WIREDGOV

Financial Secretary to the Treasury, Jane Kennedy MP, launches consultation on business tax reform

HM TREASURY News Release (87/07) issued by The Government News Network on 26 July 2007

Financial Secretary to the Treasury, Jane Kennedy MP, today launched a consultation on changes to capital allowances - part of the package of reforms to business tax announced in Budget 2007.

The consultation document outlines the package of reforms and seeks feedback from business on three new elements of the capital allowances regime:
* the annual investment allowance;
* the definition of 'integral fixtures' to be assigned to the 10 per cent pool; and
* payable enhanced capital allowances for environmentally beneficial investment.

Launching the consultation, Jane Kennedy said:
"The 2007 Budget firmly underlined the Government's ongoing commitment to provide the best possible environment for business, and to maintain a modern and competitive business tax regime, which promotes investment, innovation and growth, and continues to reflect the realities of modern business.

"The consultation document I am launching today will provide the opportunity for business to shape these proposals in advance of legislation next year."

NOTES FOR EDITORS
1. Budget 2007 announced a package of reforms to the business tax regime.
(Effective from April 2008 unless otherwise stated)
Reform of corporation tax rates
- reduction in the main rate of CT from 30 per cent to 28 per cent; and
- phased increase in the small companies' rate from 19 per cent to 20 per cent from April 2007, 21 per cent from April 2008 and 22 per cent from April 2009 to reduce the differential between incorporated and unincorporated businesses.
Reducing the distortive impact of capital allowances
- reduction in the main rate of capital allowances on the general pool of plant and machinery from 25 per cent to 20 per cent;
- increase in the rate of capital allowances on the pool of long-life assets, which applies to assets with a useful life of more than 25 years, from 6 per cent to 10 per cent;
- separate classification of fixtures that are integral to a building, and their inclusion in the 10% capital allowances pool; and
- phased withdrawal of the industrial buildings and agricultural buildings allowances with the effective rate of allowance falling to 3 per cent from April 2008, 2 per cent from April 2009, 1 per cent from April 2010 and full withdrawal taking effect from April 2011.
Improving environmental incentives
- introduction of new rules enabling companies to surrender losses derived from enhanced capital allowances (for expenditure on certain environmentally beneficial types of plant and machinery) in return for a cash payment.Re-focusing of investment incentives for small businesses
- introduction of a new annual investment allowance (AIA), giving an annual 100 per cent allowance for the first £50,000 of investment in plant and machinery (other than cars) to all businesses regardless of size and regardless of legal form. One annual £50,000 allowance will be available to each individual business or company group.
Promoting innovation
- increases to the large company R&D tax credit (from 125 per cent to 130 per cent) and enhanced deduction element of the SME and mid-sized R&D tax credit (from 150 per cent to 175 per cent), subject to State aid clearance.

2. The consultation document can be found on the HMT website at http://www.hm-treasury.gov.uk/consultations

3. The consultation runs until October 19. Further technical consultation on these changes, including draft legislation, will follow later in the year. Legislation will be included in Finance Bill 2008.

4. Non-media enquiries should be addressed to the Treasury Correspondence and Enquiry Unit on 020 7270 4558 or by e-mail to public.enquiries@hm-treasury.gov.uk.

5. This press release and other Treasury publications and information are available on the HM Treasury website. If you would like Treasury press releases to be sent to you automatically by e-mail you can subscribe to this service from the press release site on the website.