically

equivalent to equity. This creates particular challenges for the tax

system. The Government will continue to monitor the market for these

innovative debt instruments and, if appropriate, will consider with

the industry any changes to their tax treatment needed to protect

revenues.

Budget 2003 also restores the tax treatment of capital gains and

losses on the exercise of options to that which was generally

understood to apply before the judgement in the case of Mansworth v

Jelley. The change will apply to options exercised on or after 10

April.

These measures complement the Government's strategy for protecting

indirect tax revenues, details of which were published alongside the

2002 Pre-Budget Report. To consolidate and build upon these existing

strategies, Budget 2003 announces that the Government will:

- introduce further measures to support the VAT strategy and to

reduce instances of VAT fraud and avoidance; and

- consult shortly on further measures to reduce opportunities for

alcohol fraud.

DETAILS

Inland Revenue compliance and enforcement package

The compliance and enforcement package for the Inland Revenue,

announced in the Budget today, is the first step in a new strategic

approach being developed by the Inland Revenue to manage the risks of

non-compliance. The aim is to ensure that such risks are analysed

systematically and high-risk areas clearly identified, that Inland

Revenue responses are tailored to address them, that expected

outcomes are clearly identified from the start, and that these are

effectively monitored and evaluated.

Inland Revenue taxation anti-avoidance measures

To complement the compliance and enforcement package, the Government

is taking action to close a number of direct tax loopholes. In

addition to those already outlined above, these include:

- action to prevent tax avoidance in connection with life insurance

policies held in trusts;

- steps to counter the abuse of the rules on part withdrawals from

life insurance policies;

- measures to remedy deficiencies in the taxation rules for life

insurance companies; and

- action to prevent tax and NICs avoidance by those engaging domestic

workers through a service company.

VAT anti-fraud measures

To protect indirect tax revenue, the Government is introducing new

VAT anti-fraud measures designed to:

- impose, subject to safeguards, joint and several liability for

payment of VAT on both the supplier and the recipient of supplies

of specified goods and services;

- allow Customs and Excise to deny recovery of VAT in circumstances

where the taxpayer holds an invalid tax invoice and cannot further

prove the bona fide nature of the transaction; and

- extend existing security powers so that security can be required

from any business involved in a VAT supply chain where there is

evidence of actual or potential fraud or evasion.

VAT anti-avoidance measures

Budget 2003 introduces VAT anti-avoidance measures designed to:

- prevent avoidance of VAT in relation to the private and

non-business use of land and buildings;

- prevent businesses from delaying, sometimes indefinitely,

accounting for VAT on certain on-going supplies to connected

businesses; and

- following consultation announced in Budget 2002, prevent VAT losses

through avoidance and leakage from the sale of face-value vouchers.

NOTES FOR EDITORS

Inland Revenue compliance and enforcement package

An additional £66 million is being provided to the Inland Revenue

over the next three years to support the compliance and enforcement

package. The package is expected to produce at least an additional

revenue totaling £1.6 billion over the same period, but in line with

the Government's cautious approach to the public finances a lower

total figure of under £1.4 billion has been included in the forecast

over these three years. The Comptroller and Auditor General has

audited the projections and has concluded that they are based on a

reasonable approach and incorporate caution.

Protecting VAT revenue

The Government published Protecting indirect tax revenue alongsid e

the 2002 Pre-Budget Report. This set out the Government's estimates

of revenue losses within the VAT system and its strategy for tackling

them. The strategy is designed to produce more than £2 billion a year

in additional revenue by 2005-06. It explained that, of total VAT

losses, VAT Missing Trader Intra-Community (MTIC) fraud is estimated

to have cost between £1.7 and £2.75 billion in 2001-02; and the

Government would consider further legislative steps to tackle the

problem if required. The Government also allocated extra resources to

identify and tackle abusive tax avoidance schemes, including

tightening up legislation where necessary.

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