INTRODUCTION
This chapter sets out the measures announced in Budget
99[1]
The financial implications are displayed in Table 1.11 and explained
in Appendix 1A. Tax changes announced before the Budget are set
out in Appendix 1B. Appendix 1C provides estimates of the revenue
costs of some of the main tax allowances and reliefs.
PERSONAL TAXES AND BENEFITS
Income tax 1999-2000
Bands, rates and personal allowances
A new rate of tax at 10 per cent will be introduced
on the first £1,500 of income from 6 April 1999. The existing
20 per cent band on non-savings income will disappear. (8)
Income tax on savings eligible for the lower rate
up to the basic rate limit will continue at 20 per cent up to
that limit and 40 per cent above it, except for dividends which
from 6 April 1999 will be taxed at 10 per cent up to the basic
rate limit and 32.5 per cent above it.
The personal allowance will increase to £4,335
as already announced. The blind person's allowance and the basic
rate limit will rise in line with statutory indexation.
The married couple's allowance and related allowances
will rise in line with indexation to £1,970 at 10 per cent
in 1999-2000. The age-related married couple's allowance
will also rise in line with indexation. (These allowances had
already been increased for 1999-2000 on account of the
change in the rate of relief to 10 per cent.) (7)
Personal allowances for older people will be increased
by up to £200 more than statutory indexation - to
£5,720 and £5,980 respectively for people aged 65-74
years and 75 years and over. The income limit for the age-related
allowances will be increased in line with statutory indexation
to £16,800. (24)
Working Families Tax Credit
The basic tax credit in the Working Families Tax
Credit (WFTC) will be increased by £2.50 and the tax credit
for children under 11 years will be increased by £4.70 from
October 1999. (20)
Other measures
The maximum earnings for which pension provision
may be made with income tax relief (the "earnings cap")
will be increased in line with statutory indexation to £90,600.
(*)
The Government will confirm that annuities paid by
free standing voluntary contributions schemes are taxable in full
on receipt. (-)
Investors in court common investment funds will be
treated in the same way as investors in shares, authorised unit
trusts or open-ended investment companies. (*)
There will be no tax charge where an employer provides
an employee with a mobile telephone which is used for private
calls. (57)
To make the repayment arrangements for the new income-contingent
student loans fairer to borrowers, interest on amounts they have
overpaid will be tax-free. (*)
Table 1.1: Bands of taxable income 1999-20001
| 1998-99 | £ a year
| 1999-00 |
£ a year |
| Lower rate 20 per cent
| 0 - 4,300
| Starting rate 10 per cent
| 0 - 1,500
|
| Basic rate 23 per cent
| 4,301 - 27,100
| Basic rate 23 per cent
| 1,501 - 28,000
|
| Higher rate 40 per cent
| over 27,100
| Higher rate 40 per cent
| over 28,000
|
| 1 The rates of tax applicable to savings income in Section 1A ICTA 1998 remain at 20 per cent for income below the basic rate limit and at 40 per cent above that, apart from the rates applicable to dividends, which for 1999-00 becomes 10 per cent for income below the basic rate limit and 32.5 per cent above that.
|
Table 1.2: Income tax allowances 1999-2000
| | £ a year
|
| | 1998-99
| 1999-00 |
Increase |
| Personal allowance
| 4,195 |
4,335 | 140
|
| Married couple's allowance1,
| | | |
| additional personal allowance1 and
| | | |
| widow's bereavement allowance1
| 1,900 |
1,970 | 70
|
| For people aged 65-74
| | | |
| - personal allowance
| 5,410 |
5,720 | 310
|
| - married couple's allowance1
| 4,965 |
5,125 | 160
|
| For people aged 75 and over
|
| - personal allowance
| 5,600 |
5,980 | 380
|
| - married couple's allowance1
| 5,025 |
5,195 | 170
|
| Income limit for age-related allowances
| 16,200
| 16,800
| 600 |
| Blind person's allowance
| 1,330 |
1,380 | 50
|
| 1 Tax relief for these allowances is restricted to 15 per cent for 1998-99 and 10 per cent for 1999-00. The amounts for age-related MCA in 1999-00 were increased so that the value of this allowance for people aged 65 and over would be protected. For consistency, the figures shown in 1998-99 for these allowances reflect these increases. Only the further increase (in line with indexation) is reflected in the table.
|
Income tax 2000-2001
Bands, rates and personal allowances
From 6 April 2000, the basic rate of income tax will
be reduced from 23p to 22p. (9)
The married couple's allowance, for a husband and
wife aged under 65, and related allowances, will be removed from
6 April 2000. Couples in which at least one of the spouses was
born before 6 April 1935 will remain entitled to claim the married
couple's allowance. Tax relief for maintenance payments will cease
for payments made and falling due on or after 6 April 2000. Tax
relief for maintenance payments will be retained where one or
more of the parties is aged 65 or over on 5 April 2000. (17)
Mortgage interest relief
Relief on mortgage interest repayments will be removed
from 6 April 2000. Mortgage interest relief for those aged 65
and over who take out a loan to buy a life annuity (a home income
plan) ends with effect from 9 March 1999, but existing loans will
continue to qualify for relief for the remainder of the loan period.
(27)
Working Families Tax Credit
From 6 April 2000, there will be a further increase
of £1.10 above indexation in the credit for children under
11 years. (20)
Disabled Person's Tax Credit
A new "fast-track" to the Disabled Person's
Tax Credit will be introduced from October 2000 to help with the
retention of staff disabled while working, and whose return to
work depends on a reduction in hours or rate of pay. (20)
Table 1.3: Bands of taxable income 2000-20011
| 1999-00 | £ a year
| 2000-012 | £ a year
|
| Starting rate 10 per cent
| 0-1,500
| Starting rate 10 per cent
| 0-1,530
|
| Basic rate 23 per cent
| 1,501-28,000
| Basic rate 22 per cent
| 1,531-28,500
|
| Higher rate 40 per cent
| over 28,000
| Higher rate 40 per cent
| over 28,500
|
| 1 The rates of tax applicable to savings income in Section 1A ICTA 1998 remain at 20 per cent for income below the basic rate limit and at 40 per cent above that, apart from the rates applicable to dividends, which for 1999-00 becomes 10 per cent for income below the basic rate limit and 32.5 per cent above that.
2 Assumptions for the 2000-01 widths derived by applying statutory indexation (as amended by Finance Bill 1999 proposals) based on inflation forecasts consistent with the EFSR
|
Income tax 2001-2002
Children's Tax Credit
A tax credit of up to £8 per week (£4,160
per year at 10 per cent) will be introduced from 6 April 2001
for families with children. The credit will be tapered away from
families where one or both partners is a higher rate taxpayer.
(18)
Effects on the Scottish Parliament's tax varying
powers - statement regarding Section 76 of the Scotland
Act 1998
After the changes outlined above, a one penny change
in the Scottish variable rate in 2000-2001 could then be
worth approximately plus or minus £230 million, compared
with plus or minus £180 million prior to these changes. In
the Treasury's view, an amendment of the Scottish Parliament's
tax-varying powers is not required as a result of these changes.
Inheritance tax
Threshold
The threshold will be increased by statutory indexation
to £231,000. (52)
Improving compliance
A simpler procedure for obtaining information and
stricter penalties for non-compliance will be introduced.(*)
Taxes on capital gains
Capital gains tax rates and annual exempt amount
The annual exempt amount will be increased by statutory
indexation to £7,100.
Capital gains tax rates will be aligned with those
for savings income, charging gains at 20 per cent or 40 per cent
depending on the level of income and gains. (53)
Simplifying capital gains in Lloyd's insurance
market
Rules for individuals in the Lloyd's insurance market
will be changed in order to make the calculation of gains simpler
and fairer. From 6 April 1999, an individual in a members' agent
pooling arrangement (MAPA), will treat his or her share of the
syndicates held through the MAPA as if it were a single direct
holding. In addition, tax roll-over relief will be extended to
include members' interests in syndicates, whether held directly
or through a MAPA. (61)
Stamp duty
Rates and thresholds
From 16 March 1999, stamp duty rates will be increased
on transfers of land and property over £250,000 and less
than £500,000 from 2.0 per cent to 2.5 per cent and from
3.0 per cent to 3.5 per cent for land and property over £500,000.
(58)
Compliance and administration
Interest will be added to repayments of stamp duty
and charged on duty paid late, as is the case for other taxes.
Penalties will be increased to modern levels and the fixed duties
will be raised to £5. Stamp duty will be charged in multiples
of £5. These measures will take effect from 1 October 1999.
The Government will clarify the statutory provisions
which enable the Treasury to make regulations for the administration
of stamp duty reserve tax.
As announced on 29 January 1999, a loophole will
be closed by restricting relief for foreign currency bearer instruments
to its intended purpose, which is to assist companies borrowing
money in other countries.
Measures will be introduced to clarify the stamp
duty rules for foreign currency bearer shares and redenomination
of the currency of shares in a depositary receipt scheme or clearance
service. A relief will also be provided to allow depositary interests
in foreign shares to be traded in the UK. (32)
Unit trust and oeics
The Government will introduce a clearer and easier
framework for stamp duty reserve tax to replace the existing stamp
duty regime for unit trusts and open-ended investment companies
(oeics) from October 1999. (*)
National insurance 1999-2000
Employers
Employers' Class 1B liability will be deductible
for tax. (*)
Table 1.4: National insurance contribution rates
1999-2000
| Total weekly earnings
| Employer NICs
| Employee NICs
|
| | standard rate
| contracted-out rate
| standard rate
| contracted-out rate
|
| Below £66 (LEL)
| 0 |
0 | 0
| 0 |
| £66 to £83
| 0 |
0 | 10% of earnings between £66 and £500
| 8·4% of earnings between £66 and £500
|
| £83 to £500
| 12·2%
| 9·2%
| | |
| Above £500
| 12·2%
| 9·2% of earnings between £83 and £500, 12·2% of earnings above £500
| | |
| 1 Employees contracted out of SERPS pay lower contributions. The "contracted-out rebate" is currently fixed at 4·6 per cent of earnings between the employee LEL and the UEL. 1·6 per cent is deducted from employees' contributions and 3% from employers' contributions. An employer rebate of 3% is paid in respect of the earning between £66 and £83 though employers pay no NICs in respect of these earnings. Slightly different rebate arrangements apply for employees who contract out into a money-purchase scheme.
|
Table 1.5: Self-employed national insurance contribution
rates 1999-2000
| Total weekly profits
| Self employed NICs
|
| Below £72.50
| 0 |
| £72.50 to £145
| £6.55 (Class 2)pw
|
| £145 to £500
| £6.55 (Class 2)pw
|
| | plus 6% of profit between £145 to £500 (Class 4)
|
| Above £500
| £6.55 (Class 2)pw
|
| | plus 6% of profit between £145 to £500 (Class 4)
|
National Insurance 2000-2001
Employees
From April 2000, the threshold
of earnings above which people will pay NICs will increase to
£76 per week. A zero rate of NICs will apply on earnings
between the previous lower limit and the new threshold, to protect
benefit entitlement. The threshold of earnings above which employees
will pay no NICs (the upper earnings limit, UEL) will increase
to £535 per week. (12)
Employers
From April 2000, employer NICs
will be extended to those benefits-in-kind which are already subject
to income tax. (29)
Self-employed
reach £72.50 per week)
will be reduced from £6.55 to £2 per week. It is assumed
that the
starting point for Class 2
NICs will be indexed to £73.50 from April 2000. At the same
time, the
starting point for Class 4
NICs will be aligned with the income tax personal allowance at
£85
per week, and the contribution
rate increased to 7 per cent. The upper profits limit rises with
the UEL, described above. (13)
9·2% 12·2%
Table 1.6: National insurance contribution rates
2000-2001
| Total weekly earning
| Employer NICs
| Employee NICs
|
| | standard rate
| contracted-out rate1
| standard rate
| contracted-out rate1
|
| Below £76
| 0
| 0
| 0
| 0
|
| £76 to £852
| 0
| 0
| 10% of earnings between £76 and £535
| 8·4% of earnings between £76 and £535
|
| £85 to £535
| 12·2%
| 9.2%
| | |
| Above £535
| 12·2%
| 9·2% of earnings between £85 and £535, 12·2% of earnings above £535
| | |
| 1 Employees contracted out of SERPS pay lower contributions. The "contracted-out rebate" is currently fixed at 4·6 per cent of earnings between the
|
| employee LEL and the UEL. 1·6 per cent is deducted from employees' contributions and 3% from employers' contributions. An employer rebate of 3%will be paid in respect of the earning between £76 and £85 though employers pay no NICs in respect of these earnings. As now, slightly different rebate arrangements apply for employees who contract out into a money-purchase scheme.
|
| 2 Assumption for this year's income tax personal allowance derived by applying indexation and statutory rounding rules, based on inflation forecastsconsistent with the EFSR.
|
Table 1.7: Self-employed national insurance contribution
rates 2000-2001
| Total weekly profits
| Self employed NICs
|
| Below £73.50
| 0 |
| £73.50 to £851
| £2 (Class 2)pw
|
| £85 to £535
| £2 (Class 2)pw
|
| | plus 7% of profit between £85 to £535 (Class 4)
|
| Above £535
| £2 (Class 2)pw
|
| | plus 7% of profit between £85 to £535 (Class 4)
|
| 1 Assumption for this year's income tax personal allowance derived by applying indexation and statutory rounding rules, based on inflation forecasts consistent with the EFSR.
|
National insurance 2001-2002
Employees
From April 2001, the threshold of earnings below
which people will not pay NICs will increase to £87 per week,
aligning it with the income tax personal allowance. The UEL will
increase to £575 per week. (11)
Employers
The rate of NICs paid by employers will be reduced
by 0.5 percentage points in April 2001, offsetting the cost to
business of the climate change levy (see "Climate change
levy" below). (14)
Self-employed
The upper profits limit will increase to £575
per week, in line with the UEL. (13)
Table 1.8: National insurance contribution rates
2001-2002
| Total weekly |
Employer NICs | Employee NICs
| | |
| earnings | standard rate
| contracted-out rate1
| standard rate
| contracted-out rate
|
| Below £87
| 0 |
0 | 0
| 0 |
| £87 to £575
| 11·7%
| 8·7%
| 10% of earnings between £87 and £575
| 8·4% of earnings between £87 and £575
|
| Above £575 (UEL)
| 11·7%
| 8·7% of earnings between £87 and £575,11·7% of earnings above £575
| | |
| 1 Employees contracted out of SERPS pay lower contributions. The "contracted-out rebate" is currently fixed at 4·6 per cent of earnings between the employee LEL and the UEL. 1·6 per cent is deducted from employees' contributions and 3% from employers' contributions. An employer rebate of 3% will be paid in respect of the earning between £76 and £85 though employers pay no NICs in respect of these earnings. As now, slightly different rebate arrangements apply for employees who contract out into a money-purchase scheme.
|
Personal tax avoidance
Measures to prevent parents avoiding tax by placing
assets in a bare trust for their children will be introduced.
(*)
Loopholes in the anti-avoidance rules relating to
inheritance tax and lifetime gifts will be closed, effective from
9 March 1999. (*)
A provision will be introduced to prevent the abuse
of extra-statutory concessions which defer a tax charge. (-)
Benefits 1999-2000
Maternity pay
Maternity Allowance will be extended to all women
earning less than the lower earnings limit for NICs but at least
£30 per week, to be paid at 90 per cent of previous earnings.
(23)
Income Support
Premium for children under 11 years in Income Support
will be increased by £4.70 from October 1999. (19)
Continuing Income Support for lone parents starting
work
From October 1999, lone parents who have been claiming
Income Support for at least six months and move into work and
are claiming WFTC will be able to claim a "run-on" in
their Income Support at the existing level for two weeks. (16)
Employment Credit for the over-50s
Workers aged over 50, who have been out of work and
claiming benefits (Jobseeker's Allowance, Income Support, Incapacity
Benefit or Severe Disablement Allowance) for more than six months
(or if their partner has been claiming a dependant's allowance
in one of these benefits for them for six months, and neither
partner is working), will be eligible for an in-work top-up payment
of £60 per week, for 52 weeks, if they move into work for
more than 30 hours a week. £40 will be available to those
moving into part-time work, of between 16 and 30 hours per week.
A New Deal for the over-50s will provide personalised
advice and support, complementing the Employment Credit. The over-50s
will be eligible for in-work training grants of up to £750
to help them acquire accredited training. Pathfinders will start
in October 1999, with a national roll-out in 2000. (15)
New Deal for 18-24 year olds
The Government intends to announce pilots during
1999 to make the initial gateway at the beginning of the New Deal
more intensive. The gateway will also be made more intensive for
people remaining in the gateway for more than three months.
Pensioners
From 1999-2000, the Winter Allowance to every
pensioner household will be increased to £100 from its current
level of £20. (26)
Benefits 2000-2001
Maternity pay
Self-employed women will become entitled to the full
rate of Maternity Allowance from April 2000. (23)
Sure Start Maternity Grant
From April 2000, the Social Fund maternity payment
will be renamed the Sure Start Maternity Grant. The payment for
each child will be doubled to £200 and will be paid following
contact with a health professional or local Sure Start programme.
(22)
Child Benefit
Child Benefit will be increased by around 3 per cent
in real terms from April 2000, to be worth £15 for the first
child and £10 for subsequent children per week. (21)
Income Support
Premium for children under 11 years in Income Support
will be increased by a further £1.05 over and above indexation
in April 2000. (19)
Pensioners
In April 2000, the minimum income guarantee for pensioners
will be uprated by earnings rather than prices. (25)
BUSINESS
TAXES
AND
SPENDING
MEASURES
Tax on business profits
Corporation tax
A new 10 per cent rate of corporation tax will be
introduced from 1 April 2000, for profits up to £10,000,
also benefiting companies with profits up to £50,000. (1)
Tax credits for research and development
The Government will introduce new tax credits for
spending by small and medium-sized companies on research and development.
The new plans will be introduced in 2000 and the Inland Revenue
is publishing a technical note on 10 March 1999. (3)
Capital allowances
First year allowances for small and medium-sized
businesses introduced in 1997 will be extended for one year until
1 July 2000 at a rate of 40 per cent. (2)
Other measures
A measure will be introduced to help football clubs
adjust to new accounting rules on intangible assets. These rules
affect the way in which the cost of players is deducted from profits.
The measure will prevent the need for early payments of tax, relating
toexisting players, which would otherwise have arisen in the transition
to the new accounting rules. (55)
Tax relief for donations of equipment or trading
stock by businesses is being extended to cover all charitable
causes. (51)
Value added tax
Registration threshold
The VAT registration threshold will be increased
broadly in line with inflation to £51,000 from 1 April 1999.
The deregistration threshold will increase from £48,000 to
£49,000. Customs and Excise will be working further with
business to explore whether it is possible to cushion the impact
of VAT registration on growing businesses. (54)
VAT grouping
Following consultation during 1998, the requirement
for 90 days' notice for applications for group treatment will
be removed. Customs and Excise will be able to remove any members
from existing VAT groups, mirroring powers to refuse applications.
Circumstances in which Customs and Excise will normally invoke
their revenue protection powers will be clarified in a business
brief. Criteria for including foreign companies in VAT groupings
will be redefined. (34)
Modernising VAT and other indirect taxes
The rule allowing certain VAT-exempt business activities
to be ignored and all input tax to be reclaimed will be withdrawn
with effect from 10 March 1999. (33)
From 10 March 1999, the scope of the VAT exemption
relating to financial intermediary services, payment and credit
transfer services and credit management services will be clarified
to restore the position that existed before recent legal challenges.
(35)
Legislation will be introduced to make investment
gold exempt from VAT from 1 January 2000. It will implement EC
Directive 98/80/EC. Industrial gold and jewellery will remain
liable to VAT. (*)
The Government will introduce a power to impose a
penalty on customers providing incorrect certificates to claim
eligibility for reduced rate fuel and power. (*)
The Government will clarify legislation providing
a two year time limit for Customs and Excise to penalise VAT-registered
businesses not complying with requirements to submit details of
sales to VAT-registered businesses in other EU member states.
(*)
Membership subscriptions to organisations with political,
religious, patriotic, philosophical or philanthropic aims will
become exempt from VAT. (36)
Interest payments will be charged at a commercial
rate on late payment of Customs duty debts. Traders will be able
to claim interest payments for late repayments of a valid duty
claim. (*)
Drawback legislation will be further standardised
to prevent potential loss of revenue through drawback on non-commercial
exports of oil. (*)
North Sea fiscal regime
The timetable for delivery of some petroleum revenue
tax (PRT) returns will be relaxed. (-)
Pre-July 1975 gas contracts
The Government will ensure that, in line with previous
practice, the PRT exemption for gas sold to British Gas under
a pre-July 1975 contract can continue following transfer to another
company of an interest in a relevant gas field. (*)
Tax avoidance and evasion by business
Direct taxes
The Government will extend anti-avoidance legislation
which counteracts the artificial techniques that strip value out
of subsidiaries prior to sale to avoid tax liabilities. (31)
Loopholes in the rules for North Sea corporation
tax and petroleum revenue tax which could be exploited by the
sale and leaseback of North Sea assets will be closed. (-)
New rules will prevent companies avoiding tax by
channelling UK dividends via controlled foreign companies. (30)
Legislation will be introduced to allow taxpayers
and the Inland Revenue to agree in advance how the arm's length
principle is to be applied in relation to specific cross-border
(or cross-North Sea "ring-fence") transactions . (*)
Following a recent adverse decision by the Privy
Council, legislation will be introduced to tax sums paid by landlords
to induce tenants to take out a lease, sometimes called reverse
premiums. (37)
Value added tax
Following consultation, an existing anti-avoidance
measure on construction services will be replaced with a new anti-avoidance
measure better targeted on abuse. (*)
Anti-avoidance provisions that prevent businesses
artificially inflating their recovery of VAT on the construction
of non-residential buildings by lease and leaseback will be extended
from 10 March 1999. (60)
Loopholes that could allow VAT to be avoided or too
much bad debt relief to be claimed when debts are assigned to
other parties will be closed from 10 March 1999. (*)
A loophole that could allow businesses to qualify
for repayment supplement by lodging their VAT return early will
be closed from 9 March 1999. (*)
A loophole that might allow the capital goods scheme
to be exploited for tax avoidance will be closed from 10 March
1999. (*)
Provision of personal services
Provision of personal services through intermediaries
can provide scope for tax avoidance, leave workers unprotected
by employment law and result in the loss of benefit entitlement.
New legislation will be introduced to tackle this problem. Changes
to tax and NICs rules will take effect from 6 April 2000. (28)
Incentives for investors and entrepreneurs
Venture Capital Challenge
The Government will introduce a new Venture Capital
Challenge of £20 million from the Capital Modernisation Fund
(CMF). (The CMF is described under "Public services"
below.) This will be invested in new funds for early stage high-technology
businesses in partnership with project investors. The funds will
operate throughout the UK and will have a strong regional dimension.
Corporate venturing
The Government proposes to introduce a tax incentive
in Budget 2000 to promote corporate venturing. The Inland Revenue
will issue a technical note on 10 March 1999 setting out the proposal
in more detail.
Serial entrepreneur-ship
The Government will take steps to prevent the incidence
of capital gains tax acting as a barrier to investors in the Enterprise
Investment Scheme who want to dispose of their investments and
reinvest the gains in other EIS companies. Such investors deferring
a chargeable gain from an EIS investment by reinvesting it in
another EIS company will benefit from the capital gains tax taper
on a cumulative basis, calculating taper relief for the deferred
gain by reference to the combined ownership period. (*)
Incentives for employees and managers
New all-employee share scheme
The Government will introduce a new all-employee
share scheme in Budget 2000, to allow employees to buy shares
from their pre-tax salary and to receive free shares, with further
tax incentives for longer term shareholding. Any gains arising
on shares held for three years in the scheme will be tax-free.
There will be greater flexibility in the ways in which employers
can give shares as well as tax benefits and payroll services.
The details are set out in a technical paper issued by the Inland
Revenue on 9 March 1999. An advisory group drawn from practitioners,
business and other experts will help the Inland Revenue design
the details of the new scheme and consider what measures could
be specifically introduced to make employee share ownership more
attractive to smaller companies. Draft legislation will be published
as part of the Pre-Budget Report and the changes will be introduced
in Budget 2000.
Enterprise Management Incentives
The Government will introduce a new Enterprise Management
Incentives scheme in Budget 2000, limited to small higher risk
trading companies. The Inland Revenue will issue a technical note
on 10 March 1999 setting out the proposed scheme in more detail.
The advisory group for the all-employee share scheme will also
be closely involved in its design.
Science and new technology
Reforming intellectual property taxation
The Inland Revenue is issuing a technical note on
10 March 1999 to look at options to simplify tax treatment of
intellectual property and ensure that all related expenditure
is relieved, with the aim of introducing a reform in Budget 2000.
Tax relief on mobile telephone licences
A new relief will be introduced in 2000 for the cost
of such licences. (*)
University Challenge
The Government will provide an additional £15
million to fund more high-quality proposals through University
Challenge.
Electronic commerce and computers
New legislation will allow Customs and Excise and
the Inland Revenue to accept tax returns electronically over the
Internet. The first services being developed by Customs and Excise
will enable businesses to send VAT registrations, returns and
payments, with a pilot planned for 1999-2000 and expansion
as soon as possible. The Inland Revenue will start accepting Self-Assessment
returns and PAYE annual returns as soon as possible.(-)
The Government intends to offer a discount on returns
filed via the Internet. Other measures to help small businesses
use new technology for administrative purposes are described above
under "Administrative help for small businesses".Later
this year, the Driver and Vehicle Licensing Agency will run a
pilot scheme for Vehicle Excise Duty relicensing over the Internet
or by telephone.
The Government will ensure that computers up to £2,000
in value loaned by employers to their employees will not be taxed
as a benefit-in-kind. (4)
Education and training
Individual Learning Accounts
The Government will introduce Individual Learning
Accounts (ILAs). The first "starter" accounts will open
in 1999-2000. For each of these accounts, the Government
will provide £150 for spending on education and training,
when the holder commits £25.
From 2000, ILAs will offer their holders: discounts
of 80 per cent of the cost of certain key courses such as computer
literacy; discounts for everyone of 20 per cent on eligible courses,
on spending of up to £500 per year; tax relief to employers
on contributions to employees' ILAs; and tax relief to employees
on their employers' contributions providing that the employer
is contributing to the ILAs of their lowest paid employees on
similar terms. This will be supplemented by spending within the
Department for Education and Employment's Departmental Expenditure
Limit on discounts for ILAholders. (5)
Higher rate tax relief on vocational training will
be abolished from 6 April 1999, and the remaining relief will
be abolished in 2000-2001. (6)
Administrative help for small businesses
Small Business Service
The Government will create a Small Business Service
(SBS) to co-ordinate advice and support to small and medium-sized
businesses across England. It will have a new role to help business
comply with regulations and to improve the quality and coherence
of delivery of Government support programmes. It will also run
the Department of Trade and Industry's Enterprise Fund and the
new Venture Capital Challenge for high technology (see above).
It will also offer a new automated payroll service for small employers.
Payroll
In addition to the new automated payroll service
offered by the SBS, the Government will establish new national
standards for computer payroll software. Further use of new technology
to help small businesses is described above under "Science
and new technology".
The limit for Pay As You Earn (PAYE) quarterly payments
by employers will be increased to £1,000, allowing more small
employers to pay PAYE quarterly rather than monthly. (-)
Business support
The Inland Revenue will introduce new business support
teams working closely with the SBS to help small businesses and
new employers. The service will include the offer of a half-day's
one-to-one advice. There will also be a new helpline service for
new employers and a range of improved guidance material.
Customs and Excise will conduct a national survey
during 1999 to obtain information about current business views
to inform service improvements. Support available for newly VAT-registered
businesses will be expanded to include a business support programme
for new exporters and importers.
Both the Inland Revenue and Customs and Excise will
provide support to the Business Links network and will together
hold a series of 14 business open days over the next 15 months.
ENVIRONMENTAL TAXES AND SPENDING MEASURES
Climate change levy
A climate change levy on the business use of energy
will be introduced from April 2001. The levy will apply to electricity,
gas, coal and other solid fuels used by industry, commerce, agriculture
and the public sector. A consultation document is published on
9 March 1999 and the rates applying to different fuels will be
set in Finance Bill 2000. (38)
The main rate of employer NICs will be reduced by
0.5 percentage points so that the introduction of this levy does
not increase the overall burden of tax on business (see "National
insurance" above). (14)
Subject to any practical and legal constraints, the
Government intends to set significantly lower rates for those
energy intensive sectors agreeing targets for improvements in
energy efficiency which meet the Government's criteria.
Extra support will also be provided to promote energy
efficiency and encourage renewable sources of energy, through
energy audits and advice for small and medium-sized firms and
a "carbon trust" to promote new low-carbon and energy-efficient
technology. (39)
Transport and the environment
Company car taxation
The company car tax regime will be reformed fundamentally.
From April 2002, the existing charge on 35 per cent of the car's
list price, subject to business mileage and age-related discounts,
will be replaced with a charge on a percentage price of the car
graduated primarily according to the level of the car's carbon
dioxide emissions. These reforms will be introduced on a revenue-neutral
basis. The Inland Revenue will consult further on the details
of how the graduation might work, with a view to bringing forward
legislation in Finance Bill 2000. To pave the way, the existing
business mileage and age-related discounts are being reduced from
April 1999. (44)
Green transport plans
From 6 April 1999, the employee benefits tax charge
will be removed from: works bus services; subsidies to public
bus services for which employees pay the same fare as other members
of the public; bicycles and cycling safety equipment; and work-place
parking for bicycles. Employers will also be allowed to pay tax
free for alternative transport to help employees to get home when
normal car-sharing arrangements break down. (40)
In addition, where employees use their own bicycles
for business travel, capital allowances and a tax-free allowance
of 12 pence per mile for business cycling are being introduced.
The rural transport fund, introduced in Budget 98,
will benefit by a further £10 million from the Capital Modernisation
Fund, matched by the Department for Environment, Transport and
the Regions, over the next two years.
Road fuel duties
In line with its commitment to increase road fuel
duties by at least 6 per cent in real terms on average a year,
the Government proposes to increase duties from 9 March 1999 as
shown in Table 1.9. (42)
Table 1.9: Changes to duties on road fuels and other hydrocarbon
oils
| | Changes in duty
(%)
| Effect of tax1 on
typical item
(increase in pence)
| Unit |
| Leaded petrol
| 7·35
| 4·25
| litre
|
| Unleaded petrol
| 7·33
| 3·79
| litre
|
| Higher octane unleaded petrol
| | | |
| from 9 March 1999
| 7·33
| 4·20
| litre
|
| Higher octane unleaded petrol
| | | |
| from 1 October 1999
| -5·96
| -3·67
| litre
|
| Diesel
| 11·60
| 6·14
| litre
|
| Ultra-low sulphur diesel
| 9·82
| 4·96
| litre
|
| Gas oil
| 7·33
| 0·21
| litre
|
| Fuel oil
| 21·56
| 0·47
| litre
|
| AVGAS |
7·35 |
2·13 |
litre |
| Road fuel gas
| -29·00
| -7·20
| kg |
| 1 Tax refers to duty plus VAT, except for gas oil and fuel oil, shown exclusive of VAT
|
The duty on road-fuel gases will be cut by 6.13 pence
per kg. The duty differential between ultra-low sulphur diesel
and ordinary diesel will be widened to 3 pence per litre.
The duty differential between diesel and unleaded
petrol is also widened to 3 pence per litre. Duty on higher octane
unleaded petrol (super-unleaded or Lead Replacement Petrol) will
increase by 3.57 pence per litre but will be cut from 1 October
1999 to 2 pence per litre above unleaded petrol. (43)
Duty on gas oil and fuel oil also increases, by 0.21
pence per litre and 0.47 pence per litre respectively from 9 March
1999. (41)
Bus fuel duty rebate
The rates of fuel duty rebate paid to local bus operators
by the Department of Environment, Transport and the Regions will
be increased in line with the changes in fuel duty rates set out
above.
Vehicle Excise Duties
The normal rate of Vehicle Excise Duty (VED) for
cars, taxis and vans will increase by £5 to £155 per
year for licences taken out after 9 March 1999. From 1 June 1999,
all cars with engines up to 1,100 cc will be eligible for a reduced
rate of VED of £100. In Budget 2000, VED rates will be set
to secure a revenue-neutral system in 2000-2001 and 2001-2002.
A graduated VED system for cars based primarily on carbon dioxide
emissions will be introduced in Autumn 2000 for cars first registered
from that time. (46)
VED for new classes of lorries with 11.5 tonne axle
weights will rise for licences taken out after 9 March 1999. (47)
Most VED rates for lorries have been frozen, pending
the results of the review announced in Budget 98. (48)
The maximum reduction in VED for lorries and buses
meeting a low emissions standard will be doubled to £1,000.
(*)
Plating procedures will be changed, to ease administrative
and cost burdens on hauliers. (-)
Land use and water quality
Landfill tax
As announced in Budget 98, the standard rate of landfill
tax will be increased from £7 per tonne to £10 per tonne
from 1 April 1999. The Government intends that the rate will increase
by £1 per tonne each year from April 2000 until at least
April 2004. (45)
As announced in Budget 98, regulations will be introduced
to exempt inert waste used in restoring landfill sites and filling
mineral workings from 1 October 1999.
A number of changes will be made to the environmental
bodies scheme to clarify the rules and make it easier for landfill
operators to support environmental projects, including research
and education on recycling.
Extraction of aggregates
The Government will shortly publish draft legislation
for a tax on the extraction of hard rock, sand and gravel used
as aggregates. Before coming to a final decision on whether to
implement a tax, the Government will pursue with the quarrying
industry the possibility of voluntary environmental improvements.
If the industry is unable to agree or deliver a sufficiently tough
package, the Government will introduce an aggregates tax.
Water quality and pesticides
The Government is continuing work on options to minimise
the environmental impact of pesticide use, including a possible
tax or charge. It will shortly publish research commissioned by
the Department of Environment, Transport and the Regions, and
will seek views on the issues discussed there.
OTHER
INDIRECT
TAXES
Excise duties
Tobacco duties
The duties on most tobacco products will be increased
by 6.33 per cent, typically 17.5 pence on a packet of 20 cigarettes,
equivalent to 5 per cent in real terms, on 9 March 1999. The duty
on hand-rolling tobacco will remain unchanged. (49)
Table 1.10: Changes to tobacco duties
| | Changes in duty
(%)
| Effect of tax1 on
typical item
(increase in pence)
| Unit |
| Cigarettes
| 6·33
| 17·5
| packet of 20
|
| Cigars
| 6·33
| 7·5
| packet of 5
|
| Hand-rolling tobacco
| 0·00
| -
| 25g |
| Pipe tobacco
| 6·33
| 9·5
| 25g |
| 1 Tax refers to duty plus VAT
|
Alcohol duties
There will be no change in duty on alcoholic drinks,
with the exception of the duty on sparkling cider with an alcoholic
strength exceeding 5.5 per cent but less than 8.5 per cent which
will be increased to £1.61 per litre, to align it with the
rate on lower-strength sparkling wine, from 9 March 1999. (50)
Future duty changes
From Budget 2000, the timing of any changes in duties
on alcohol and tobacco will be aligned with the Budget cycle.
Gaming duty
The gaming duty bands will be increased on 1 April
1999 by 2.75 per cent in line with inflation during the twelve
months to 31 December 1998. (*)
Pools betting duty
Pools betting duty will be reduced from 26.5 per
cent to 17.5 per cent, with effect from 28 March 1999. This will
help the pools companies to combat their declining turnover The
companies have guaranteed to continue their contributions to the
Foundation for Sport and the Arts and to the Football Trust until
at least March 2002. (56)
Fraud and evasion
The Comprehensive Spending Review provided for £35
million additional resources, including over 100 extra Customs
officers, to tackle excise duty fraud and evasion. In addition,
there will be an independent evaluation of strategy in this area,
concentrating on measures to counter the growing threat of tobacco
smuggling by organised crime.
Insurance premium tax
The standard rate of insurance premium tax will be
increased from 4 per cent to 5 per cent with effect from 1 July
1999. (59)
PUBLIC
SERVICES
Capital Modernisation Fund
The Comprehensive Spending Review created a £2.5
billion Capital Modernisation Fund (CMF), of £1 billion in
2000-2001 and £1.5 billion in 2001-2002. £250
million will be brought forward to 1999-2000, so that the
allocation in the later years is changed to £1 billion in
2000-2001 and £1.25 billion in 2001-2002. The
Government announced on 9 March 1999 the first allocations from
the CMF.
Table 1.11:Budget 99 measures
| | | | (+ve is an Exchequer yield)
| | £ million
|
| | |
| 1999-00 |
1999-00 | 2000-01
| 2001-02 |
| | |
| non-indexed |
indexed | indexed
| indexed |
| RAISING PRODUCTIVITY
|
| | 1
| Corporation tax: new 10 per cent rate for the smallest companies from April 2000
| 0 |
0 | 0
| -100
|
| | 2
| Extension of first year capital allowances for SMEs
| | | |
|
| | | at 40 per cent, for one year
| * |
* | -175
| -150
|
| | 3
| Research and development tax credit
| 0 |
0 | *
| -100
|
| | 4
| Tax relief for employer-loaned computers
| -5
| -5
| -15
| -30
|
| | 5
| Individual Learning Accounts: making employer contributions to employee ILAs tax and NICs free
| 0 |
0 | -10
| -10
|
| | 6
| Abolition of Vocational Training Relief (VTR)
| * |
* | +25
| +50 |
| INCREASING EMPLOYMENT OPPORTUNITY
|
| Tax-benefit reform to promote work incentives
|
| Income tax:
|
| | 7
| Indexation of most allowances and limits
| -1,050
| 0 |
0 | 0
|
| | 8
| New 10 per cent rate from April 1999
| -1,600
| -1,500
| -1,800
| -1,800
|
| | 9
| Basic rate reduced to 22 per cent from April 2000
| 0 |
0 | -2,250
| -2,800
|
| National insurance contributions:
|
| | 10
| Indexation of thresholds
| -45
| 0 |
0 | 0
|
| | 11
| Alignment of threshold with income tax personal allowance, in two stages, beginning April 2000
| 0 |
0 | -850
| -1,800
|
| | 12
| Increases to upper earnings limits for employee contributions in April 2000 and April 2001
| 0 |
0 | +430
| +750 |
| | 13
| Reform of self-employment contribution rates and profits limits from April 2000
| 0 |
0 | +240
| +290 |
| | 14
| Reduction in employer contribution rate by 0.5 percentage points from April 2001
| 0 |
0 | 0
| -1,700
|
| Benefits:
|
| | 15
| New Deal package for the over 50s: Employment
Credit
| -10
| -10
| -110
| -110
|
| | 16
| Income Support: two week extension for lone
parents moving into work
| -10
| -10
| -20
| -20
|
| BUILDING A FAIRER SOCIETY
|
| Measures for families with children
|
| | 17
| Abolition of married couples allowance from April 2000 for those born after 5 April 1935
| 0 |
0 | +1,600
| +2,050
|
| | 18
| Introduction of Children's Tax Credit from April 2001:
| 0 |
0 | 0
| -1,400
|
| | 19
| with increases in Income Support child premia
| -220
| -220
| -550
| -550
|
| | 20
| and with increases in Working Families Tax
Credit and Disabled Person's Tax Credit
| -180
| -180
| -650
| -750
|
| | 21
| Child Benefit: indexation of rates and uprating from April 2000 to £15 per week for first child and £10 per week for subsequent children
| 0 |
0 | -255
| -255
|
| | 22
| Sure Start Maternity Grant
| 0 |
0 | -20
| -20
|
| | 23
| Maternity pay reforms
| 0 |
0 | 0
| -15
|
| Fairness to pensioners
|
| | 24
| Increasing personal allowances for older people
| -160
| -70
| -100
| -100
|
| | 25
| Increase minimum income guarantee for pensioners
| 0 |
0 | -220
| -220
|
| | 26
| £100 Winter Allowance from 1999
| -640
| -640
| -640
| -640
|
| Securing the tax base
|
| | 27
| Abolition of mortgage interest relief from April 2000
| 0 |
0 | +1,350
| +1,400
|
| | 28
| Countering avoidance in the provision of personal services
| 0 |
0 | +475
| +375 |
| | 29
| Extension of employer national insurance contributions to all benefits in kind which are subject to income tax from April 2000
| 0 |
0 | +415
| +440 |
Table 1.11:Budget 99 Measures
| | | | (+ve is an Exchequer yield)
| | £ million
|
| | | | 1999-00
| 1999-00 |
2000-01 | 2001-02
|
| | | | non-indexed
| indexed | indexed
| indexed |
| | 30
| Controlled Foreign Companies (CFCs):
taxation of dividends
| 0 |
0 | 0
| +20 |
| | 31
| Capital gains on sale of companies
| +40 |
+40 | +130
| +130 |
| | 32
| Stamp duty: compliance
| +25 |
+25 | +25
| +25 |
| | 33
| VAT: changes to partial exemption rules
| +70 |
+70 | +75
| +75 |
| | 34
| VAT: group treatment
| +5 |
+5 | +10
| +10 |
| | 35
| Enlarging of VAT exemption on financing
| | | | |
| | | arrangements
| +95 |
+95 | +100
| +100 |
| | 36
| VAT: bringing supplies by certain organisations in line with trade unions and professional bodies
| -10
| -10
| * |
* |
| | 37
| Taxation of reverse premiums
| +20 |
+20 | +50
| +50 |
| Environmental measures
|
| | 38
| Climate change levy
| 0 |
0 | 0
| +1,750
|
| | 39
| Energy efficiency measures and support for
| | | | |
| | | renewable energy sources
| 0 |
0 | 0
| -50
|
| | 40
| Green transport plans
| -5
| -5
| -5
| -5
|
| | 41
| Increase in minor oils duties
| +30 |
+25 | +55
| +90 |
| | 42
| Hydrocarbon oil duty escalator
| +1,675
| 0 |
0 | 0
|
| | 43
| Cut in duty on higher octane unleaded petrol
| +20 |
+20 | +60
| +40 |
| | 44
| Company car taxation: reduction in business mileage discounts from April 1999
| +270 |
+270 | +265
| +260 |
| | 45
| Landfill tax: introduction of five year escalator
| 0 |
0 | +45
| +85 |
| Vehicle Excise Duty:
|
| | 46
| Graduated VED - reduction of charge for small cars and indexation for others
| +40 |
-85 |
0 | 0
|
| | 47
| New VED for heavy lorries
| +45 |
+45 | +40
| +35 |
| | 48
| Freeze other lorry VED
| -20
| -20
| -20
| -20
|
| Other |
| | 49
| Tobacco - aligning escalator with Budget day, freeze handrolled tobacco
| +630 |
+620 | +410
| +465 |
| | 50
| Alcohol - aligning revalorisation point with Budget day and freeze
| 0 |
* | -10
| -10
|
| | 51
| Gifts of equipment by businesses to charities
| * |
* | -5
| -10
|
| | 52
| Inheritance tax: index threshold
| -30
| 0 |
0 | 0
|
| | 53
| Capital gains tax: rate adjustment
| * |
* | -10
| -15
|
| | 54
| VAT: indexation of registration and deregistration thresholds
| -5
| 0 |
0 | 0
|
| | 55
| Football clubs: assistance for transition to new
| | | | |
| | | accounting rules
| * |
* | -45
| +20 |
| | 56
| Revised rate of pools betting duty from 26.5 per cent to 17.5 per cent
| -30
| -30
| -20
| -15
|
| | 57
| Removing the income tax charge on mobile phones
| -25
| -25
| -30
| -35
|
| | 58
| Stamp duty: 2.5 per cent rate for transfer of land and property above £250,000 and 3.5 per cent above £500,000
| +270 |
+270 | +310
| +340 |
| | 59
| Increase in the rate of insurance premium tax by 1 percentage point (to 5 per cent)
| +210 |
+210 | +290
| +300 |
| | 60
| VAT: option to tax land and property rules
| +30 |
+30 | +30
| +30 |
| | 61
| Lloyd's insurance market: simplifying capital gains
| * |
* | -5
| -5
|
| | TOTAL
| -570 |
-1,065 |
-1,385 |
-3,555 | |
| * Negligible
|
APPENDIX 1A: EXPLAINING
THE
COSTINGS
This appendix explains how the effects of the Budget
measures on tax yield are calculated. In the context of these
calculations, the tax yield for measures may include amounts for
other charges to the Exchequer and, for Customs and Excise, penalties.
The general approach
The revenue effect of a Budget measure is generally
calculated as the difference between the tax yield from applying
the pre-Budget and post-Budget tax regimes to the levels of total
income and spending at factor cost expected after the Budget.
The estimates do not therefore include any effect the tax changes
themselves have on overall levels of income and spending. They
do, however, take account of other effects on behaviour where
they are likely to have a significant and quantifiable effect
on the yield and any consequential changes in revenue from related
taxes. These include estimated changes in the composition or timing
of income, spending or other tax determinants. For example, the
estimated yield from increasing the excise duty on tobacco includes
the change in the yield of VAT on that duty and the change in
the yield of VAT and other excise duties resulting from the new
pattern of spending. Where the effect of one tax change is affected
by implementation of others, the measures are generally costed
in the order in which they appear in Table 1.11. There are some
exceptions described under the headings 'Income tax allowances'
and 'National insurance contributions' in the notes below.
The non-indexed base column in Table 1.11 shows the
revenue effect of changes in allowances, thresholds and rates
of duty from their pre-Budget levels (these levels include the
effect of any measures, such as the real increases in fuel and
tobacco duties, previously announced but not yet implemented).
The indexed base columns strip out the effects of inflation by
increasing the allowances, thresholds and rates of duty in line
with prices in this and future Budgets (again taking account of
measures previously announced but not yet implemented). Measures
announced in this Budget are assumed to be indexed in the same
way in future Budgets.
The indexed base has been calculated on the assumption
that each year excise duties and VAT thresholds rise in December
(January for alcohol and March for fuels) and allowances and thresholds
other than VAT and gaming duty bands, rise in April, in line with
the increase in the RPI over 12 months to the September following
the Budget. The VAT threshold and gaming duty bands are assumed
to rise in April in line with the RPI increase over the year to
the previous December. For the year to December 1998, the RPI
increase was 2.8 per cent. The commitments for real increases
in fuel and tobacco duties of 6 and 5 per cent are also built
in.
These costings are shown on a National Accounts basis.
This aims to recognise tax when the tax liability accrues irrespective
of when the tax is received by the Exchequer. It replaces the
receipts basis used in previous years and is consistent with other
Government publications. However, some taxes under the National
Accounts basis are still scored upon receipt, principally due
to the difficulty in assessing the period to which the tax liability
relates. Examples of such taxes are corporation tax, self assessment
income tax, inheritance tax and capital gains tax.
Notes on Individual Budget Measures
Anti-avoidance measures
The yields represent the estimated direct effect
of the measures with the existing level of activity. Without these
measures, there could be a significant future loss of revenue
currently included in the baseline.
New 10 per cent corporation tax rate for the smallest
companies
The full effect will not arise until 2002-03
when the cost will be £140 million.
Extension of first year allowances for SMEs
There will be some increase in tax in later years
as the balance of unrelieved capital expenditure carried forward
is reduced by the higher allowances. The revenue effects include
those for companies and unincorporated businesses.
Research and development tax credit
The costs are based on the proposals issued for consultation.
The full effect will not arise until 2002-03 when the cost
will be £150 million.
Income tax allowances
The income tax measures are costed in the following
order: changes to personal allowances, tax bands, tax rates and
tax credits. The income tax measures shown in Table 1.11 are therefore
costed in the order shown except that the increases to the personal
allowances for older people are costed before the indexation of
other allowances and limits and the new 10 per cent rate.
The cost includes indexing the personal allowance
which was announced in the PBR.
Abolition of married couple's allowance
The full yield from abolition for all married couples
would be £2·5 billion in 2001-02.
Children's Tax Credit
The full year equivalent to the cost in 2001-02
is £1·7 billion.
Working Families Tax Credit
The costs represent the increased expenditure on
the Tax Credits. The resulting savings on Social Security benefits
are included in effect of the Income Support measure.
National insurance contributions
The measures are costed in the order shown in Table
1.11 except that the measure to extend employer national insurance
contributions to all benefits in kind subject to income tax is
costed before the reduction of the employer contribution rate.
Controlled foreign companies: taxation of dividends
The full effect will not arise until 2003-03
when the cost will be £50 million.
Transition to new accounting rules for football clubs
There are further yields of £15 million in 2002-03
and £10 million in 2003-04 making a net overall effect
of nil.
Quarterly payments of PAYE for small employers
Under the new National Accounts basis, the costs
of this measure are shown as 'nil'. However the costs in receipt
terms as employers defer paying tax by up to two months is estimated
as £100 million in 1999-00, £30 million in 2000-01
and £20 million in 2001-02.
Tax relief on mobile telephone licences
The cost in later years is provisionally estimated
as £15 million a year.
Excise duties
The cost of changes in excise duty rates under the
National Accounts basis depends partly on the extent to which
manufacturers and wholesalers anticipate expected increases by
releasing their goods early so as to pay duty at pre-Budget rates.
Costings for excise duties normally take into account the anticipated
level of such forestalling on the timing of accrued liability.
This effect can be significant for pre-announced increases, particularly
for tobacco products.
The calculation of the expected effect of changes
in duty rates on consumer demand for excise goods assumes that
any change in duty is passed on in full to consumers from the
date of the change in duty rate.
Climate change levy
This will be introduced in April 2001, raising around
£1·75 billion in its first full year (2001-02).
At the same time the Government intends to cut the main rate of
employer national insurance contributions by 0·5 percentage
points. Businesses will also benefit from measures aimed at improving
energy efficiency and additional support for renewable sources
of energy.
Landfill tax
The standard rate of landfill tax will rise by £1
a tonne each year from 2000 to at least 2004.
Higher octane unleaded petrol
This assumes that the cut in duty on 1 October 1999
will encourage take-up of higher octane unleaded petrol (rather
than premium unleaded petrol) as a substitute for leaded petrol
when that is banned from 1 January 2000.
APPENDIX 1B: TAX CHANGES ANNOUNCED BEFORE THE BUDGET
This appendix sets out a number of tax and national
insurance changes which were announced before the Budget, the
effects of which are taken into account in the forecasts.
Table IB.1:Revenue effects of measures announced
since Budget 98
| | | Changes from a non-indexed base
| Changes from an indexed base
|
| | | 1999-00
| 1999-00 | 2000-01
| 2001-02 |
| Inland Revenue taxes |
| 1 | Subcontractors in the construction industry
| -60 | -60 |
-50 | -10 |
| 2 | Extension of flat rate allowances to nurses and other healthcare workers
| -15 | -15 |
-15 | -5 |
| 3 | PRP: National Minimum Wage
| -5 | -5 | *
| 0 |
| 4 | SDRT: cross border mergers
| +10 | +10 | +10
| +10 |
| 5 | Deep discount securities: amending transitional rules for loan relationships
| +10 | +10 | +25
| +30 |
| 6 | Extension of time limit for tax relief on film expenditure
| * | * | -5
| -15 |
| Customs and Excise taxes |
| 7 | VAT: exemption for management fees for certain PEPs
| -10 | -10 |
-10 | -10 |
| 8 | VAT: foreign exchange transactions
| -15 | -15 |
-15 | -15 |
| 9 | VAT: avoidance scheme on business cars
| -5 | -5 | -5
| -5 |
| Total | |
-90 | -90
| -65 | -20
|
| * Negligible |
Inland Revenue taxes
Tax changes announced before
the Budget
In
order to achieve greater fairness in the new construction industry
scheme, subcontractors are now able to count all their construction
income as turnover for the purpose of the turnover test when applying
for gross payment certificates. Effect has now been given to this
measure under an extra-statutory concession published on 23 October
1998. It will allow many subcontractors running construction operations
partly within the scheme to qualify for certificates. (1)
The Government announced on 5 March 1999 that nurses
and other health care workers would be added to the list of employment
groups that can get a flat rate allowance for the cost of cleaning
and maintaining tools and special clothing. (2)
Payments of tax-relieved profit-related pay will
be included in earnings that count towards the National Minimum
Wage, ensuring that the agricultural sector is treated like other
businesses from 28 July 1998. (3)
As announced on 29 January 1999, a loophole in the
stamp duty reserve tax (SDRT) in connection with cross-border
mergers will be closed with effect from 30 January 1999. The estimates
shown represent the direct revenue effects of the measure and
are particularly tentative. Much will depend on the extent to
which UKcompanies take over overseas companies in future and how
these transactions are structured. Without the new rule, there
could be a significant loss of revenue in the future. (4)
On 15 February 1999, the government announced its
intention to change the rules on deep discount securities and
loan relationships to ensure that deferred charges on such securities
remain assessable and that a defect in a definition of discounted
securities is corrected. (5)
On 25 March 1998, the Government announced its intention
to extend the time limit for 100% write-off of certain expenditure
on British films. (6)
Tax relief for the salaries of employees seconded
from business to educational establishments was introduced. (*)
An anomaly in PRT rules will be removed, enabling
UKcompanies to compete more fairly for the business of transporting
non-UK oil and gas through North Sea pipelines. (-)
Customs and Excise taxes
A court case ruling released on 18 March 1998 found
that initial charges for non-self-select Personal Equity Plans
(PEP) by PEP managers to PEP investors whose plans are based on
shares should be exempt. The table shows the VAT no longer payable
on these charges. (7).
A European Court of Justice judgement of 14 July
1998 found that foreign exchange transactions are supplies for
VAT purposes. These supplies are exempt but when supplied to a
person outside the EU, input tax is recoverable. The table shows
input tax now recoverable (but not claims for blocked input tax
on previous supplies). (8)
On 16 December 1998 Customs announced that the law
had been amended to invalidate tax avoidance schemes exploiting
a change to the VAT treatment of business cars which took effect
from 1 August 1995. The table shows input tax recovered under
the successful schemes. (9)
Table 1B.2:Measures announced in Budget 98 or earlier which
take effect after this Budget
| | | £ million yield (+) / cost (-) of measure
|
| | | Changes from a non-indexed base
| Changes from an indexed base
|
| | | 1999-00
| 1999-00 | 2000-01
| 2001-02 |
| | Inland Revenue taxes
| | | | |
| 1 | Construction industry scheme
| +350 |
+350 | nil
| +60 |
| 2 | Working Families Tax Credit
| -375
| -375
| -1,200
| -1,300
|
| 3 | Disabled Person's Tax Credit
| -10
| -10
| -30
| -35
|
| 4 | rate from April 1999
| * |
* | -700
| -1,000
|
| 5 | Corporation tax: 1 per cent cut in small companies rate from April 1999
| * |
-90 |
-120
| |
| 6 | Abolish ACT and introduce quarterly payments of corporation tax
| +1,600
| +1,600
| +2,000
| +3,100
|
| 7 | Abolish quarterly accounting for gilts
| -600
| -600
| * |
+100 |
| 8 | Married couples allowance-cutting relief from 15 per cent to 10 per cent from April 1999. 65s and over compensated
| +800 |
+800 | +1,020
| +1,120
|
| 9 | Individual Savings Accounts
| +60 |
+60 | +10
| -60
|
| 10 |
Company car fuel scales increased
| +175 |
+175 | +275
| +400 |
| 11 |
Professional businesses: withdrawal of cash basis
| * |
* | +40
| +40 |
| 12 |
Reform of policy holder taxation
| neg |
neg | +100
| +100 |
| 13 |
Controlled foreign companies-tighten rules
| +50 |
+50 | +100
| +100 |
| 14 |
Transfer pricing: modernise legislation
| +20 |
+20 | +50
| +50 |
| Customs and Excise taxes
|
| 15 |
6 per cent increase in road fuel duties
| +1,730
| +1,500
| +2,925
| +4,255
|
| 16 |
5 per cent increase in tobacco duties
| +10 |
+10 | +370
| +750 |
| 17 |
Landfill tax: Standard rate to £10 per tonne - exemption for waste used in site restoration
| +105 |
+95 | +100
| +100 |
| Total | | +3,915 | +3,675
| +4,970 | +7,660
|
| * Negligible | | | | | |
Inland Revenue taxes
The changes to the construction industry scheme will
take effect from 1 August 1999. (1)
The Working Families Tax Credit and Disabled Person's
Tax Credit replace Family Credit and Disability Working Allowance
from 5 October 1999. (2, 3)
The reforms of corporation tax announced in the 1998
Budget to promote enterprise mostly come into effect in April
1999.
- The main and small companies rates are reduced
from 1 April 1999 by 1 per cent to 30 per cent and 20 per cent
respectively.
- ACT is abolished on dividends paid after
5 April 1999 and quarterly instalment payments for large companies
are introduced for accounting periods ending on or after 1 July
1999.
- The scheme under which companies account
quarterly for income tax on gilt interest received gross is abolished
from 1 April 1999.
The revenue effects are uncertain and they largely
depend on annual changes in corporation tax liability. When the
transition is complete in 2003-04, the Exchequer cost is
expected to be £1.6 billion a year (4, 5, 6, 7).
Tax relief on the married couple's allowance will
be restricted from 15 per cent to 10 per cent from April 1999
and the 65s and over eligible for the age-related allowances will
be fully compensated. (8)
The Individual Savings Account (ISA) will start on
6 April 1999. No new subscriptions to PEPs may be made and no
new TESSAs can be taken out after 5 April 1999. The figures shown
are the estimated revenue effects associated with the introduction
of ISAs (including the residual cost of PEPs and TESSAs), measured
against the baseline of continuing with PEPs and TESSAs with their
current tax reliefs. (9)
The Chancellor announced in Budget 98 that scale
charges for fuel provided for private motoring in company cars
would increase by 20 per cent above revalorisation from 6 April
1998, and in each of the following four years. (10)
From 6 April 1999, practices which permit some professional
businesses to pay tax on a more favourable ("cash")
basis will be withdrawn, in order to spread impact for those affected.
(11)
Certain changes were announced in the Budget 98 to
the rules for taxing gains from certain life insurances. Their
purpose was to make the existing rules more effective in protecting
tax revenue. The changes related to policies held in trust, overseas
life assurance business, personal portfolio bonds and a requirement
for certain overseas life insurers to have a tax representative
in the United Kingdom. The revenue effects have been revised
to incorporate changes made to the original proposals following
consultation with the insurance industry. When the changes are
complete, the annual yield is expected to be £120 million.
(12)
The transfer pricing and controlled foreign company
rules are being modernised and brought within the self assessment
regime for companies which applies to company accounting periods
ending on or after 1 July 1999. (13, 14)
Customs and Excise taxes
In the context of the above table, the indexed yield
shows the revenue effect of the changes compared with revalorisation
of the duty rates only.
The Chancellor said in the July 1997 Budget that
road fuel duties would be increased on average by at least 6 per
cent in real terms in future Budgets. (15)
The Chancellor said in the July 1997 Budget that
tobacco duties would be increased on average by at least 5 per
cent in real terms in future Budgets - one measure aimed
at reducing tobacco consumption and dissuading young people from
starting smoking. (16)
The Chancellor said in Budget 98 that the standard
rate of landfill tax would be increased to £10 a tonne from
April 1999. Following consultation, from October 1999 there will
be an exemption for inert materials used in site restoration.
(17)
APPENDIX 1C: TAX ALLOWANCES AND RELIEFS
This appendix provides estimates of the revenue cost
of some of the main tax allowances and reliefs. The larger the
reliefs, the higher rates of tax have to be in order to finance
Government expenditure, other things being equal.
Tax reliefs can serve a number of purposes. In some
cases they may be used to assist or encourage particular individuals,
activities or products. They may thus be an alternative to public
expenditure. In this case they are often termed "tax expenditures".
There may, for instance, be a choice between giving tax relief
as an allowance or deduction against tax, or by an offsetting
cash payment.
Many allowances and reliefs can reasonably be regarded
(or partly regarded) as an integral part of the tax structure
- called "structural reliefs". Some do no more
than recognise the expense incurred in obtaining income. Others
reflect a more general concept of "taxable capacity":
the personal allowances are a good example. To the extent that
income tax is based on ability to pay, it does not seek to collect
tax from those with the smallest incomes. But even with structural
reliefs of the latter kind, the Government has some discretion
about the level at which they are set.
Many other reliefs combine both structural and discretionary
components. Capital allowances, for example, provide relief for
depreciation at a commercial rate as well as an element of accelerated
relief. It is the latter element which represents additional help
provided to business by the Government and is a "tax expenditure".
The loss of revenue associated with tax reliefs and
allowances cannot be directly observed, and estimates have to
be made. This involves calculating the amount of tax that individuals
or firms would have had to pay if there were no exemptions or
deduction for certain categories of income or expenditure, and
comparing it with the actual amount of tax due. The Government
regularly publishes estimates of tax expenditures and reliefs
for both Customs and Excise and Inland Revenue taxes. Largely
because of the difficulties of estimation, the published tables
are not comprehensive but do cover the major reliefs and allowances.
The estimates in Table 1C.1 below show the total
cost of each relief. The classification of reliefs as tax expenditures,
structural reliefs and those elements combining both is broad
brush and the distinction between the expenditures and structural
reliefs is not always straightforward. In many cases the estimated
costs are extremely tentative and based on simplifying assumptions.
The figures make no allowance for the fact that changes in tax
reliefs may cause people to change their behaviour. This means
that figures in table 1C.1 are not directly comparable with those
of the main Budget measures.
Estimation of behavioural effects is notoriously
difficult. The sizes of behavioural change will obviously depend
on the measure examined and possible alternative behaviours. For
example, removing the tax privileges of one form of saving may
just lead people to switch to another tax privileged form of saving.
Table 1C.1 also gives details of reliefs relating
to VAT, which is collected by Customs and Excise. It shows the
estimated yield forgone by not applying the standard rate of VAT
(17½ per cent)
to goods and services which are currently zero-rated, reduced-rated,
exempt or outside the scope of VAT. Estimates of the scale of
structural reliefs for local authorities and equivalent bodies
are also shown. Again, the figures are estimates and must be treated
with caution. In line with the treatment of Inland Revenue taxes,
they make no allowance for changes in behaviour.
The estimated costs of reliefs and allowances given
in Table 1C.1 cannot be added up to give a meaningful total.
The combined yield of withdrawing two related allowances would
therefore be higher than the sum of individual costs. Similarly
the sum of the costs of component parts of reliefs may differ
from the total shown.
More details on individual allowances and reliefs
can be found in the HM Treasury publication "Tax Ready
Reckoner and Tax Reliefs".
Table 1C.1: Estimated costs of principal tax expenditures
and structural reliefs
| | | £million
|
| | Estimated cost for
|
| | 1997-98 |
1998-99 |
| Tax Expenditures |
| Income tax | | |
| Relief for:
| | |
| Occupational pension schemes
| 8,900 |
8,500 |
| Contributions to personal pensions (including
| | |
| retirement annuity premia and FSAVCs)
| 2,500 |
2,600 |
| Life assurance premiums (for contracts made prior
| | |
| to 14 March 1984)
| 130 |
120 |
| Private medical insurance premiums for the
| | |
| over 60s
| 90 |
5 |
| Mortgage interest
| 2,750 |
1,900 |
| Approved profit sharing schemes
| 150 |
150 |
| Approved discretionary share option
| | |
| schemes
| 100 |
110 |
| Approved savings-related share option
| | |
| schemes
| 380 |
420 |
| Personal Equity Plans
| 800 |
1,000 |
| Venture Capital Trusts
| 60 |
80 |
| Enterprise Investment Scheme
| 20 |
80 |
| Profit related pay
| 1,700 |
1,500 |
| Exemption of:
| | |
| First £30,000 of payments on termination of
| | |
| employment
| 1,100 |
1,100 |
| Interest on National Savings Certificates
| | |
| including index-linked Certificates
| 275 |
240 |
| Tax Exempt Special Savings Account interest
| 400 |
400 |
| Premium Bond prizes
| 90 |
110 |
| SAYE
| 90 |
100 |
| Income of charities
| 825 |
850 |
| Foreign service allowance paid to Crown
| | |
| servants abroad
| 100 |
100 |
| First £8,000 of reimbursed relocation packages
| | |
| provided by employers
| 300 |
300 |
| Capital gains tax |
| Exemption of gains arising on disposal of only or
| | |
| main residence
| 750 |
900 |
| Retirement relief
| 230 |
300 |
| Re-investment relief
| 75 |
neg |
| Inheritance tax |
| Relief for:
| | |
| Agricultural property
| 105 |
115 |
| Business property
| 100 |
110 |
| Heritage property and maintenance funds
| 60 |
60 |
| Exemption of transfers to charities on death
| 250 |
270 |
| Value Added Tax |
| Zero-rating of:
| | |
| Food
| 7,900 |
8,100 |
| Construction of new dwellings (including refunds to DIY
| | |
| builders)
| 2,100 |
2,150 |
| Domestic Passenger Transport
| 1,650 |
1,700 |
| International Passenger Transport
| 1,300 |
1,350 |
| Books, newspapers and magazines
| 1,250 |
1,300 |
| Children's clothing
| 950 |
1,000 |
| Water and sewerage services
| 1,000 |
1,000 |
| Drugs and supplies on prescription
| 700 |
750 |
| Supplies to charities
| 150 |
150 |
| Ships and aircraft above a certain size
| 350 |
350 |
| Vehicles and other supplies to disabled people
| 150 |
150 |
| Lower rate on domestic fuel and power
| 1,750 |
1,900 |
| Structural Reliefs |
| Income tax |
| Personal allowance
| 29,400
| 30,900
|
| Income tax and corporation tax | | |
| Double taxation relief
| 5,200 |
5,200 |
| | | |
| Corporation tax |
| Reduced rate of corporation tax on policy holders'
| | |
| fraction of profits
| 250 |
300 |
| National Insurance Contributions
|
| Contracted-out rebate occupational schemes
| | |
| of which:
| 7,770 |
8,000 |
| Occupational schemes deducted from National
| | |
| Insurance Contributions received
| 5,680 |
5,950 |
| Occupational schemes (COMPS)paid by
| | |
| Contributions Agency direct to scheme
| -
| 80 |
| Personal pensions
| 2,090 |
1,970 |
| Value Added Tax |
| Refunds to:
|
| Local authorities and Northern Ireland
| | |
| government of VATincurred
| | |
| on non-business purchases
| 3,250 |
3,330 |
| The BBC and ITN of VAT incurred on
| | |
| non-business purchases
| 200 |
200 |
| Central Government, Health Authorities and
| | |
| NHSTrusts on contracted-out services
| | |
| and projects under the private finance initiative
| 1,550 |
1,750 |
| | | |
| Reliefs with Tax Expenditure and Structural Components
|
| Income tax |
| Married couple's allowance
| 2,800 |
2,900 |
| Age-related allowances
| 1,000 |
1,100 |
| Additional personal allowance for one parent
| | |
| family
| 210 |
220 |
| Relief for maintenance payments
| 90 |
90 |
| Exemption of:
| | |
| British government securities where owner not
| | |
| ordinarily resident in the United Kingdom
| 800 |
900 |
| Child benefit (including one parent benefit)
| 700 |
700 |
| Long-term incapacity benefit
| 430 |
430 |
| Industrial disablement benefits
| 70 |
70 |
| Attendance allowance
| 250 |
260 |
| Disability living allowance
| 300 |
300 |
| War disablement benefits
| 100 |
100 |
| War widows pension
| 60 |
60 |
| Income tax and corporation tax
|
| Capital allowances
| 19,000
| 20,200
|
| Corporation tax |
| Small companies' reduced rate of corporation tax
| 1,200 |
1,250 |
| Capital gains tax |
| Indexation allowance and rebasing to March 1982
| 1,700 |
1,850 |
| Taper relief
| Nil |
100 |
| Exemption of:
| | |
| Annual exempt amount (half of the
| | |
| individuals' exemption for trustees)
| 3,000 |
1,500 |
| Gains accrued but unrealised at death
| 725 |
750 |
| Petroleum revenue tax |
| Uplift on qualifying expenditure
| 170 |
200 |
| Relief for exploration and appraisal expenditure
| 70 |
30 |
| Oil allowance
| 430 |
270 |
| Safeguard:a protection for return on capital cost
| 350 |
270 |
| Tariff receipts allowance
| 90 |
70 |
| Exemption for gas sold to British Gas under
| | |
| pre-July 1975 contracts
| 100 |
140 |
| Inheritance tax |
| Nil rate band for chargeable transfers not
| | |
| exceeding the threshold
| 5,200 |
5,600 |
| Exemption of transfers on death to surviving
| | |
| spouses
| 900 |
1,000 |
| Stamp duties |
| Exemption of transfers of land and property
| | |
| where the consideration does not exceed the
| | |
| threshold
| 270 |
240 |
| National Insurance Contributions
|
| Reduced contributions for self-employed not
| | |
| attributable to reduced benefit eligibility
| 3,400 |
3,300 |
| Value Added Tax |
| Exemption of:
|
| Rent on domestic dwellings
| 2,650 |
2,750 |
| Rent on commercial properties
| 1,000 |
1,050 |
| Private education
| 900 |
950 |
| Health services
| 500 |
500 |
| Postal services
| 450 |
500 |
| Burial and cremation
| 100 |
100 |
| Finance and insurance
| 100 |
100 |
| Betting and gaming and lottery
| 900 |
950 |
| Small traders
| 100 |
100 |
1
The effect of the Budget measures on Government revenues is set
out in Table 1.11. The number in brackets after each measure refers
to the line in Table 1.11 where its yield or cost is shown. The
symbol "-"; means that the proposal has no effect
on revenue. "*"; means that it has negligible effect
on revenue, amounting to less than £3 million a year. Back
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