HISTORIC PRESS RELEASE : Chancellor confirms tax measures for business [March 2002]

The press release issued by HM Treasury on 26 March 2002.

Following detailed consultation the Government today confirmed its intention to go ahead with tax measures to support large companies from 1 April, as set out in the Pre Budget Report.

The Government also published draft clauses for a volume-based Research and Development tax credit for large companies, final details of which will be announced in the Budget.

The measures, which as the Pre Budget Report said would come into effect on 1 April, were announced in response to a PQ from Ian Stewart MP.

Commenting on the measures, the Chancellor said:

“In our first term we put stability and employment creation first. In our second term, as we prepare for the sixth Budget we are able to build on this platform of stability and employment creation and our energies must continue to be directed to promoting enterprise and investment and raising our country’s productivity.”

The package consists of:

• An exemption for gains and losses on substantial shareholdings to ensure that important business decisions on corporate restructuring and reinvestment are made for commercial, rather than tax, reasons. It will reduce the tax burden on business by £150m a year.
• A new regime for providing relief to companies for the costs of intellectual property, goodwill and other intangible assets to encourage business to take advantage of new opportunities in the emerging knowledge-based economy. It will be worth around £200million to UK businesses, rising to a maximum of £350 million in the longer-term
• A new tax credit to boost research and development among larger companies, benefiting over 1,500 large companies operating in the UK, spending over £11bn.

Reforming and modernising the corporate tax regime

The Government is committed to reforming and modernising the corporate tax regime to promote entrepreneurial spirit and boost the UK’s competitiveness in the global business environment.  Business has contributed significantly to the design of the new measures announced today through wide-ranging consultation. From 1 April 2002 there will be:

• A tax exemption for companies disposing of substantial shareholdings which will ensure that around 5,000 UK based companies and groups will be able to restructure quickly and flexibly to respond to emerging global opportunities
• The exemption will mean that capital gains on sales by trading companies and groups of most shareholdings of 10% or more in trading companies will not be taxable.   By removing this charge, groups wishing to restructure for commercial reasons will be able to do so without essential business decisions being constrained by the tax system.
• The reduction to 10% for a shareholding to be substantial is in response to representations made by business on the draft legislation published last November.
• Revised draft legislation, reflecting responses to the draft published in November 2001, will be available on the Inland Revenue website later today.
• A new relief for the cost of intangible assets (including intellectual property and goodwill) will encourage business to take advantage of new opportunities in the knowledge-based economy. Up to 30,000 businesses stand to benefit from the measure.
• The new regime modernises the corporate tax base and marks a further step in the Government’s programme of corporate tax reform.  It provides relief for the cost of acquiring intangible assets where none had previously been available.

Supporting innovation

Research and development (R&D) is one of the key drivers of innovation and is critical to closing the productivity gap with our competitors to deliver rising living standards for all. From 1 April 2002:

• A new tax credit to encourage R&D by large UK companies will apply to R&D spending. The credit, which will follow a simple volume approach based only on the total of R&D spending by a company, will help over 1500 large companies operating in the UK, spending over £11bn on R&D.
• This new measure complements a similar tax incentive for small and medium companies (SMEs) brought in by Budget 2000, which will continue. It extends a tax credit to all companies not previously included i.e. to all non SME companies. So all UK companies performing R&D will now have access to an R&D tax credit.
• Details of the draft legislation will be available on the Inland Revenue website.

Further details of how much the R&D tax credit will be worth will be announced in the Budget.