Corporation tax

A new 10% starting rate of corporation tax was introduced on 1 April 2000. However, it only applies to companies with profits up to £10,000. Companies with profits between £10,000 and £50,000 pay tax at an overall rate of between 10% and 20% with the 20% small companies rate applying once profits reach £50,000.

Gordon Brown proposes, with effect from next year, to extend the 10% band. It is still not clear what the new threshold will be, but the intention is clearly to reduce the corporation tax bills for more small companies.

Small business tax regime

The Government has announced a package of measures aimed at cutting compliance costs for small businesses.

The package includes:

· simplification of the corporation tax computation for small companies

· publication of a review of the provision of payroll services and consultation on the proposals

· VAT measures.

Simplifying the tax regime

The Government intends to continue to consult business on specific ways of simplifying the corporation tax computation of small companies, while maintaining incentives and fairness. This is in response to comments received following the publication of a technical note earlier in 2001.

Currently the proposals would affect companies which are 'small' under the Companies Act definition. The main simplification is the closer alignment of profits for tax purposes with those reported in the accounts.

Payroll services

The Government has now published an independent review of the provision of payroll services for new and small businesses and is considering the case for further action.

The review concludes that greater use of information technology is the key to enabling businesses to deal with the complexity of payroll obligations. The review recommends:

· a requirement for large employers (with 50 or more employees) to send their end-of-year returns to the Inland Revenue electronically by 2004 and for smaller employers by 2007

· cash incentives for smaller employers to encourage electronic filing of end-of-year returns with the Inland Revenue for a period of five years.

In principle, the Government endorses the review's recommendations, but believes the issues raised would benefit from wider debate. The Government is therefore inviting comments on the detail of the recommendations.

VAT measures

Measures will be introduced during 2002 to ease the impact of VAT on small and medium enterprises, including:

· an optional flat-rate scheme designed to cut compliance costs

· changes to simplify and increase participation in the VAT annual accounting scheme.

Flat rate scheme

Following consultation, the Government has decided to introduce a new optional flat rate scheme for businesses with a taxable turnover of up to £100,000 a year. Traders who join the scheme can avoid having to account internally for VAT on all the individual goods they buy and sell and can instead simply calculate their net VAT liability as a percentage of their total turnover (including their exempt income). It is proposed that there would be a range of percentages from 5% to 15% dependent on trade sector.

The scheme potentially affects 300,000 businesses.

VAT annual accounting scheme

This scheme allows the 900,000 businesses with a turnover of up to £600,000 a year to file their VAT returns annually rather than quarterly, improving their cash flow and reducing their compliance costs.

The reforms include:

· simplifying the payment patterns for participants in the scheme

· removal of the existing 12 month qualifying period for businesses with annual turnover of up to £100,000.

To discuss how any of these changes may affect you contact Stuart Atkinson by e-mail to hull@atkinsonco.com or by phone on 01482 226791

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