Budget 2007 - Main Points

Click here for the latest 2007/8 tax rates and allowances (uploaded as soon as we get them).

Here are the main points from Budget 2007:

Headline Changes

• Tax rate on small companies to be raised in three stages from 20p this year to 22p in 2009!
• Basic income tax rate will be cut from 22p to 20p from April 2008
• Main Corporation tax rate will be cut from 30p to 28p from April 2008
• VAT Registration Threshold will rise from £61,000 to £64,000 from 1st April 2007
• The VAT Cash Accounting Scheme has been expanded to businesses with turnover up to £1.35m from 1st April 2007.
• Tax exemption for capital gains will rise from £8,800 to £9,200, and will be £18,400 for married couples.
• Inheritance tax will rise from £285,000 now to £350,000 in 2010.
• Fuel duty rises set at 2p for 2008, and 1.8p for 2009.
• Income Tax and National Insurance Thresholds will be aligned from 2009 in an attempt to simplify the tax system. The existing 10% rate will be abolished.

All income tax allowances will be increased in line with inflation. The personal allowance will increase to £5,225.

• Bytestart's 2007-8 Income Tax Tables

National insurance contribution (NIC) rates and thresholds for 2007-08 were announced in the 2006 Pre-Budget Report. The starting point for employers’, employees’ and self-employed NICs in 2007-08 will increase in line with inflation to £100 per week. NICs are not paid on earnings or profits below this amount.

The upper earnings and profits limits for NICs will increase from April 2007 in line with inflation from £645 to £670 per week. For the self-employed, the rate of Class 2 contributions will increase to £2.20 per week.

• Bytestart National Insurance Tables for 2007-8

The capital gains tax (CGT) annual exempt amount is increased in line with statutory indexation to £9,200 for the tax year 2007-08 for individuals, personal representatives of deceased persons and trustees of certain settlements for the disabled. The annual exempt amount for most other trustees is increased to £4,600.

Every husband, wife, civil partner and child has his or her own £9,200 annual exempt amount.

The amount chargeable to CGT is added to the individual’s income liable to income tax and treated as the top part of that total. For 2007-2008, CGT up to the starting rate limit will be charged at 10 per cent, between the starting rate and basic rate limits at 20 per cent, and above the basic rate limit at 40 per cent.

Non-payable dividend tax credit

Budget 2007 announces that the Government aim to simplify the system of taxation for individuals who own foreign shares.

There is currently a one ninth non-payable dividend tax credit available for UK individuals receiving dividends from UK resident companies. This credit will, from April 2008, be extended to dividends from non-UK resident companies, subject to certain conditions.

A person will qualify for the non-payable dividend tax credit if they have less than a 10 per cent shareholding in the distributing non-UK resident company and in total they receive less than £5,000 per year of dividends from non-UK resident companies.

Higher rate taxpayers, who are liable to tax at 32.5 per cent, will in practice only owe 25 per cent (of the net dividend) because part of the tax liability will be covered by the tax credit. Lower and basic rate taxpayers who are liable to tax at 10 per cent, will in practice not pay any tax on dividends from non-UK companies because the tax liability will be entirely covered by the tax credit.

The Government is also considering whether it is possible, without creating scope for abuse, to deliver a more general extension of the non-payable tax credit for the small minority of individuals in receipt of dividends from non-UK resident companies who do not meet the conditions outlined above.

Inheritance tax

As announced in Budgets 2005 and 2006, the inheritance tax nil-rate band allowance will be increased by more than statutory indexation to £300,000 for the tax year 2007-08, £312,000 for 2008-09 and £325,000 for 2009-10.

The value of estates over and above the nil-rate band is taxed at 40 per cent. The estimated number of taxpaying estates in 2007-08 will be about 35,000 - this is around 6 in 100 deaths.

The nil-rate band allowance will rise to £350,000 in 2010-11.

Corporation tax

In 2007-08 the Small Companies rate will increase from 19 per cent to 20 per cent. All bands and other rates remain unchanged in 2007-08. It is worth noting that the rate will rise to 22p by 2009!

Child and Working Tax Credits rates and Child Benefit

Child Benefit is raised in line with inflation.

The child element of Child Tax Credit (CTC) increases in line with average earnings. The disabled child element and severely disabled elements rise with inflation. The family element (normal and baby addition) remains frozen at £545 per year. The income threshold for CTC only rises to £14,495 per year. The income threshold for CTC family element only remains at £50,000 per year.

The maximum eligible childcare costs remains at £175 for one child and £300 for two or more children. The percentage of eligible childcare costs remains at 80 per cent.

The disregard in Tax Credits for increases in income between one tax year and the next remains at £25,000.

Stamp taxes and duty

The rates and thresholds for stamp duty land tax (SDLT) remain unchanged.

For residential land and property, the rates are 0 per cent for transactions in consideration of £125,000 or less, 1 per cent for consideration over £125,000 to £250,000, 3 per cent for consideration over £250,000 to £500,000 and 4 per cent on consideration over £500,000. The 0 per cent band for residential transfers in designated disadvantaged areas extends to £150,000.

For non-residential land and property, the rates are 0 per cent for transactions in consideration of £150,000 or less, 1 per cent for consideration over £150,000 to £250,000, and thereafter the same as for residential land and property.

For new leases, the rates applicable in respect of the premium are the same as for transfers of land and buildings (except that special rules apply where the rent exceeds £600 annually).

For the rental element of new leases, the charge is based on the Net Present Value (NPV), which is the total of the discounted annual rental payments. The NPV is charged at 1 per cent on the excess over £125,000 for residential land and property and 1 per cent on the excess over £150,000 for non-residential land and property.

Tobacco duties

From 6pm on 21 March 2007, tobacco duty rates will rise in line with inflation, to maintain the real price of tobacco.

Alcohol duty

Duty on beer, still and sparkling wine, and cider will increase in line with inflation from 26 March 2007. Spirits duty is frozen.

Fuel duty

Main fuel duty rates will increase by 2 pence per litre from 1 October 2007. Rebated oils rates will also increase by 2 pence per litre from 1 October, to maintain the cash differential with main rates. Changes to rates for biofuels, Compressed Natural Gas and Liquefied Petroleum Gas in 2007-08 will be made in line with previous Budget commitments.

Vehicle excise duty (VED)

All car VED rates for petrol will be aligned up to the level for diesel. The graduated VED rate for band A will remain frozen at £0. Band B will be reduced to £35. The rates for bands C-E will rise by £5. Band F will rise by £10. Band G will be raised to £300.

VED rates for all cars registered before 2001 and all light goods vehicles will rise by £5.

The rates for motorbikes in the lower band (150cc and below) will be frozen, with other bands increasing by £1, except the rate for above 600cc which will increase by £2.

The lower VED rate for motorized tricycles will be frozen, with the higher rate increased by £2.

VED rates for Heavy Goods Vehicles (HGV), Special Types Vehicles, Combined Transport Vehicles and all vehicle categories that are linked to the basic goods rate will be frozen.

Changes to this year’s VED rates will take effect from 22 March 2007.

• Bytestart VED Rate Table