• a family element paid to all eligible families, broadly replicating the Children’s Tax Credit, in recognition of the responsibility families take on when caring for children
  
  
• a child element for each child within the family, in the same way as in the Working Families’ Tax Credit, Disabled Person’s Tax Credit, Income Support and income-based Jobseeker’s Allowance
  
  
• a higher family element for families who have one or more children under the age of one
  
  
• additional support for families caring for children with a disability.
  

Decisions on rates for the Child Tax Credit will be made in the March 2002 Budget.

New Working Tax Credit

A Working Tax Credit will be introduced in 2003 to reward the work of people on low incomes, whether or not they have children. It will build upon the elements of adult support in the Working Families’ Tax Credit and Disabled Person’s Tax Credit and the New Deal 50+ Employment Credit and will also provide working families with assistance to meet the costs of childcare.

Once the new system is in place, adults who are not in work will continue to be eligible for the adult element of Income Support or income-based Jobseeker’s Allowance. Working households on low incomes will be eligible for the Working Tax Credit. Many families with children, whether or not the adults in the family are in work, will be eligible for the new Child Tax Credit.

• launching a number of Saving Gateway pilot projects to assess how best to make the Saving Gateway work
  
  
• publishing a follow up report, ‘Delivering Saving and Assets’, presenting detailed results from the initial consultation and options for further consultation.
  
  

• guarantee a minimum income for pensioners
  
  
• reward saving for retirement
  
  
• revise the minimum income guarantee capital regime
  
  
• abolish the weekly means-test
  
  
• protect the position of people on Housing Benefit and Council Tax Benefit.
  

Other measures

• The winter fuel payment which was increased to £200 last winter will be maintained at this level for the remainder of this Parliament.
  
  
• The Government guarantees that the annual basic state pension will rise by £100 for a single pensioner and £160 for pensioner couples in 2003/04. Subsequently the basic state pension will rise each year by 2.5% or the increase in the September Retail Price Index, whichever is higher. This builds on the increases in 2001/02 and 2002/03.
  
  

• consultative draft legislation on an exemption for capital gains and losses on substantial shareholdings
  
  
• consultative draft legislation on a new regime for providing relief to companies for the costs of intellectual property, goodwill and other intangible assets
  
  
• a new tax credit to boost R&D and innovation in larger companies
  
  
• changes to the Construction Industry Scheme to help ensure that companies suffering deductions under this scheme can engage employees and other subcontractors and continue to meet their tax liabilities.
  

Substantial shareholdings

The aim of this legislation is to ensure that important business decisions on corporate restructuring and reinvestment are made for commercial, rather than tax, reasons.

At present, when a company disposes of a shareholding in another company, corporation tax is payable on the capital gain.

It is proposed that for disposals on or after 1 April 2002, gains will be exempt, and losses not allowable, where:

• a trading company, or a member of a trading group disposes of shares in a trading company, or the holding company of a trading group (or sub-group)
  
  
• a substantial shareholding (proposed as 20% or more) has been held throughout a 12 month period ending not more than 12 months before the disposal.

Intellectual property, goodwill and other intangible assets

From April 2002, it is proposed to introduce a new regime to companies for the costs of intellectual property, goodwill and other intangible assets. The regime will provide relief:

• covering the costs of acquiring intangible assets where no relief has previously been available
  
  
• ensuring that relief for future acquisitions will be given on a consistent basis, following, as far as possible, the amortisation reflected in companies' accounts.
  

R&D tax credit

A previously issued consultative document set out the case for a new R&D tax credit for large companies and invited comments on two options:

• an ‘incremental’ scheme, giving extra tax relief based on the additional amount of R&D spending
  
  
• a ‘volume’ credit, giving extra tax relief based on the total amount of R&D spending.
  

Following the consultation the Government has decided to adopt a version of a volume-based credit. The Government will launch a further consultation shortly on options for the design of a volume-based credit.

Construction Industry Scheme

The Government also intends to introduce changes to the Construction Industry Scheme, replacing, from 6 April 2002, the existing legislation that provides for deductions made from payments to companies without certificates to be set against corporation tax.

New legislation will allow these payments to be set off against PAYE, NICs and CIS liabilities.

Enterprise Management Incentives (EMI)

The EMI scheme was originally introduced in July 2000. It is a tax-advantaged share option scheme designed to help small companies attract and retain staff. Under the scheme, employees can be granted options over shares worth up to £100,000 per employee. There is an upper limit of £3 million on the total value of shares under EMI option.

EMI options are attractive because the rate of capital gains tax payable on any gain realised on ultimate disposal of the shares begins to taper as soon as the options are granted. Under the proposed new capital gains tax regime, this will mean tax is payable at an effective rate of 10% for a higher rate taxpayer after two years from the grant of the option.

The Government now proposes to allow companies with gross assets up to £30 million (currently the limit is £15 million) to use the EMI scheme. The £30 million limit is expected to become effective from 1 January 2002.

• simplification of the corporation tax computation for small companies
  
  
• publication of a review of the provision of payroll services and consultation on the proposals
  
  
• VAT measures.
  

Simplifying the tax regime

The Government intends to continue to consult business on specific ways of simplifying the corporation tax computation of small companies, while maintaining incentives and fairness. This is in response to comments received following the publication of a technical note earlier in 2001.

Currently the proposals would affect companies which are ‘small’ under the Companies Act definition. The main simplification is the closer alignment of profits for tax purposes with those reported in the accounts.

Payroll services

The Government has now published an independent review of the provision of payroll services for new and small businesses and is considering the case for further action.

The review concludes that greater use of information technology is the key to enabling businesses to deal with the complexity of payroll obligations. The review recommends:

• a requirement for large employers (with 50 or more employees) to send their end-of-year returns to the Inland Revenue electronically by 2004 and for smaller employers by 2007
  
  
• cash incentives for smaller employers to encourage electronic filing of end-of-year returns with the Inland Revenue for a period of five years.
  

In principle, the Government endorses the review's recommendations, but believes the issues raised would benefit from wider debate. The Government is therefore inviting comments on the detail of the recommendations.

VAT measures

Measures will be introduced during 2002 to ease the impact of VAT on small and medium enterprises, including:

• an optional flat-rate scheme designed to cut compliance costs
  
  
• changes to simplify and increase participation in the VAT annual accounting scheme.
  

Flat rate scheme

Following consultation, the Government has decided to introduce a new optional flat rate scheme for businesses with a taxable turnover of up to £100,000 a year. Traders who join the scheme can avoid having to account internally for VAT on all the individual goods they buy and sell and can instead simply calculate their net VAT liability as a percentage of their total turnover (including their exempt income). It is proposed that there would be a range of percentages from 5% to 15% dependent on trade sector.

The scheme potentially affects 300,000 businesses.

VAT annual accounting scheme

This scheme allows the 900,000 businesses with a turnover of up to £600,000 a year to file their VAT returns annually rather than quarterly, improving their cash flow and reducing their compliance costs.

The reforms include:

• simplifying the payment patterns for participants in the scheme
  
  
• removal of the existing 12 month qualifying period for businesses with annual turnover of up to £100,000.
  
  

• all shareholdings in unquoted trading companies (including AIM)
  
  
• all shareholdings held by all employees (both full and part-time) in quoted trading companies
  
  
• shareholdings in a quoted trading company where the holder is not an employee but can exercise at least 5% of the voting rights.
  

Many businesses are treated as trading but investment companies and property investment companies are not. Companies which are mainly trading but have more than an insubstantial amount of non-trading activities are also treated as non-trading.

Business asset taper is now also available to employees of certain non-trading companies with shares in their employer company. The change took effect on 6 April 2000. However, this extension of business asset taper is subject to some restriction, namely that employees can only benefit so long as they do not (together with their relatives and other ‘connected persons’) own more than 10% of the company.

Gordon Brown is now set to make the CGT regime so attractive for holders of business assets that some are asking why he hasn’t simply done away with CGT on business assets altogether.

From April next year, the effective rate of CGT on business assets will fall to a maximum of 10% after just two years rather than the current four. The proposals are summarised below:

• energy-saving technologies (over and above the ones already introduced)
  
  
• cleaner vehicles and fuels
  
  
• improving water use and water quality.
  

Road haulage taxation

The Government will consult on the introduction of a system to ensure that hauliers from overseas contribute fairly towards the costs they impose in the UK.

Low-carbon vehicles and fuels

In the 2002 Budget the Government will introduce further tax incentives to encourage new low-carbon vehicle technologies, such as hydrogen fuel cells.

Green Fuels Challenge

There will be fuel duty exemptions for pilot schemes testing possible future ‘green’ fuels – hydrogen, biogas and methanol.

Vehicle excise duty (VED)

The Government plans to consult on the options for modernising motorcycle VED. The possibility of VED tax incentives to encourage cleaner vans will also be discussed.

Fuel for employees

The Government is considering restructuring the fuel scale charge to relate it to carbon dioxide emissions (rather than engine size). Any changes would take effect in 2003.