In last week’s pre-budget statement Gordon Brown, chancellor of the exchequer, effectively neutralised complaints made by business after his last budget.
Brown’s decision to abolish the 25-year old system of advanced corporation tax from April 1999 was widely welcomed. ACT is charged at the rate of 20% on company distributions including dividends.
The move counteracts the effect of the abolition of foreign income dividends from 1999 – criticised as a tax on exports – announced last July.
Brown also announced plans to cut the rate of corporation tax from 33% to 31% in July next year, and then to 30% from April 1999.
However, the cut is conditional on companies switching to quarterly payment of corporation tax, to be phased in over four years. Companies making less than £300,000 per year in tax profits are exempt. Those falling between £300,000 and £1.5m will pay only half their tax in quarterly instalments.
The change to a system where tax is only paid on the current year – as opposed to ACT which is paid when a dividend is paid, and mainstream corporation tax which is paid on the actual profits made the year before – could result in large firms having to pay five years’ tax in four years. However, the moves were good news for industry.
Part of the reason for the tax cuts is to free up capital for re-investment in research and development.
This theme was also central to Brown’s other announcement -establishment of a 15-strong advisory group of business leaders and City figures – to address the barriers to financing high tech companies.
The group, headed by Keith McCullagh, chief executive of British Biotech, will make an interim report to Geoffrey Robinson, pay master-general and Treasury minister, in January, and should make its final recommendations before next summer.