Corporation tax

 Rate of tax on profits

As announced in the major package of reforms to the business tax system at Budget 2007, the main rate in Corporation Tax will be reduced from 30% to 28% from 1st April 2008. This package also announced that in 2008-09 the Small Companies rate will increase from 20 per cent to 21 per cent.

Capital Allowances

From 1 April 2008 for corporation tax and 6 April 2008 for income tax, changes will apply to the rates of capital allowances. Allowances for plant and machinery will reduce to 20%, allowances for long-life assets will increase to 10% and a new classification of features integral to a building will be introduced at a rate of 10%. The amount of relief claimable under industrial and agricultural buildings allowances will be reduced by one quarter, as part of phasing them out in full by 2011. First-year allowances for small and medium-sized enterprises will be replaced by a new Annual Investment Allowance of £50,000 for most businesses regardless of size, giving relief on 100% of the first £50,000 of expenditure.

Loss making companies investing in plant and machinery which qualifies for Enhanced capital allowances for environmentally beneficial and energy saving technologies will be able to surrender losses from qualifying expenditure for a cash payment of 19% of the expenditure, subject to a cap of the higher of £250,000 or a company’s PAYE/National Insurance Contributions liabilities.

From April 2008, the rate of research and development tax credits will rise from 125% to 130% for large companies and from 150% to 175% for SMEs (the SME increase is subject to approval from the European Commission and will be made effective by Treasury Order from a date not earlier than 1 April 2008).

Marginal relief eases the transition from the small companies' rate to the main rate for companies with profits between £300,000 and £1,500,000.

The profits limit may be reduced for a company that is part of a group or has associated companies. The small companies' rate and marginal relief do not apply to close investment holding properties.

Upstream Oil Industry

Companies in the upstream oil industry also face a Supplementary Charge.  The charge applied from 17^th April 2002 to the UK upstream profits of companies in the oil industry.  It is based on ring-fence CT income as adjusted for financing costs.  The charge commenced in April 2002 at 10 %.  This was increased to 20% from 1^st January 2006.

Construction Industry

There are special tax rules that apply to businesses in the construction industry that can require a deduction of tax at source on payments by a “contractor” to a “Sub-contractor”.  The current rate of deduction is 18%. 

Before they can get paid at all under the Scheme, subcontractors must hold either a Registration Card or a Subcontractors Tax Certificate.  To obtain either of these a subcontractor must first be registered with the Inland Revenue.

Subcontractors who meet certain qualifying conditions will be issued by the Inland Revenue with Subcontractors Tax Certificates, enabling them to be paid gross. Those who do not will be issued with Registration Cards.

The deduction, when made, applies to all payments for labour and is an amount on account of the subcontractor's tax and National Insurance contribution (NIC) liability.

What is meant by "Construction operations".

An update to the rules of the scheme.

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