Rates

There were no changes to the rates of Corporation Tax for the year to 31 March 2004, which therefore remain:

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

Different marginal rates apply to profits between £10,000 and £50,000, and between £300,000 and £1.5m. These amounts are reduced for periods of less than 12 months, and are shared between associated companies.

Research and development

Since 1 April 2000, small and medium-sized companies have enjoyed an enhanced deduction (effectively a subsidy) for qualifying revenue expenditure on research and development. A similar scheme was extended to large companies in 2002.

The rules are to be simplified and extended, subject to agreement from the European Commission. Some of the more important changes for SMEs are:

* 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.

Employee benefit trusts (EBTs)

An EBT could be used by a company to shelter profits while deferring the time at which employees pay tax - the employer treated a payment into the trust as an expense, but the employee paid tax only when the trust provided a benefit.

This advantage has been closed down from November 2002 by denying the employer a deduction if the employee does not receive taxable income within 9 months of the payment in.