UK: Tax measures in Budget 2003

Last Updated: 10 April 2003

The Chancellor of the Exchequer announced the Budget 2003 on 9 April. As expected, a number of anti-avoidance provisions have been introduced, many of which have immediate effect. This briefing outlines the main proposals. The Finance Bill 2003, which will give important detail to many of the Budget’s provisions, is expected to be published on Wednesday 16 April 2003.


Rates of corporation tax

There are no changes to the rates of corporation tax or the thresholds for the lower rates of corporation tax.

Reform of Company Taxation – impact of European law

A consultation paper on possible reform of corporation tax was published in August 2002. The August 2002 document covered:

  • Tax treatment of capital assets, such as land and shares.
  • Streamlining the system for giving relief for losses.
  • Differences in the tax treatment of trading and investment companies.

A second consultation document will be published in the summer setting out the Government’s strategy for taking forward these reforms. The document may also address the implications of recent decisions of the European Court of Justice for the UK corporation tax regime. This is likely to cover thin capitalisation, transfer pricing, group relief, the company emigration charge and the controlled foreign companies rules.

Anti-avoidance – financial transactions and derivatives

  • The loan relationships and derivatives rules relating to intra-group transfers and novations are amended for transfers made after 8 April 2003 to ensure that profits cannot fall out of charge when mark-to market accounting is used, the accounts treatment of exchange gains and losses can be followed for tax purposes and to clarify the tax treatment of intra-group novation of loan relationships and derivatives.
  • The loan relationships connected parties rules will be amended to outlaw an avoidance device which purports to create an allowable deduction for interest or discount which is accrued but never paid. This measure will take effect from 9 April 2003.
  • A number of detailed changes are made with immediate effect to the tax treatment of repos (sale and repurchase agreements). The changes target "contrived" repo transactions that create artificially increased deductions for tax purposes or that reduce the amount of taxable receipts. The changes also clarify some uncertainties as to the scope of the tax repo legislation.
  • The Government is monitoring the development of debt instruments which are economically equivalent to equity and may take action in future to protect tax revenues.

Manufactured overseas dividends

A consultation will be launched shortly on proposals to simplify the procedure for paying manufactured overseas dividends gross.



  • No changes to the rates of stamp duty.
  • No immediate changes to the stamp duty thresholds.
  • In future stamp duty measures, residential and commercial property may be treated differently.
  • Exemption from stamp duty, retrospective to 1 January 2000, for indefinite short-term tenancy agreements entered into by Registered Social Landlords with housing associations to house the homeless.

Land in disadvantaged areas

  • Stamp duty on transactions in commercial property located in disadvantaged areas is abolished entirely from 10 April 2003. This measure will be reviewed in 2006. A stamp duty exemption was introduced in November 2001 for transactions in all property in disadvantaged areas where the consideration does not exceed £150,000. The £150,000 threshold remains in place in respect of residential property but, following EU state aid approval, is now removed for commercial property.

Land – immediate anti-avoidance changes

A number of changes to the stamp duty group relief and acquisition relief clawback rules introduced in 2002 will be made to close off certain mitigation strategies. The changes generally apply to documents executed after 14 April 2003. However, the existing rules will continue to apply where the document gives effect to a contract made before 10 April 2003, unless the document results from the exercise of an option, an assignment or further contract made after 9 April 2003. The changes are:

  • Extending the clawback period from 2 years to 3 years.
  • Closing a loophole under which clawback could be avoided by selling the transferor and transferee together.
  • Withdrawing group or acquisition relief unless stamp duty has been paid on the market value of land that is subsequently reacquired by the original company.

Changes taking effect from 1 December 2003

The modernised regime for stamp duty, on which the Government has been consulting for some time, will be introduced from 1 December 2003. Draft legislation will be included in the Finance Bill. The new regime will replace the current document-based stamp duty charge with a transaction-based stamp tax. Features of the new regime which were announced in Budget 2003 will include:

  • Abolition of stamp duty on transactions involving property other than land, shares and interests in partnerships. This will take, for example, debts and other receivables out of the charge to stamp duty.
  • Expanded anti-avoidance powers to discourage transfer of properties into companies and other special purposes vehicles (SPVs) with a view to mitigating stamp duty.
  • Transfers of commercial property where the consideration does not exceed £150,000 will be exempt from stamp duty (the current threshold is £60,000). The revised threshold will also apply to premia on the grant of a lease of commercial property. There will be no change to the £60,000 threshold for residential property.
  • Subject to consultation, there will be a new method for calculating stamp duty on the rental element of new leases. From 1 December 2003, the charge will be 1% of the net present value of all the rental payments due over the term of the lease. In many cases this will lead to significantly higher stamp duty charges than the current rules. Commercial leases where the NPV of rents does not exceed £150,000 will be exempt from duty on rent.
  • VAT will not be treated as consideration for stamp duty purposes for new leases unless the landlord has opted to tax by the time the lease is granted.
  • Changes will be made to ensure that the stamp duty cost falling on individuals using certain alternative mortgage products is comparable to that of purchases financed by conventional mortgage products. It is believed that this measure is aimed at Islamic financing methods.
  • The modernised regime will come into force for transactions completed on or after 1 December 2003, where the transactions relate to contracts entered into after Royal Assent to the Finance Bill (likely to be late July or early August 2003). Transactions completing contracts entered into before Royal Assent will be subject to the existing stamp duty regime, whenever completion occurs. However, there will be special rules for options entered into after 16 April – transactions arising from these options may be subject to the new stamp duty rules. More detail on the transitional regime will be available when the Finance Bill is published.

Stamp duty on land – partnerships

  • There will be further consultation on the stamp duty treatment of the transfer of land into and out of partnerships and on the need for a stamp duty charge on transfers of interests in partnerships that hold UK land. Pending any new measures, the stamp duty treatment of partnerships will continue as now.


  • Discussions will be held with the property industry on the appropriate tax treatment of new property derivative products. The continuing consultation on corporation tax reform (see "Company taxation") will also consider the tax treatment of commercial property.
  • Let property used by an unincorporated trader will be treated as a business asset for capital gains tax taper relief purposes from 6 April 2004. Business assets are treated more favourably for taper relief purposes than non-business assets.
  • The Construction Industry Scheme will be reformed in April 2005, with a view to reducing the regulatory burden on business.
  • See "VAT and property – anti-avoidance" for VAT changes relating to new freehold buildings and to non-business use.


Under the Companies (Acquisition of Own Shares) (Treasury Shares) Regulations 2003, listed companies will be allowed to purchase their own shares, hold them in treasury and subsequently sell them back into the market.

For tax purposes, shares purchased into treasury will be treated as if they have been cancelled and shares sold out of treasury will be treated as being newly issued. While the shares are held in treasury they will be treated as if they do not exist for tax purposes. The legislation will come into effect from a day to be announced.


As indicated in a previous Treasury press release, the Government has introduced anti-avoidance measures applicable to individuals and trustees in relation to relevant discounted securities (RDS).


  • income tax loss relief will no longer be available for losses arising on transfers and redemptions of RDS; and
  • deductions for incidental expenses such as costs of acquisition, transfer and redemption will no longer be available.

The rules will take effect as from 27 March 2003 (the date of the original press release). There is a grandfathering provision (effectively, a carve out) for existing RDS listed as at 27 March on a recognised stock exchange.

The rules applicable to gilt strips are also to be extended to apply to strips of non-UK government securities. Again, this change is to have effect from 27 March 2003.


Deferred consideration

Two welcome relaxations will be introduced from 10 April 2003:

  • Taxpayers will be able in certain circumstances to carry back losses arising on the disposal of a right to receive unascertainable deferred consideration, such as an earn-out right, against certain chargeable gains made in earlier tax years. This rule will only apply to capital gains tax and not to companies which are subject to corporation tax on chargeable gains.
  • An "earn-out" right will automatically be treated as a security for chargeable gains tax rollover relief purposes, unless the taxpayer elects otherwise. This removes the burden from the taxpayer of making an election to the Revenue in order to benefit from rollover relief when he receives an earn-out right in exchange for the transfer of shares. This rule only applies where the earn-out right can be satisfied only by the issue of shares or loan notes, not cash payments.

Anti-avoidance – offshore trusts and second-hand life policies

  • Legislation will be introduced, with effect from 9 April 2003, to counter avoidance schemes which make use of the rules introduced in 2000 in relation to "flip flop" schemes to avoid the tax charge on capital payments made by trustees of offshore trusts to UK beneficiaries.
  • Changes will be made, for disposals after 8 April 2003, to close two loopholes in the capital gains tax treatment of second-hand life policies and deferred annuity contracts. The changes are designed to ensure that capital losses are restricted to the real economic loss and that capital gains will not escape tax simply because the person making the disposal received the policy or contract as a gift.

Various simplification measures

  • From 2003/2004 there will be fewer circumstances in which individuals, trustees and personal representatives will be required to fill in the capital gains pages of the self-assessment tax return.
  • From 6 April 2004, assets used wholly or partly for the purposes of a trade carried on by individuals, trustees, personal representatives or certain partnerships will qualify for capital gains tax business assets taper relief, regardless of whether the owner of the asset is involved in carrying on the trade concerned.
  • The Revenue will publish guidance to help with calculation of CGT liabilities when disposals are made of shares or units in a unit trust acquired through participation in a monthly saving scheme.

Options and Mansworth v Jelley

As widely expected, the Government has announced the introduction of legislation intended to reverse the recent and somewhat surprising decision of the Court of Appeal in Mansworth v Jelley.

In that case the Court held that where an employee exercised share options granted to him by his employer, he was deemed to have acquired the shares at market value by reason of both the option grant and the subsequent exercise being transactions other than at arm’s length.

The legislation will apply where the exercise of an option results in an acquisition or disposal of an asset to which the market value rule applies, or would apply if the new provision were not to prevent it from applying to some extent. The effect of the new provision will be that the market value rule will not be applicable when the share option is exercised. The new rule will have effect where options are exercised on or after 10 April 2003.


General Anti-Avoidance

As indicated in the Pre-Budget Report, the Government has published draft legislation, effective from 27 November 2002, to prevent businesses from exploiting rules on capital allowances by entering into artificial transactions which accelerate capital allowances on the qualifying expenditure on a sale. The transactions concerned sought to depress the market value of qualifying assets on a sale, thereby accelerating any remaining capital allowances relating to those assets. The legislation prevents the obtaining of further allowances to a vendor on any shortfall that exists between the written down value and the sale proceeds of the assets, where one of the main purposes of the transaction is tax avoidance.

The new rules apply to capital allowances for industrial buildings, mineral extraction, flat conversions, agricultural buildings and assured tenancies. They do not apply to plant and machinery allowances.

First Year Capital Allowances – Anti-avoidance

As indicated in a previous Inland Revenue press release, the Government will be countering avoidance by individuals attempting to exploit the 100% capital allowances rate available for expenditure on information and communications technology. The legislation will prevent first year allowances being available to anyone who exploits software or software rights by the granting of rights to use or otherwise deals with that computer software. However, the new legislation will not affect businesses claiming 100% allowances where they have invested in information and communications technology for bona fide use in their own business.

The legislation is to have effect for expenditure incurred on or after 26 March 2003 (the date of the relevant Inland Revenue press release).

Enhanced Capital Allowances for Water Technologies

The Government has announced a new scheme pursuant to which businesses can qualify for 100% First Year Allowances on spending after 31 March 2003 on certain plant and machinery intended to reduce water use and improve water quality.

Tonnage Tax – Leasing and Capital Allowances

As indicated in a previous Inland Revenue press release, anti-avoidance provisions are to be introduced which relate to capital allowances, leasing and tonnage tax. The tonnage tax rules restrict the amount of capital allowances that can be claimed by a lessor for expenditure on a ship that is used for activities within the tonnage tax. However, these restrictions originally applied only to finance leases. This led to some lessors offering long term leases for ships that had many of the characteristics of finance leases without being finance leases in form. The new provision will extend the types of leases to which the restrictions apply to include most long-term leasing arrangements and will apply to leases entered into on or after 19 December 2002.


The Government has announced amendments to the rules relating to the Research and Development (R&D) tax credits to take effect as soon as approval is received from the European Commission. It is intended that the changes will:

  • reduce the current £25,000 minimum expenditure requirement to £10,000;
  • amend the existing definition of ‘staffing costs’ to include workers paid through a third party and not just those taken on by the R&D company itself;
  • abolish the existing 20%-80% rule which restricts the recovery of the relief where an employee spends less than 20% of his time on R&D;
  • extend the coverage of the large company scheme to SMEs receiving other state aid.

The Government also intends to consult on the definition of R&D and in particular on the issue of software licences (which do not fall within the existing definition of R&D).


Consultation has been launched on the possibility of enhancing the Enterprise Investment Scheme and the Venture Capital Trust scheme with a view to encouraging collective investment by "business angels" and simplifying and improving the flexibility of both schemes.


With effect from 16 October 2002, two measures will remove tax barriers to the sale of UK authorised unit trusts and open-ended investment companies to foreign investors:

  • Overseas investors are able to receive interest distributions gross from UK AUTs and OEICs without providing a "not ordinarily resident" declaration to the Revenue provided certain conditions are satisfied.
  • UK inheritance tax is not chargeable on UK AUTs or OEICs held by persons who are not domiciled in the UK.


  • A number of changes will be made to the taxation of companies carrying out general insurance business and of Lloyd underwriters, particularly in relation to the tax position where settlement of claims occurs more than 10 years after liabilities were incurred. The details of the changes will be discussed with representatives of the general insurance industry.
  • The Finance Bill 2004 will contain measures to ensure that Lloyds underwriters converting to limited liability underwriting are able to carry forward unused trading losses and are also able to make use of the capital gains tax reliefs which apply when a business is transferred to a company.


Policyholder taxation

Changes are being made with effect from 9 April 2003:

  • To remove the tax charge on death benefits paid under certain group life policies.
  • To correct anomalies so as to reduce or remove the tax on policies held by charitable trusts, qualifying policies insuring against exceptional risk of disability and annuity contracts sold by friendly societies.
  • To close two loopholes in connection with policies held on trust.
  • To prevent misuse of the 5% tax deferral rule on withdrawals from policies.

Life assurance companies and friendly societies

The Government has confirmed that it will go ahead with the changes to life assurance taxation which were proposed in the December 2002 consultation document. A separate briefing on the December 2002 proposals is available from Emma Nendick.

A number of changes will be made to the original proposals concerning:

  • the treatment of distributions from UK companies;
  • the treatment of contingent loans;
  • ring-fencing of capital gains;
  • the anti-avoidance rules relating to reinsurance as a substitute for business transfer;
  • mutual companies creating abnormal amounts of pre-demutualisation surplus prior to demutualisation;
  • the rules requiring an addition of funds to a life company in connection with a transfer of business;
  • the new rules for apportioning the income and gains of companies involved in transfers of business and for ensuring continuity of entitlement to reliefs relating to transferred business;
  • greater flexibility in the use of losses by life companies in calculating Case I profit. In addition, from 2003/2004, the rate of corporation tax on the policyholder’s share of a life company’s income and gains will be reduced to the lower rate of income tax – in particular gains will no longer be taxed at the basic rate of income tax.


The Government has announced a number of reforms to the taxation of employee share schemes. The measures relate to Company Share Option Plans (CSOPs), Save As You Earn (SAYE), Share Incentive Plans (SIPs) and unapproved schemes.

In relation to CSOPs, the measures will:

  • introduce an anti-avoidance provision targeted at employees in CSOP plans who exercise options within three years of the option being granted to avoid tax and National Insurance Contributions (NICs) (effective 9 April 2003);
  • introduce the possibility of a tax-free exercise of a CSOP option within three years of a previous tax relieved CSOP exercise (i.e. removal of the second ‘three year rule’);
  • relax the rules relating to the valuation of shares listed on recognised investment exchanges;
  • introduce ‘good leaver’ exemptions from tax and NICs similar to those applicable to SAYE schemes;
  • relax the rules relating to arrangements for funding the exercise price of options and dealing with the payment of PAYE and NICs in relation to options (effective from 9 April 2003);
  • relax the rules relating to the establishment of CSOPs (effective from 9 April 2003);
  • relax the rules relating to minor changes to CSOPs and the alignment of the definitions of ‘material interest’ in CSOP and SAYE schemes (with effect from Royal Assent to the Finance Bill).

In relation to unapproved schemes the provisions will:

  • introduce an anti-avoidance provision to prevent the avoidance of NIC liabilities by using pre-April 1999 options (effective 10 April 2003);
  • introduce an anti-avoidance provision to counter schemes which seek artificially to manipulate the value of shares (effective from 16 April 2003 for tax and for NICs from an appointed day after Royal Assent to the Finance Bill);
  • amend the definition of ‘shares’ (effective from 16 April 2003 for tax and for NICs from an appointed day after Royal Assent to the Finance Bill);
  • amend applicable reporting requirements (with effect from an appointed day after Royal Assent to the Finance Bill);
  • introduce new rules for the treatment of shares subject to conditions and restrictions (with effect from an appointed day after Royal Assent to the Finance Bill);
  • extend the time limit for employers to reimburse PAYE to their employers from 30 days from exercise of the option to 90 days (to have effect from 9 April 2003), together with an equivalent extension to the time limit applicable to Class 1 National Insurance Contributions (to have effect from Royal Assent to the Finance Bill);
  • abolish the limit on the amount that may be recovered each month from an employee (intended to allow employers to administer the 1% NICs increase more easily).

In relation to SAYE schemes the provisions will:

  • permit the right to exercise SAYE options after an employee has lost his job as a result of injury disability, redundancy, or retirement following a move between associated companies or a restructuring (with effect from Royal Assent to the Finance Bill);
  • relax rules relating to minor changes to schemes (with effect from Royal Assent to the Finance Bill).

In relation to SIPs the provisions will:

  • allow employees to purchase up to the annual limit of partnerships shares at any time within the year (with effect from Royal Assent to the Finance Bill);
  • allow employers to decide whether all or part of an employee’s salary will be used when calculating the maximum percentage of salary to be spent on partnership shares (with effect from Royal Assent to the Finance Bill);
  • remove the existing restriction which prevents employees participating in two SIPs run by connected companies in the same year (with effect from Royal Assent to the Finance Bill);
  • change the holding period for dividend shares from three to five years (to align with the relevant holding period for base shares) (with effect from Royal Assent to the Finance Bill).


The IR 35 personal service company rules are extended from 9 April 2003 to cover domestic services provided to a client, such as the services of a nanny or a butler. The effect of the IR 35 rules is to impose PAYE and NICs on payments for the services of a worker supplied by an intermediary, such as a company, where, in the absence of the intermediary, the client and the worker would be treated as employer and employee. The PAYE and NICs liability falls on the intermediary. Originally the IR 35 rules only applied to services supplied for the purposes of the client’s business. This change brings domestic workers, such as nannies and butlers, who provide their services through an intermediary, within the scope of the IR 35 rules.


Legislation will be amended to make it clear that employers and contractors in the Construction Industry Scheme who incur interest on overdue PAYE tax and NICs are not entitled to deduct that interest when computing taxable profits. This will take effect for accounting periods ending after 8 April 2003.


The Budget contained a number of other provisions relating to the taxation of employment, including:

  • in relation to employee benefit trusts, and as announced in the Pre-Budget Report, the introduction of anti-avoidance measures in relation to employer deductions for contributions to employee benefit trusts. The rules defer a contributor’s corporation tax deduction until a payment is made out of the employee benefit trust in a form that gives rise to a liability to income tax and national insurance. The new rules apply to the computation of profits for periods ending on or after 27 November 2002;
  • the introduction of an exemption from income tax for contributions by employers towards the incidental costs of homeworking of employees who work at home (details yet to be published);
  • the intended publication of a consultation paper on proposals to reform the tax treatment of employer provided vans;
  • relaxation of rules relating to certain benefits which employees may receive tax free, in particular relating to long service awards, employee annual parties, third party gifts and meals for those taking part in cycle to work days;
  • from April 2004 large employers will be obliged to account for PAYE electronically.


The Government is to introduce new provisions, effective as from 9 April 2003, which will make clear that the existing tax relief on contributions to personal pension schemes by both member and employer should be restricted to earnings which are themselves subject to an earnings cap.


The following rates and allowances were announced:

  • income tax, capital gains tax, inheritance tax and corporation tax rates to be frozen;
  • basic personal allowance to be frozen at £4615;
  • personal allowances for people aged 65-74 to be increased to £6610;
  • personal allowances for people aged 75 and over to be increased to £6,720;
  • all other personal allowances to increase in line with inflation;
  • capital gains tax annual exempt amount to be increased to £7,900 for individuals and £3,950 for trustees;
  • inheritance tax threshold to be increased to £255,000;
  • in relation to NICs the increase of 1% announced as part of the Budget 2002 will have effect; otherwise no further increase.


The Government has published a discussion document considering reform of the current rules relating to residence and domicile, as they affect individuals.


Landfill tax

  • standard rate of landfill tax increased from £13 per tonne to £14 per tonne for disposals made between 1 April 2003 and 31 March 2004 and to £15 per tonne for disposals made between 1 April 2004 to 31 April 2005;
  • lower rate of landfill tax remains unchanged (£2 per tonne).

Climate change levy

  • introduction of additional exemption from Climate Change Levy (CCL) for products used in secondary recycling processes not eligible for either dual use or non-fuel use exemption but which compete with primary processes that are eligible for that exemption (exemption already introduced as an extra-statutory concession in July 2002 but to be given legislative basis by regulationimplemented after Royal Assent to the Finance Bill);
  • introduction of a formal mechanism for qualifying Combined Heat and Power (CHP) stations to claim CCL relief pursuant to which relief claimed using the previous year’s or other data can be reconciled against the station’s actual performance during that year of operation – to be implemented by regulations made in autumn 2003 following Royal Assent to the Finance Bill;
  • introduction of a requirement for suppliers of renewable source and CHP electricity to account to Customs and Excise for CCL where exempt supplies exceed the amount of qualifying electricity purchased or generated by the supplier; a corresponding change will also apply to the new exemption for indirect supplies of qualifying CHP electricity (see further above).

Hydrocarbon oils

  • Bioethanol – effective 1 January 2005 introduction of a new duty rate for bioethanol, to be set at 20p per litre below the prevailing rate for sulphur-free petrol;
  • Sulphur-free petrol and diesel – effective 1 September 2004. Introduction of a new duty rate for sulphur-free petrol and diesel, to be set at 0.5p per litre below the prevailing rate for ultra-low sulphur petrol and diesel.


Although the rate of VAT was not increased, the Government has introduced a number of changes to the VAT regime. These include:

Increase in Turnover Limits for Registration and Deregistration

Registration for VAT will now be required once annual turnover exceeds £56,000 (increased from £55,000), effective 10 April 2003.

The Government has also announced a one-off incentive scheme to allow businesses that trade over the VAT threshold but have not registered for VAT to do so without incurring a belated notification penalty provided they pay any arrears of tax in full and furnish all returns and payments on time for the twelve months after notification.

Changes to the optional flat rate scheme for small businesses

  • increase in the annual taxable turnover ceilings for entry to the flat rate scheme from £100,000 to £150,000, effective 10 April 2003;
  • clarification of measures businesses must take when trade sectors or flat-rate percentages assigned to them are amended together with an amended Table of trade sectors and assigned flat rates, effective 1 May 2003.

Simplification of Business Gifts Relief

The Government has announced the introduction of a measure to align the VAT treatment of a series or succession of gifts into line with the VAT treatment of an individual gift, so that no output tax will be due provided that the total cost of gifts made to the same person does not exceed £50 in any 12-month period. The measure is effective from 1 October 2003.

Face value vouchers

The Government has introduced a change to the VAT treatment of face value vouchers (e.g. gift vouchers, telephone cards). Under existing rules, the issuer who redeems the voucher accounts for VAT only on the amount for which the voucher was initially sold irrespective of the value it was redeemed for. Any trading in the vouchers by intermediate supplies is disregarded.

The effect of the change (which is subject to certain exceptions) will be to restrict that treatment only to sellers who both issue the voucher and take on the obligation to accept the voucher in return for goods or services they supply. Intermediate suppliers who sell vouchers will be liable to account for VAT on the full amount for which they sell a voucher.

The measure will come into effect on 9 April 2003. The Government has also published a summary of responses it received on the consultation document on the VAT treatment of face value vouchers which it published in June 2002.

VAT and property – anti-avoidance

  • Measures introduced in November 2002 to block schemes to avoid VAT on the sale of new freehold buildings will be strengthened so that payments made more than 3 years after the building is completed remain VAT standard-rated. The changes will also block a scheme involving the sale of vacant land and the subsequent construction of a commercial building.
  • From 9 April 2003 businesses which purchase land and buildings to be used partly for business and partly for private or other non-business purposes will no longer be permitted to use the approach laid down by the ECJ in the Lennartz decision as a way of paying VAT on the private use. Lennartz permits full input tax deduction on the purchase of an asset with private use paid for by an output charge arising over the life of the asset. In future the input VAT will be apportioned between business use and non-business use at the time of purchase and only input VAT apportioned to business use will be recoverable.

    Special scheme for non-EU businesses providing electronic services to EU consumers

    The VAT on E-Commerce Directive amends the place of supply rules for electronically supplied services from 1 July 2003. Non-EU businesses supplying such services to EU based private individuals will be required to register and account for VAT in every EU Member State in which they are treated as making supplies. However, the Directive requires Member States to introduce a special simplified scheme allowing businesses to register in just one Member State and account for VAT electronically. Customs has announced the introduction of measures implementing the UK’s special simplified scheme.

    Other VAT measures

    Other VAT measures include:

    • extension of Customs and Excise’s powers to require security where a business represents a direct risk to the collection of VAT;
    • introduction of a new joint and several liability provision, effective from 10 April 2003, together with Statement of Practice, intended to tackle missing trader fraud and applicable where a business receives a supply of specified goods or services in circumstances where it knew or had reasonable grounds to suspect that VAT on those goods or services would go unpaid;
    • introduction of anti-avoidance measures, effective 1 August 2003, aimed at preventing exploitation of rules governing the tax point of on-going supplies (otherwise potentially subject to manipulation by connected businesses) together with a consultation paper;
    • tightening of the rules for evidence for input tax deduction where a VAT invoice is not available, effective 16 April 2003 and together with a consultation paper;
    • relaxation of security requirements for import VAT accounting purposes, effective 1 December 2003;
    • changes in fuel scale charges;
    • increase in taxable turnover for immediate entry into the annual accounting scheme for small businesses to £150,000 (from £100,000).


    Subject to detailed consultation with the oil industry, "new tariff business" will be excluded from petroleum revenue tax (PRT) from 1 January 2004. Broadly, new tariff business means tariffs received under a contract entered into after 8 April 2003 for the transportation, processing and other services provided through the use of infrastructure onshore or in the UK

    continental shelf in relation to a field that receives development consent after 8 April 2003. In certain limited circumstances, contracts relating to fields which already have development consent may also be classed as new tariff business. Capital and operating expenditure that relate to the new tariff business will also cease to be eligible for PRT relief.


    A new system of civil penalties for failure to comply with EU or UK domestic law relating to the import or export of goods from or to countries outside the EU will be introduced in autumn 2003. This will include a civil evasion penalty which may be used in less serious cases of evasion, as an alternative to prosecution.


    Sales of motor insurance and domestic appliance insurance by protected cell companies and other similar entities will be subject to the higher rate of IPT (17.5%) which applies to sales of this type of insurance by suppliers of cars or domestic appliances or persons connected with such suppliers.


    The Government has announced a number of technical changes to tax rules applicable to companies in liquidation and administration as a result of the Enterprise Act 2002, which it is anticipated will come into force later in 2003.


    The Government intends to introduce into legislative form the ‘Hansard’ statement. The Hansard procedure is a civil settlement offered by the Inland Revenue to taxpayers who are suspected of serious tax evasion subject to the taxpayer making full disclosure of all irregularities. The statement was updated recently by the Chancellor of the Exchequer.


    • The Government will publish in the summer its proposals for simplification of the taxation of pensions following the recent consultation exercise.
    • Bingo duty on stakes and prize money will be abolished from 4 August 2003 and replaced with a 15% tax on bingo promoter’s gross profits.
    • A number of minor changes will be made to General Betting Duty.

    For further information on the Budget please contact Emma Nendick ( or Naomi Belcher (

    © Herbert Smith 2003

    The content of this article does not constitute legal advice and should not be relied on as such. Specific advice should be sought about your specific circumstances.

    For more information on this or other Herbert Smith publications, please email us.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.