United Kingdom corporation tax
[7][8] The UK government faced problems with its corporate tax structure, including European Court of Justice judgements that aspects of it are incompatible with EU treaties.
[9] Tax avoidance schemes marketed by the financial sector have also proven an irritant, and been countered by complicated anti-avoidance legislation.
[citation needed] A series of reductions in the profits tax were brought in from 1951 onwards by the new Conservative government.
When companies made distributions, they also paid the advance corporation tax (known as ACT), which could be set off against the main corporation tax charge, subject to certain limits (the full amount of ACT paid could not be recovered if significantly large amounts of profits were distributed).
[17] On introduction, ACT was set at 30% of the gross dividend (the actual amount paid plus the tax credit).
[citation needed] Gordon Brown's summer Budget of 1997[20] ended the ability of pension funds and other tax-exempt companies to reclaim tax credits with immediate effect, and for individuals from April 1999.
[11] This tax change has been blamed for the poor state of British pension provision, while usually ignoring the more significant effect of the dot-com crash of 2000 onwards when the FTSE-100 lost half its value to fall from 6930 at the beginning of 2000 to just 3490 by March 2003.
[7] This apparent increase was negated by the fact that under the ACT scheme, dividends were no longer subject to income tax.
[citation needed] Chancellor Gordon Brown's 1999 Budget[175] introduced a 10% starting rate for profits from £0 to £10,000, effective from April 2000.
[183] This ensured that where a company paid below the small companies' rate (19% in 2004), dividend payments made to non-corporates (for example, individuals, trusts and personal representatives of deceased persons) would be subject to additional corporation tax, bringing the corporation tax paid up to 19%.
[187] The Finance Act 1993[188] introduced rules to make tax on exchange gains and losses mimic their treatment in a company's financial statements in most instances.
This was followed up by the Finance Act 2004,[194] which provided that where a company with investment business could make deductions for management expenses, they were calculated by reference to figures in the financial statements.
Corporation tax law is changing so that, in the future, IFRS accounting profits are largely respected.
However, it inherited an anti-avoidance rule from income tax relating to transactions in securities,[198] and since then has had various "mini-GAARs" added to it.
[201] This is the first provision of its kind in the UK, and Finance Act 2005[202] has shown a number of tax avoidance schemes being blocked earlier than would have been expected prior to the disclosure rules.
[citation needed] In the early twenty-first century the government sought to raise more revenues from corporation tax.
Instead of paying their tax in four equal instalments in the seventh, tenth, thirteenth and sixteenth month after the accounting period starts, they will be required to consolidate their third and fourth payments and pay them in the thirteenth month, creating a cash flow advantage for the government.
When originally announced (as Finance (No.3) Bill 2005) Legal & General told the Stock Exchange that £300 m had been wiped off its value, and Aviva (Norwich Union) announced that the tax changes would cost its policy holders £150 m.[citation needed] Powers to collect corporation tax must be passed annually by parliament, otherwise there is no authority to collect it.
[207] HMRC may then issue a determination of the tax payable,[209] which cannot be appealed – however, in practice they wait until a further six months have elapsed.
Also, the most common claims and elections that may be made by a company have to be part of its tax return, with a time limit of two years after the end of the accounting period.
[7] At the same time, the small companies' rate was increased from 19% to 20% from April 2007, 21% in April 2008,[7] to stop "individuals artificially incorporating as small companies to avoid paying their due share of tax, a practice if left unaddressed would cost the rest of the taxpaying population billions of pounds".
[232] Larger companies are required to pay quarterly instalments, in the seventh, tenth, thirteenth and sixteenth months after a full accounting period starts.
[233] From 2005 onwards, for tax payable on oil and gas extraction profits, the third and fourth quarterly instalments are merged, including the supplementary 10% charge.
However, a company can appeal to the Commissioners of Income Tax to close an enquiry if they feel there is undue delay.
[citation needed] Detailed and separate rules apply to how all the different types of losses may be set off within the computations of a company.
The companies making up a 75% group do not all need to be UK-resident or subject to UK corporation tax relief.
It set out the strategy for modernising corporate taxes and proposals for relief for capital gains on substantial shareholdings held by companies.
[citation needed] In August 2002, Reform of corporation tax – A consultation document was published, outlining initial proposals for the abolition of the Schedular system.
[194] (The first two of these listed below were in response to threats to the UK tax base arising from recent European Court of Justice judgments.
)[citation needed] The changes were to: In December 2004, Corporation tax reform – a technical note was published.
