Overview of the Finance Act 2008 and how it affects small companies

This year’s Finance Bill received Royal Assent on Monday 21 July, completing the legislative implementation of the government’s Pre-Budget Report and Budget announcements as it becomes the Finance Act 2008.

It changes the UK’s tax landscape in many ways, according to PricewaterhouseCoopers LLP.

The main areas of change within the 166 sections and 46 schedules of the Finance Act (some 451 pages compared to 309 last year) are:

Finance Act 2008 - Key Components

Income tax:

• Basic rate reduced to 20%
• Starter rate of 10% abolished
• Compensatory increases in personal allowances
• Transitional relief on gift aid for charities

• Main corporation tax rate set at 28% for the next year
• Small companies' rate increased to 21% (with a further increase to 22% for the 2009/10 tax year)
• Major recast of capital allowances, including phasing out of industrial/agricultural buildings allowances, reducing the main rate of allowance on plant and machinery from 25% to 20% and introducing the annual investment allowances (100% allowance on the first £50,000 of plant investment)

• Single rate of CGT at 18%
• Entrepreneurs' relief introduced, allowing a 10% rate on business asset disposals up to a "lifetime limit" of £1m

• Transfer of unused nil-rate band from a pre-deceased spouse

• First rise in spirits duty since 1997

• Major recast of the way the 'non-doms' (people who are resident in the UK but whose real home is overseas) are taxed

• New penalty regime extended to all taxes and a similar penalty regime introduced for failure to notify HMRC on time about tax liabilities
• Wide new powers of inspection for HMRC, including access to business premises, information gathering, records checking and set off

“This year’s Finance Act has made some dramatic and far reaching changes to our tax system. Unlike most recent Acts, it will affect the position of almost all taxpayers – it is hardly surprising that it is half as long again as last year’s Act.”