Finance - Spelling out the changes

Following a long and drawn out process, Chancellor Alistair Darling has confirmed the government's intentions to press ahead with its proposed reforms to capital gains tax which will take effect from 6 April this year.

All the proposals in the pre-budget Report 2007 are likely to go ahead, including the withdrawal of taper relief, the withdrawal of indexation allowance, the abolition of the kink test for assets held at 31 March 1982, the abolition of halving relief, and simplification of the share identification rules.

As expected, the announcement included confirmation of some relief for business that should be announced formally in the draft legislation. There will be a lifetime 10% rate band for the first £1m of qualifying gains, while gains in excess of £1m will be taxed at 18%.

Qualifying gains will be either the disposal of all or part of a trading business carried on alone or in partnership, or the sale of shares in a trading company or holding company of a trading group, provided one owns 5% of the company and works in it as an employee or officer.

The terms trading company, holding company and trading group will have the same meaning for the purposes of taper relief on business assets. The availability of entrepreneurs' relief takes some of the pressure off trying to conclude contracts before 6 April 2008. However, where it is possible to transact under the old business asset taper relief regime by 5 April 2008, the lifetime allowance of £1m would be preserved.

Meanwhile, from 1 April, the full rate of corporation tax for businesses will decrease to 28% while the small companies' rate will increase to 21% and then 22% as of 1 April 2009. Purchases of intellectual property, goodwill and other intangible assets will still qualify for a tax deduction equivalent to the amortisation or impairment loss charged to the profit and loss account; a flat rate of 4% may be elected alternatively.

Another dilemma for brokers this year is how to make the most of their pension contributions. Most pension contributions made wholly and exclusively for business purposes are deductible in the accounting period in which payment is made. However, relief for contributions may be spread over a period of up to four years if broadly they exceed 210% of the previous year's contributions. If the sum of tax-relieved contributions from the employee and contributions by the employer exceeds £235,000 for the tax year 2008-09, a lifetime allowance of £1.65m, the excess will be charged to income tax on the employee at 40%. Salary sacrifice and bonus sacrifice schemes are efficient at utilising employee pension capacity.

Meanwhile, remuneration for directors and employees must be paid before the expiry of nine months following the end of the accounting period if tax relief is to be obtained in that same time. Bonuses paid later than this are deductible in the accounting period in which payment is made.

With the increased penalty regime affecting company compliance it is worth remembering that, for PAYE and National Insurance, employers must file forms P14 and P35 by 19 May and P11D by 6 July after the year end point. Employers must provide employees with form P60 by 31 May and details of the information on their form P11D by 6 July following the end of the tax year. Under corporation tax self-assessment, a company must file with HMRC its corporation tax return, accounts and supporting computations within 12 months after the end of each accounting period. CTSA requires a company's tax return, CT600, to contain a self-assessment of its tax liability for the relevant accounting period.

Although taxation can be complex, a close examination of the rules provides clarity.

- Howard Jones, head of insurance tax services, Mazars

CAPITAL GAINS TAX RATE

The adoption of a new VAT directive on insurance services could change the treatment of VAT in brokers fundamentally and have a significant effect on outsourced services.

The proposed change has implications for the taxation of UK residents and those with ordinary residency and domicile status.

HMRC intends to issue a consultation document and draft legislation regarding the fundamental change to the taxation of overseas profits during 2008, with the new legislation coming into force in 2009.

For more information on capital gains tax, go to www.hmrc.gov.uk.