2007 Budget Summary - Review
Welcome to our summary of the Budget highlights that affect businesses and individual taxpayers.
Corporation tax rates
The standard rate of Corporation Tax will be reduced from 30 per cent to 28 per cent from 1 April 2008 for companies with taxable profits over £1.5m.
For companies with taxable profits below £300,000, the small companies rate will increase from 19 per cent to 20 per cent from 1 April 2007, to 21 per cent from 1 April 2008 and to 22 per cent from 1 April 2009.
Marginal rates will be adjusted accordingly for companies with profits between £300,000 and £1.5m.
The Government are introducing a wide ranging reform of the capital allowances regime.
For plant and machinery, the annual rate of allowances is set to decrease from 25 per cent to 20 per cent from 2008/09.
For longer life assets, the annual rate of allowances is set to increase from 6 per cent to 10 per cent from 2008/09.
Industrial buildings allowances are to be phased out by 2010/11.
The annual rate of allowances on fixtures that are integral to buildings are to be fixed at 10 per cent from 2008/09.
The 50 per cent rate for small enterprises is extended for a further 12 months.
It is proposed that an allowance for the first £50,000 spent on plant and machinery will be available from 2008/09. This will replace the current system of first year allowances and is still subject to consultation.
A tax credit for losses on certain ‘green technologies’ is to be introduced from 2008/09.
Research and development
Subject to approval from the European Commission, the enhanced rate of deduction is set to increase for all companies from 2008/09. The tax credit will remain at broadly 24 per cent and entities with less than 500 employees can now qualify for this incentive.
Registration threshold increases to £64,000 from 1 April 2007. De-registration threshold increases to £62,000. New legislation is on the way for calculating VAT charges for the non-business use of land and buildings and other business assets.
Landfill Tax and Aggregates Levy
Increases in rates for Landfill Tax (from 1 April 2007) and Aggregates Levy (from 1 April 2008).
Personal tax rates and allowances
From 2008/09, the basic income tax rate will be reduced from 22 per cent to 20 per cent and the 10 per cent starting rate on non-savings is removed.
The 10 per cent rate for savings income, including dividends and capital gains tax remains.
People over 65 will receive an increase in allowances that is greater than inflation.
The upper limits for national insurance contributions are to be increased by more than inflation and will be aligned with the point at which higher rate tax applies from 2009/10.
Changes to self assessment filing dates
Starting with the income tax returns for 2007/08, there will be two separate filing dates. For paper returns the filing date will be 31 October following the end of the tax year. For returns filed online the filing date will remain 31 January. The deadline of 30 September for those who want HMRC to calculate their tax liability is removed.
Holiday homes abroad
An important change is announced for the taxation of overseas properties owned by individuals through their own companies.
In the past, there was a danger of HMRC taxing the directors of companies under the benefits in kind legislation. The 2008 Finance Bill, will remove the charge where the company exists only to hold the property and is not connected with other companies.
Quite complex arrangements have been put in place in the past to circumvent the benefits charge. It looks like the UK tax implications can now be ignored.
Stamp Duty Land Tax (SDLT)
From 1 October 2007 the purchase of new zero carbon homes for less than £500,000 will be exempt from SDLT. Where the purchase price is more than £500,000, then SDLT will be reduced by £15,000.
Tax on foreign dividends
Up until now, foreign dividends did not receive the benefit of the notional 10 per cent tax credit which was available on UK dividends.
From 6 April 2008, UK resident individuals will receive the same 10 per cent credit on foreign dividends provided that they do not own 10 per cent or more of the paying foreign company and their dividends from abroad do not exceed £5000 a year.
The Government is considering ways of extending the credit to individuals who currently fall outside the regime.
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