Contracts for sales of capacity

Contracts for Sales of Capacity

The Accounting Standards Board has issued UITF Abstract 36, . The abstract is likely to be of interest only to the small number of industries - such as telecommunications and electricity - that engage in ' capacity swaps' , an area of accounting abuse in recent years. It sets out the limited circumstances in which transactions in capacity should be reported as sales. It specifies that gains on capacity swaps should be recognised only in rare circumstances where the assets or services provided or received have a readily ascertainable market value. No accounting recognition should be given to transactions that are artificial or lacking in substance. The abstract is effective for accounting periods ending on or after 22 June 2003.

The Budget in brief

Income tax rates and allowances.

The starting rate of income tax stays at 10% for 2003/04 and applies to the first £1,960 (v £1,920 for 2002/03) of taxable income. The basic rate stays at 22%. The higher rate stays at 40% and applies to taxable income over £30,500 (v £29,900).

The personal allowance stays at £4,615. The age allowance (65 to 74) rises to £6,610 (v £6,100). The age allowance (75 or over) rises to £6,720 (v £6,370). The income limit for the age allowance rises to £18,300 (v £17,900). The blind person' s allowance rises to £1,510 (v £1,480).

National insurance contributions. The lower earnings limit for Class 1 NICs rises to £77 a week (v £75). The earnings threshold stays at £89. The upper earnings limit rises to £595 a week (v £585). The employee rate on earnings between the earnings threshold and the upper earnings limit rises to 11% (v 10%). An employee rate on earnings above the upper earnings limit is introduced at 1%

(v 0%). The employer rate on earnings above the earnings threshold rises to 12.8% (v 11.8%). Class 2 NICs stay at £2 a week. The small earnings exception rises to £4,095 a year (v £4,025).

Class 3 NICs rise to £6.95 a week (v £6.85).

The lower profits limit for Class 4 NICs stays at £4,615 a year. The upper profits limit rises to £30,940 a year (v £30,420). The rate on earnings between the lower and upper profits limits rises to 8%

(v 7%). A rate on earnings above the upper profits limit is introduced at 1% (v 0%). Personal pensions. The pensions earnings cap rises to £99,000 (v £97,200).

Tax-free benefits. The tax-free limit for spending on annual staff parties rises to £150 per person attending (v £75). The tax-free limit for long-service awards rises to £50 for each year of service (v £20). The tax-free limit on non-cash gifts to employees from third parties rises to £250 a year (v £150). Employers will be able to provide an unlimited number of tax-free meals/ refreshments to employees as an incentive to join in cycle-to-work days (v maximum six meals a year). Capital gains tax. The annual exempt amount rises to £7,900 (v £7,700). The more generous business asset taper relief has been extended to some assets that previously were only entitled to nonbusiness asset taper.

Inheritance tax. The nil rate band rises to £255,000 (v £250,000). Corporation tax rates and reform. Corporation tax rates and thresholds remain unchanged. The government plans to publish a second paper on corporation tax reform this summer; it is likely to want to build in changes that will protect the system against legal challenges under EU law. Enhanced capital allowances. The 100% first-year capital allowances available for the purchase of information and communications technology by small and medium-sized businesses have been extended by another year.

Research and development tax credits. There are a number of changes to the R&D tax credit scheme, including lowering the minimum qualifying spend to £25,000 (v £10,000).

Employee share schemes. There are measures intended to simplify the operation of both approved and unapproved share schemes. VAT. The new turnover limit for compulsory registration rises to £56,000 (v £55,000). The limit for deregistration rises to £54,000 (v £53,000). The taxable turnover limit for the annual accounting scheme rises to £150,000 (v £100,000). Review of residence and domicile. The government has issued its

long-awaited paper on the residence and domicile rules, but it contains no proposals.

Accountancy Budget 2003 coverage

News: The experts react 16 Full round-up of the chancellor' s tax changes 110 Viewpoint: Reflections on the Budget 114 Full round-up of the chancellor' s VAT changes 116

Technical round-up News

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