020 8876 1097 office@blythetax.com

Budget Comment March 2003

National Insurance

Last year the Chancellor increased National Insurance for employees/self-employed by 1%, and for the employer by 1%. In addition for the employee/self-employed increase, there is no ceiling on earnings. Planning: this makes pension contributions more attractive and it improves the arguments in favour of trading through a Limited Company rather than self-employed.

Child Tax Credit

This was also announced last year and affects households with children and with gross income of less than £58,000. We have more detailed information if you feel it might be relevant to you or to someone you know. Planning: to receive the full benefit you must apply before 5 July 2003.

Anti-avoidance measures

The Chancellor announced 3 measures aimed at combating tax loss

  • The decision in the Mansworth v Jelley (share option) case has been reversed.
  • Domestic workers are to be treated as caught by the IR35 legislation.
  • Share-based remuneration causing a loss of tax and NI is to be scrutinised. This is thought to mean the payment of dividends to spouses whose involvement in the business is minimal. The relevant anti-avoidance legislation is already in place but is rarely used. This quiet Press Notice signifies the Revenue’s intention to look at matters more closely in future. Planning: we need to ensure that Dividends are properly documented and paid on a timely basis. It has been our policy to ensure that this happens for some time now. Otherwise we can only await developments.
Employee Share Schemes

The government announced its intention to simplify the employee share schemes legislation and reduce the administrative and regulatory burden on employers. The measures will modernise both Company Share Options Plans, Save As You Earn schemes and Share Incentive Plans.

Charitable Donations

Finally, the Chancellor, having hit taxpayers with a substantial increase in NIC’s, thought it would be a good idea if taxpayers who are due repayments donate some or all of the repayment to charity. They have introduced a new facility to do so – it will be interesting to see the take up of the Chancellors offer!

Rates and Allowances for 2003 and 2004

Rates and allowances for income tax, corporation tax, capital gains tax, inheritance tax and the pension schemes earnings cap are set out below.

2002-03 (£)

2003-04 (£)

Increase (£)

Income tax allowances
Personal allowance
Personal allowance for people aged 65-74
Personal allowance for people aged 75 and over

4,615
6,100
6,370

4,615
6,610
6,720

0
510
400

Income limit for age-related allowances

17,900

18,300

400

Married couple’s allowance for people born before 6 April 1935
Married couple’s allowance –aged 75 or more
Minimum amount of married couple’s allowance
Blind person's allowance

5,465

5,535

2,110

1,480

5,565

5,635

2,150

1,510

100

100

40

30

Capital gains tax annual exempt amount:
Individuals etc
Other trustees

 

7,700
3,850

 

7,900
3,950

 

200
100

Inheritance tax threshold

250,000

255,000

5,000

Pension schemes earnings cap

97,200

99,000

1,800


Taxable bands 2002-03 (£)

Taxable bands 2003-04 (£)

Starting rate 10%

0 – 1,920

Starting rate 10%

0 – 1,960

Basic rate 22%

1,921 – 29,900

Basic rate 22%

1,961 – 30,500

Higher rate 40%

Over 29,900

Higher rate 40%

Over 30,500


Corporation tax profits 2003-04 (£)

 
Starting rate Zero %

0 – 10,000

Marginal relief

10,001 – 50,000

Small companies’ rate 19%

50,001 – 300,000

Marginal relief

300,001 – 1,500,000

Main rate 30%

1,500,001or more

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

National Insurance changes from 6 April 2003

2002/2003

2003/2004

 Class 1 Employees
On first

£89 pw

Nil

£77 pw Nil
Between

£89 - £585 pw

10%

£89 - £595 pw 11%
Over

£585 pw

Nil

£595 pw 1%
 Class 1 Employers
On first

£87 pw

Nil

£89 pw Nil
Between

£87 - £585 pw

11.8%

£89 - £595 pw 12.8%
Over

£585 pw

11.8%

£585 pw 12.8%
Class 2 Self employed
 Flat rate £2 pw £2 pw
Class 3 Voluntary
 Flat rate £6.85 pw £6.95 pw
 Class 4 Self employed
On profits between £4,615 - £30,420 pa 7% £4,615 - £30,940 pa 8%
      above £30,940 1%
Stamp taxes from Budget day to 30 November 2003
Transfers of property (consideration paid)
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 rules 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)
Rate %
All land in the UK
Land in disadvantaged areas
  Residential Non-residential 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.