• As announced last year, income tax rates and main allowance frozen, and NIC rates increased by 1% for employees, employers and self-employed
• As announced last year, introduction of new Working Tax Credit and Child Tax Credit from 6 April 2003, and new Pension Credit from October
• No significant changes to inheritance tax or to pension schemes
• Introduction of Child Trust Fund - £250 from the Government for every child at birth, to spend at age 18
• Small increases in 10% and 22% income tax bands

Contents

Personal Income Tax
National Insurance Contributions
Pensioners
Employees
Savings
Capital Gains Tax
Stamp Duty
Inheritance Tax
Corporation Tax
Business Tax
Value Added Tax
Other Measures
Tax Tables
NIC Tables
Tax Calendar


Personal Income Tax

Tax rates and allowances (Table A)

As announced last year, the main personal allowance is frozen, instead of increasing in line with inflation as normal. This effectively leads to a tax increase for anyone whose income has risen over the last year. The 10% and 22% bands have been increased by inflation.

The allowances for those aged 65 and above have been increased by more than the rate of inflation, representing a tax reduction.

Tax credits

The new system of Tax Credits became effective on 6 April 2003. Working Tax Credit (WTC) and Child Tax Credit (CTC) replace the previous systems of support for people on low incomes and people with children. The new credits are paid to claimants, rather than being an automatic adjustment to tax liabilities. Claims are made based on the joint income of a couple.

WTC will be given to employed and self-employed people. It includes an element for childcare costs (up to 70% of £200pw), and is tapered away as income increases.

CTC has elements for each child and for "the family". This basic credit (£545pa) will be paid to claimant couples with income of up to £50,000, and some entitlement will still be due on incomes up to £58,000 (£66,000 in the year a child is born).

For a family with substantial childcare costs, support of about £3,300 can be available even on an income of £35,000, significantly reducing the tax burden.

 TAX TIP! 
Tax Credits depend on making a claim, which can only be back dated by 3 months. To establish entitlement from the start of the new system, a form has to be submitted by 5 July 2003.

Charitable giving

As announced last year, a new simplified procedure is to be introduced for assigning tax refunds direct to a charity and claiming Gift Aid relief. However, this will only take effect for 2003/04 tax returns issued in April 2004.

Support for carers

From 6 April 2003, new rules will apply to financial support given to adopters and foster carers. Adoption allowances will be exempt from tax, and receipts from foster care will only be taxable if they exceed a limit which varies according to the number of children cared for.
 
National Insurance Contributions (Table D)

The Chancellor announced in April 2002 the increases which took effect on 6 April 2003, so he did not have to repeat the bad news this year. At least, no further increases were announced, as some people had predicted.

Employees and employers will each pay an extra 1% of salary over £4,615 in 2003/04, and the self-employed will pay an extra 1% on profits over the same level. Employees will see the increase on their April 2003 payslip, while the self-employed will only suffer it when paying the 2003/04 tax on 31 January 2005.

Because of the long delay between the announcement of the increase and its arrival, a number of ways of mitigating the impact have been raised in the last year, including the incorporation of self-employed businesses and the payment of dividends (which are not subject to NIC). There are no measures in this Budget to counter such plans, which may mean that the Government is not worried about them, or may mean that the Inland Revenue believe that existing rules can prevent avoidance unless taxpayers are very careful.

 TAX TIP! 
If the new NIC rates hurt, it's worth looking at ways to mitigate them -take advise

Pensioners

If the new NIC rates hurt, it's worth looking at ways to mitigate them - take advice.

The Chancellor referred in the speech to the new Pension Credit which will come into effect in October 2003. As with the new Tax Credits, it is a means-tested benefit which must be claimed; some payments should be due to single pensioners with income of up to £ 139 a week, and to couples with income of up to £203 a week.

Employees

Company cars (Table C)

The new system of emissions-based tax charges on company cars was introduced last year and continues. However, there are two changes:

• the minimum 15% benefit will apply to ratings up to 159 g/km, tightened from 169 g/km in 2002/03
• the taxable benefit for free fuel used in a company car is now the same emissions- based percentage multiplied by a set figure of £14,400.

• approved schemes only lead to CGT on eventual disposal of the shares.
• unapproved schemes lead to income tax, and often NIC, on acquisition of the shares.

• increasing the ceiling for annual staff parties from £75 to £150 a head
• increasing the limit on long service awards from £20 to £50 per year of service
raising the limit on non-cash gifts from third parties from £150 to £250
• removing the limit on the number of ' 'free breakfasts" which can be offered as an incentive for cycling to work (currently 6).

• increasing the level of receipts which do not have to be reported in detail on the tax return (provided the gains are below the annual exemption)
• extension of the higher rates of business asset taper relief to assets used by an unincorporated trade, even if the owner is not the trader (e.g. is the landlord of the trader's building)
• simplification of the taxation of , "earn-out" deals
• simplification of the record-keeping for regular savings plans in unit trusts.

• 0% on profits up to £10,000
• 19% on profits up to £300,000
• 30% on profits over £1.5m

• lowering the minimum annual expenditure for a claim from £25,000 to £10,000
• extending claimable "staff costs" to cover agency workers as well as employees
• simplifying the apportionment of costs where staff spend some time on R&D and some on other matters.

• if you are a UK-based business buying services which are downloaded from the internet, you will have to account for the "reverse VAT charge" if the seller is outside the UK.
• if you are a UK-based business selling such services to anyone belonging outside the EU, you will no longer have to account for output tax on the sale.

Table B - Personal Pensions: earnings cap £99,000 (2002/03 - £97,200)

Table C - Benefits in kind

National Insurance Contributions

Table D - Rates and limits for 2003/04

Tax Calendar - Important Dates

Tax year 2003/04