Budget Resolutions 2004 — Non-Corporate Distribution Rate — 23 Mar 2004 at 19:46

The majority Aye voters agreed to introduce a 'non-corporate distribution rate (NCDR)'^[1].

This rate "ensured that where a company paid below the small companies' [corporation tax rate]^[2] (19% in 2004), dividend payments made to non-corporates (for example, individuals, trusts and personal representatives of deceased persons) would be subject to additional corporation tax, bringing the corporation tax paid up to 19%. For example, a company making £10,000 profit, and making a £6,000 dividend distribution to an individual and £4,000 to another company would pay 19% corporation tax on the £6,000."^[3]

The background to this measure is the starting rate for corporation tax introduced by Gordon Brown in his 1999 budget^[4]. This meant companies who made a profit between £0 and £10,000 per year were taxed at 10% on those profits.

However, in the 2002 budget Gordon Brown reduced this starting rate to 0%^[5] meaning, of course, companies with profits of no more than £10,000 paid no corporation tax.

Labour wanted to introduce the NCDR because when the starting rate was set to 0% in 2002 this resulted in a large number of small businesses turning themselves into companies^[6]. Consequently, many of these businesses were avoiding paying corporation tax.

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• [1] Motion on corporation tax, House of Commons, 23 March 2004
• [2] Small companies' corporation tax rate is set for companies whose profits are less than £300,000 per year
• [3] Wikipedia entry, retrieved on 2010-02-27
• [4] Finance Act 1999, Section 28
• [5] Finance Act 2002, Section 32
• [6] BBC News, 16 March 2004

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